Virtusa Announces Second Quarter Fiscal 2014 Consolidated Financial Results

The following excerpt is from the company's SEC filing.

·                  Second quarter fiscal 2014 operating income of $9.8 million increased 32% year-over-year; Operating profit margin increased from 9.2% in the prior year period to 10.4%.

·                  Second quarter fiscal 2014 diluted EPS increased 22% to $0.28, compared to diluted EPS of $0.23 in the year ago period.

Westborough, MA — (November 4, 2013) Virtusa Corporation (NASDAQ: VRTU), a global business consulting and IT outsourcing company that combines innovation, technology leadership and industry solutions to transform the customer experience, today reported consolidated financial results for the second quarter of fiscal year 2014, ended September 30, 2013.

Revenue for the second quarter of fiscal 2014 was $94.3 million, an increase of 17% year-over-year and 4% sequentially in both reported and constant currency (1).

Virtusa reported income from operations of $9.8 million for the second quarter of fiscal 2014, an increase of 9% compared to $8.9 million for the first quarter of fiscal 2014, and an increase of 32% compared to $7.4 million for the second quarter of fiscal 2013.

Net income for the second quarter of fiscal 2014 was $7.5 million, or $0.28 per diluted share, compared to $7.5 million, or $0.29 per diluted share, for the first quarter of fiscal 2014, and an increase compared to $5.8 million, or $0.23 per diluted share, for the second quarter of fiscal 2013.  Net income for the second quarter of fiscal 2014 included ($1.0) million of foreign currency transaction losses compared to a gain of $0.4 million in the first quarter of fiscal 2014, and a loss of ($0.5) million in the second quarter of fiscal 2013.

The Company ended the second quarter of fiscal 2014 with $110.4 million of cash, cash equivalents, and short-term and long-term investments (2).  The Company generated $23.7 million of cash from operating activities during the second quarter of fiscal 2014.

Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “We are pleased with our second quarter results. Our strong year-over-year performance continues to be

  driven by the three components of our growth platform, specifically our leadership position in helping our clients build a millennial experience for their customers and employees, our industry leading transformational solutions, and our IT rationalization capabilities.  We continue to have success extending our differentiation in these areas, and as a result, we are expanding our market opportunity and taking on larger programs.”   Ranjan Kalia, Chief Financial Officer, said, “During the second quarter, we delivered strong sequential and year-over-year revenue growth.  In addition, our efforts to scale the business and leverage our global resources have enabled us to expand our operating profit margins while still investing for growth.”  Mr. Kalia added, “For the second half of the fiscal year, we expect our organic sequential revenue growth rates to accelerate from current levels; therefore, we are raising our top-line guidance for the 2014 fiscal year.”   Acquisition of OSB Consulting LLC   Virtusa extends its current strength in finance transformation (“FT”) with the acquisition of OSB Consulting LLC, which closed on November 1, 2013. OSB is a New Jersey-based consulting firm specializing in the financial services and insurance domains, including SAP finance capabilities.  OSB is focused on helping clients automate their finance & accounting processes, reporting capabilities and regulatory compliance. The addition of OSB will enable Virtusa to take on a more strategic role across several large programs already in place, as well as enable the Company to offer a broader set of finance transformation services to existing and new clients.   Under the terms of the asset purchase agreement, Virtusa acquired substantially all of the assets of OSB’s business for approximately $7.0 million in cash, as well as up to an additional $6.0 million in earn-out consideration upon OSB’s achievement of certain revenue and profit milestones during calendar years 2013, 2014 and 2015.   Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “With this acquisition, we significantly increase our capabilities as we become a full service provider for finance transformation initiatives across our focus industry groups.  We are already partnering with OSB on several large transformational programs and have seen firsthand the synergies in combining the strengths of both firms. We welcome OSB’s team members to Virtusa.”   Financial Outlook   Virtusa’s current guidance for the third fiscal quarter ending December 31, 2013 and the full fiscal year ending March 31, 2014 reflects the inclusion of OSB.  Virtusa expects OSB to contribute revenue of approximately $1.5 million for the third fiscal quarter and approximately $4.0 million for the full fiscal year 2014.  In addition, Virtusa expects OSB to be neutral to the Company’s earnings per share on a U.S. GAAP basis in the third fiscal quarter and for the full fiscal year 2014.  

