Market Overview

Virtusa Announces First Quarter Fiscal 2019 Consolidated Financial Results

Share:
  • First quarter fiscal 2019 revenue of $300.0 million increased 6.6%
    sequentially and 32.0% year-over-year.
  • First quarter fiscal 2019 GAAP diluted EPS of $(0.25). Non-GAAP
    diluted EPS of $0.50, doubling first quarter fiscal 2018 non-GAAP EPS.
  • First quarter fiscal 2019 GAAP operating income of $13.9 million.
    Non-GAAP operating income of $27.5 million, up 106% from $13.4 million
    in first quarter fiscal 2018.
  • Completed Polaris delisting from India Stock Exchanges on August 1,
    2018.

Virtusa
Corporation
(NASDAQ GS: VRTU), a global provider of digital
engineering and IT outsourcing services that accelerate business
outcomes for its clients, today reported consolidated financial results
for the first quarter fiscal 2019, ended June 30, 2018.

First Quarter Fiscal 2019 Consolidated Financial Results

Revenue for the first quarter of fiscal 2019 was $300.0 million, an
increase of 6.6% sequentially and 32.0% year-over-year. On a constant
currency basis, (1) first quarter revenue increased 7.4%
sequentially and 30.7% year-over-year.

Virtusa reported GAAP income from operations of $13.9 million for the
first quarter of fiscal 2019, compared to $16.4 million for the fourth
quarter of fiscal 2018 and $6.1 million for the first quarter of fiscal
2018.

GAAP net loss available to common shareholders for the first quarter of
fiscal 2019 was $7.4 million, or a ($0.25) loss per diluted share,
compared to GAAP net income of $1.8 million, or $0.06 per diluted share,
for the fourth quarter of fiscal 2018, and GAAP net income of $3.0
million, or $0.10 per diluted share, for the first quarter of fiscal
2018. First quarter fiscal 2019 GAAP net loss includes $4.5 million of
net unrealized foreign exchange losses on an after-tax basis and $6.3
million of deferred tax charge related to Virtusa's election to treat
certain subsidiaries as disregarded entities for US tax purposes, both
of which were not included in prior guidance.

Non-GAAP Results:

Non-GAAP income from operations, which excludes stock-based compensation
expense, restructuring charges and acquisition related charges, was
$27.5 million for the first quarter of fiscal 2019, compared with $27.9
million for the fourth quarter of fiscal 2018 and $13.4 million for the
first quarter of fiscal 2018.

Non-GAAP net income was $16.8 million, or $0.50 per diluted share, for
the first quarter of fiscal 2019, compared to $18.3 million, or $0.55
per diluted share, for the fourth quarter of fiscal 2018, and $7.4
million, or $0.25 per diluted share, for the first quarter of fiscal
2018.

Balance Sheet and Cash Flow

The Company ended the first quarter of fiscal 2019 with $213.0 million
of cash, cash equivalents and investments (2). Cash
used in operating activities was $6.7 million for the first quarter of
fiscal 2019.

Management Commentary

Kris Canekeratne, Virtusa's Chairman and CEO, stated, "We are off to a
solid start in fiscal 2019 as the momentum we established in FY 2018
continues. Across every one of our industry groups, the need for digital
transformation has moved from being a strategic option to being a
business imperative. Virtusa's strong execution and the depth and
breadth of our digital engineering capabilities allow us to help our
clients realize the full potential of digital transformation and are
powering our performance."

Ranjan Kalia, Chief Financial Officer, said, "We are pleased with our
fiscal 2019 first quarter results. We reported revenue toward the
high-end of our guidance range and generated strong year-over-year
organic revenue growth, margin expansion and EPS accretion. Our fiscal
2019 first quarter momentum has allowed us to maintain the midpoint of
our FY 2019 revenue guidance even after absorbing one percent of
currency headwinds compared to our prior guidance. We expect strong
fiscal year 2019 non-GAAP diluted EPS growth of 38% at the midpoint
based on our increased earnings guidance."

Financial Outlook

Virtusa management provided the following current financial guidance:

  • Second quarter fiscal 2019 revenue is expected to be in the range of
    $301.0 to $309.0 million. GAAP diluted EPS is expected to be in the
    range of $0.09 to $0.13. Non-GAAP diluted EPS is expected to be in the
    range of $0.50 to $0.56.
  • Fiscal year 2019 revenue is expected to be in the range of $1,235.0 to
    $1,265.0 million. GAAP diluted EPS is expected to be in the range of
    $0.09 to $0.19. Non-GAAP diluted EPS is expected to be in the range of
    $2.16 to $2.34.

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

  • First quarter GAAP Income per share 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. 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.
  • GAAP EPS guidance was calculated under the assumption that these
    convertible preferred shares will be anti-dilutive in fiscal 2019.
    Thus, in determining full fiscal year 2019 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.
  • Non-GAAP EPS guidance was calculated under the assumption that
    these convertible preferred shares will be dilutive in fiscal year
    2019. Thus, in determining full fiscal year 2019 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 2019 diluted GAAP EPS
estimates are based on average share counts of approximately 30.7
million and 30.8 million, respectively (assuming no further exercises of
stock-based awards). The Company's second quarter and fiscal year 2019
diluted Non-GAAP EPS estimates are based on average share counts of
approximately 33.7 million and 33.8 million, respectively (assuming no
further exercises of stock-based awards). GAAP and Non-GAAP average
share counts assume a stock price of $52.88, which was derived from the
average closing price of the Company's stock over the five trading days
ended on August 2, 2018. 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, August 8, 2018 at 5:00 p.m.
Eastern Time to discuss the Company's first quarter fiscal 2019
financial results, current financial guidance, and other corporate
developments. To access this call, please dial 888-394-8218 (domestic)
or 323-701-0225 (international). The passcode is 9387160. A replay of
this conference call will be available through August 15, 2018 at
844-512-2921 (domestic) or 412-317-6671 (international). The replay
passcode is 9387160. 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.

© 2018 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, acquisition-related
    charges, restructuring charges, stock-based compensation expense,
    foreign currency transaction gains and losses, 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, 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, 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, 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:

     
(in thousands, except per share amounts)
Three Months Ended June 30,
  2018         2017  
GAAP income from operations $ 13,924     $ 6,070
Add: Stock-based compensation expense 7,938 4,788
Add: Acquisition-related charges and restructuring charges(a)   5,665         2,509  
Non-GAAP income from operations $ 27,527       $ 13,367  
 
GAAP operating margin 4.6 % 2.7 %
Effect of above adjustments to income from operations   4.5 %       3.2 %
Non-GAAP operating margin   9.1 %       5.9 %
 
GAAP net income (loss) available to Virtusa common stockholders $ (7,383 ) $ 2,957
Add: Stock-based compensation expense 7,938 4,788
Add: Acquisition-related charges and restructuring charges(a) 6,127 2,509
Add: Foreign currency transaction losses(b) 10,758 77
Tax adjustments (c) (1,817 ) (2,522 )
Noncontrolling interest, net of taxes (d)   127         (366 )
Non-GAAP net income available to Virtusa common stockholders $ 15,750       $ 7,443  
 
GAAP diluted earnings (loss) per share (f) $ (0.25 ) $ 0.10
Effect of stock-based compensation expense (g) 0.24 0.16
Effect of acquisition-related charges and restructuring charges(a)
(g)
0.18 0.08
Effect of foreign currency transaction losses(b) (g) 0.32 -
Effect of tax adjustments (c) (g) (0.05 ) (0.08 )
Effect of noncontrolling interest (d) (g) - (0.01 )
Effect on dividend on Series A Convertible Preferred Stock (f)
(g)
0.03 -
Effect of change in dilutive shares for non-GAAP (f)   0.03         -  
Non-GAAP diluted earnings per share (e) (g) $ 0.50       $ 0.25  
 

(a) Acquisition-related charges include, when applicable, amortization
of purchased intangibles, external deal costs, 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, as well as certain professional fees related to
the restructuring. The following table provides the details of the
acquisition-related charges and restructuring charges:

 
    Three Months Ended June 30,
2018     2017
Amortization of intangible assets $ 2,775     $ 2,509
Acquisition & integration costs $ 2,890     $ -
Acquisition-related charges included in cost of goods sold and
operating expense
$ 5,665 $ 2,509
Accreted interest related to deferred acquisition payments $ 462     $ -
Total acquisition-related charges and restructuring charges     $ 6,127     $ 2,509
 
(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 US tax purposes.
 
 
(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 30, 2018 and 2017, the
weighted average shares outstanding of Series A Convertible
Preferred Stock of 3,000,000 and 1,912,088 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 months ended
June 30, 2018 and 2017:

   
Three Months Ended June 30,
2018     2017
Non-GAAP net income available to Virtusa common stockholders $ 15,750     $ 7,443
Add: Dividends and accretion on Series A Convertible Preferred Stock $ 1,087     $ -
Non-GAAP net income available to Virtusa common stockholders and
assumed conversion
$ 16,837     $ 7,443
 
 
GAAP dilutive weighted average shares outstanding 29,633,026 30,251,150
Add: Dilutive effect of employee stock options and unvested restricted
stock awards and restricted stock units
872,545 -
Add: Series A Convertible Preferred Stock as converted   3,000,000       -
Non-GAAP dilutive weighted average shares outstanding   33,505,571       30,251,150
(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 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 March 31, 2018, rather than the actual exchange rate in
effect for the three months ended June 30, 2018. To determine
year-over-year revenue change in constant currency for the Company's
first 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 June 30, 2017, rather than the actual exchange rate in effect for
the three months ended June 30, 2018. The average exchange rates for the
three months ended June 30, 2017, March 31, 2018, and June 30, 2018 are
presented in the following table:

 
Average U.S. Dollar Exchange Rate
For the Three Months Ended
       

June 30, 2017

   

March 31, 2018

   

June 30, 2018

GBP 1.28 1.40 1.35
Euro 1.11 1.23 1.19
    SEK     0.11     0.12     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 either equity or available-for-sale 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 March 3, 2016 Virtusa acquired a majority interest in Polaris. In
accordance with US GAAP, Polaris financial results for the quarter
ending June 30, 2018 and assets and liabilities as of that date have
been consolidated in full into Virtusa's financial statements. Net
assets attributable to ownership in Polaris by minority shareholders
(Non-controlling Interest) in our Consolidated Balance Sheets was $16.7
million at June 30, 2018. Profit attributable to minority shareholders
(Non-controlling Interest) in the Consolidated Statements of Income was
$0.7 million on a GAAP basis and $0.6 million on a non-GAAP basis for
the quarter ending June 30, 2018.

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 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: any increase in Virtusa's
borrowings in connection with the acquisition of the balance of shares
in Polaris and Virtusa's ability to service such indebtedness with
future cash flows; Virtusa's failure to realize the intended benefits of
the Polaris delisting transaction, including the inability to integrate
Virtusa's and Polaris' business and operations to realize the
anticipated synergies and cost savings in the expected amounts or within
the anticipated time frames or cost expectations or at all; Virtusa
incurring unexpected costs or liabilities in connection with the Polaris
delisting offer and related transactions; the possibility that Virtusa's
current or future estimated guidance may differ materially from
expectations; Virtusa incurring unexpected costs or liabilities in
connection with the Polaris acquisition and delisting process; 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,
including eTouch; unanticipated acquisition related costs and negative
effects on Virtusa's reported results of operations from previous
acquisitions; Virtusa's failure to realize the intended benefits of the
Orogen convertible preferred stock financing, the inability to pay cash
dividends on the convertible preferred stock, 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; 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; 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; 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, 2018 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)
       
 
 
June 30, 2018 March 31, 2018
Assets:
Cash and cash equivalents $ 154,792 $ 194,897
Short-term investments 56,396 45,900
Accounts receivable, net 146,510 151,455
Unbilled accounts receivable 117,911 103,829
Prepaid expenses 32,028 31,724
Restricted cash 505 301
Other current assets   21,182   21,229
Total current assets 529,324 549,335
 
Property and equipment, net 124,463 121,565
Investments accounted for using equity method 1,480 1,588
Long-term investments 1,842 4,140
Deferred income taxes 35,667 31,528
Goodwill 289,303 297,251
Intangible assets, net 91,515 96,001
Other long-term assets   16,532   11,772
Total assets $ 1,090,126 $ 1,113,180
 
Liabilities:
Accounts payable $ 29,050 $ 29,541
Accrued employee compensation and benefits 55,068 71,500
Deferred revenue 6,795 7,908
Accrued expenses and other 100,204 91,306
Current portion of long-term debt 13,657 11,407
Income taxes payable   7,030   5,038
Total current liabilities 211,804 216,700
Deferred income taxes 19,310 21,341
Long-term debt, less current portion 285,376 288,227
Long-term liabilities   45,252   43,833
Total liabilities   561,742   570,101
 
Series A convertible preferred stock 107,037 106,996
 
Virtusa stockholders' equity 404,622 418,623
Noncontrolling interest   16,725   17,460
Stockholders' equity   421,347   436,083
Total liabilities, Series A convertible preferred stock and

stockholders' equity

$ 1,090,126 $ 1,113,180
 
 
Virtusa Corporation and Subsidiaries
Consolidated Statements of Income (Loss)
(In thousands except share and per share amounts, unaudited)
         
 
Three Months Ended
June 30,
  2018     2017  
 
Revenue $ 300,031 $ 227,345
Costs of revenue   216,481     166,279  
Gross profit   83,550     61,066  
Total operating expenses   69,626     54,996  
 
Income from operations 13,924 6,070
 
Other income (expense):
Interest income 1,292 1,005
Interest expense (4,254 ) (1,658 )
Foreign currency transaction losses (10,758 ) (77 )
Other, net   95     105  
Total other income (expense)   (13,625 )   (625 )
 
Income before income tax expense 299 5,445
Income tax expense   5,864     798  
Net income (loss) (5,565 ) 4,647
Less: net income attributable to noncontrolling interests, net of tax   731     989  
Net income (loss) available to Virtusa stockholders (6,296 ) $ 3,658
Less: Series A convertible preferred stock dividends and accretion   1,087     701  
Net income (loss) available to Virtusa common stockholders   (7,383 ) $ 2,957  
 
 
Basic earnings (loss) per share available to Virtusa common
stockholders
  ($0.25 ) $ 0.10  
Diluted earnings (loss) per share available to Virtusa common
stockholders
  ($0.25 ) $ 0.10  
Weighted average number of common shares outstanding:
Basic   29,633,026     29,651,602  
Diluted   29,633,026     30,251,150  
 
       
Virtusa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands, unaudited)
 
Three Months Ended
June 30,
  2018     2017  
Cash flows from operating activities:
Net income (loss) ($5,565 ) $ 4,647
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 7,273 6,643
Share-based compensation expense 7,938 4,788

Provision (recovery) for doubtful accounts, net

(206 ) 411
Gain on disposal of property and equipment (8 ) (8 )
Foreign currency transaction losses, net 10,758 77
Amortization of discounts and premiums on investments 51 93
Amortization of debt issuance cost 273 284
Deferred income taxes, net (3,594 ) -
Net changes in operating assets and liabilities:
Accounts receivable and unbilled receivable (12,750 ) (4,832 )
Prepaid expenses and other current assets (7,519 ) (2,667 )
Other long-term assets (4,150 ) (179 )
Accounts payable 1,218 1,358
Accrued employee compensation and benefits (14,855 ) (9,424 )
Accrued expenses and other current liabilities 6,562 3,135
Income taxes payable 6,412 (2,648 )
Other long-term liabilities   1,432     (614 )
Net cash (used in) provided by operating activities   (6,730 )   1,064  
Cash flows from investing activities:
Proceeds from sale of property and equipment 186 30
Purchase of short-term investments (38,008 ) (8,867 )
Proceeds from sale or maturity of short-term investments 29,292 29,002
Purchase of long-term investments - (8,753 )
Business acquisition, net of cash acquired - (600 )
Purchase of property and equipment   (13,461 )     (3,044 )
Net cash (used in) provided by investing activities   (21,991 )     7,768  
Cash flows from financing activities:
Proceeds from exercise of common stock options 294 1,629
Proceeds from exercise of subsidiary stock options 196 142
Payment of debt (875 ) (81,000 )
Payments of withholding taxes related to net share settlements of
restricted stock
(2,450 ) (1,416 )
Series A convertible preferred stock proceeds, net of issuance costs
of $1,154
- 106,846
Repurchase of common stock - (27,319 )
Principal payments on capital lease obligation (22 ) (31 )
Payment of dividend on Series A convertible preferred stock   (1,046 )   -  
Net cash used in financing activities   (3,903 )   (1,149 )
Effect of exchange rate changes on cash and cash equivalents   (7,279 )   1,551  
Net (decrease) increase in cash and cash equivalents (39,903 ) 9,234
Cash, cash equivalents and restricted cash, beginning of period   195,236     145,086  
Cash, cash equivalents and restricted cash, end of period $ 155,333   $ 154,320  
 
 
Supplemental Non-GAAP Financial Information as of June 30, 2018
and 2017
 
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 $ 155,333 $ 154,320
Less : Restricted cash   541     341  
Total Cash and cash equivalents end of period   154,792     153,979  
 
Short-term investments 56,396 62,432
Long-term investments   1,842     18,655  
Total short-term and long-term investments, end of period   58,238     81,087  
 
 
Total cash and cash equivalents, short-term and long-term investments $ 213,030     235,066  
 
 
Virtusa Corporation and Subsidiaries
Reconciliation of Non-GAAP Guidance**
               
Three months ending Fiscal Year ending
September 30, 2018 March 31, 2019
Low High Low High
 
GAAP diluted earnings per share $0.09 $0.13 $0.09 $0.19
 
Effect of stock-based compensation expense 0.26 0.26 0.93 0.93
Effect of acquisition-related charges and restructuring charges 0.18 0.18 0.71 0.71
Effect of foreign currency transaction (gains) losses 0.00 0.00 0.32 0.32
Effect of change in dilutive shares for non-GAAP (0.01) (0.01) (0.01) (0.02)
Effect of tax impact from Tax Act 0.00 0.00 0.00 0.00
Effect of tax adjustments (0.04) (0.02) (0.01) 0.08
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     0.13     0.13
Non-GAAP diluted earnings per share#     $0.50     $0.56     $2.16     $2.34
 
Weighted average diluted shares outstanding
- GAAP 30.7 30.7 30.8 30.8
- Non-GAAP 33.7 33.7 33.8 33.8
 
** 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

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