  ·                  Third quarter fiscal 2014 revenue is expected to be in the range of $100.0 to $102.0 million, with diluted EPS of $0.32 to $0.36.   ·                  Fiscal year 2014 revenue is expected to be in the range of $390.0 to $396.0 million, with diluted EPS of $1.25 to $1.33.   The Company’s third quarter and fiscal year 2014 diluted EPS estimates assume an average share count of approximately 26.5 million and 26.4 million respectively (assuming no further exercises of stock-based awards), and assume a stock price of $31.28, which was derived from the average closing price of the Company’s stock over the five trading days ended on November 1, 2013.  Deviations from this stock price may cause actual EPS to vary based on share dilution from Virtusa’s stock options, restricted stock and stock appreciation rights.   Conference Call and Webcast   Virtusa will host a conference call today, November 4, 2013 at 5:00 pm Eastern time to discuss the Company’s second quarter fiscal year 2014 financial results, current financial guidance, and other corporate developments.  To access this call, dial 877-741-4251 (domestic) or 719-325-4850 (international).  The passcode is 6508150. A replay of this conference call will be available through November 6, 2013 at 877-870-5176 (domestic) or 858-384-5517 (international).  The replay passcode is 6508150.  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 (NASDAQ: VRTU) is a global business consulting and IT outsourcing company that combines innovation, technology leadership and industry solutions to transform the customer experience. Virtusa helps its clients accelerate business outcomes by consolidating, rationalizing and modernizing customer-facing processes into one or more enterprise platforms.   Virtusa delivers cost-effective solutions through a global delivery model, applying advanced methods such as Platforming, Agile and Accelerated Solution Design to ensure that its solutions meet the clients’ requirements.  As a result, its clients simultaneously reduce their IT operations cost while increasing their ability to meet changing business needs.   Founded in 1996 and headquartered in Massachusetts, Virtusa has operations in North America, Europe and Asia.   © 2011-2013 All rights reserved. Virtusa, Accelerating Business OutcomesSM and all other related logos/service names are either registered trademarks or trademarks of Virtusa Corporation in the US, UK, EU, India and/or Sri Lanka. All other company and service names are the property of their respective holders.  

  Non-GAAP Financial Information   This press release includes certain non-GAAP financial information as defined by Regulation G by the Securities and Exchange Commission. Virtusa presents constant currency revenue 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) below for further detail). Virtusa also presents a reconciliation of its cash, cash equivalents, short term and long term investments which it believes provides insight into its cash position and overall liquidity (see footnote (2) below for further detail). While Virtusa’s management believes that these non-GAAP revenue measures and cash reconciliation presentations are useful in evaluating Virtusa’s revenue and cash position and overall liquidity, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.   Footnotes   (1) To determine year-over-year constant currency revenue for the Company’s second quarter of fiscal 2014, revenue from entities reporting in U.K. pound sterling was converted into U.S. dollars at the average exchange rate in effect for the three months ended September 30, 2012 of 1.59 U.S. dollars to U.K. pounds sterling, rather than the actual exchange rate in effect for the three months ended September 30, 2013 of 1.56 U.S. dollars to U.K. pounds sterling. To determine sequential revenue change in constant currency for the Company’s second quarter of fiscal 2014, revenue from entities reporting in U.K. pounds sterling was converted into U.S. dollars at the average exchange rate in effect for the three months ended June 30, 2013 of 1.54 U.S. dollars to U.K. pounds sterling, rather than the actual exchange rate in effect for the three months ended September 30, 2013 of 1.56 U.S. dollars to U.K. pounds sterling.   (2) The Company considers the measure of cash, cash equivalents, short-term and long-term investments to be a more meaningful indicator of the Company’s overall liquidity. All of the Company’s investments are classified as available-for-sale, 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.   This press release includes certain non-GAAP financial information as defined by Regulation G by the Securities and Exchange Commission. Virtusa presents constant currency revenue 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) above for further detail). Virtusa also presents a reconciliation of its cash, cash equivalents, short term and long term investments which it believes provides insight into its cash position and overall liquidity (see footnote (2) above for further detail). While Virtusa’s management believes that these non-GAAP revenue measures and cash reconciliation presentations are useful in evaluating Virtusa’s revenue and cash position and overall liquidity, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.  

  Virtusa Corporation and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, unaudited)       September 30, 2013   March 31, 2013               Assets:           Cash and cash equivalents   $ 64,939   $ 57,199   Short-term investments   37,262   29,452   Accounts receivable, net   64,295   68,612   Unbilled accounts receivable   17,194   15,702   Prepaid expenses   9,920   7,562   Deferred income taxes   9,515   7,674   Restricted cash   6   350   Other current assets   6,402   8,333   Total current assets   209,533   194,884               Property and equipment, net   32,909   36,775   Long-term investments   8,155   8,319   Deferred income taxes   6,408   9,275   Goodwill   35,472   35,472   Intangible assets, net   14,696   15,692   Other long-term assets   2,916   3,502   Total assets   $ 310,089   $ 303,919               Liabilities:           Accounts payable   $ 6,762   $ 9,231   Accrued employee compensation and benefits   19,486   17,683   Accrued expenses and other current liabilities   22,807   17,811   Income taxes payable   1,463   4,509   Total current liabilities   50,518   49,234   Long-term liabilities   8,302   2,478   Total liabilities   58,820   51,712               Stockholders’ equity   251,269   252,207   Total liabilities and stockholders’ equity   $ 310,089   $ 303,919    

  Virtusa Corporation and Subsidiaries Consolidated Statements of Income (In thousands except share and per share amounts, unaudited)       Three Months Ended   Six Months Ended       September 30,   September 30,       2013   2012   2013   2012                       Revenue   $ 94,301   $ 80,535   $ 184,790   $ 156,752   Costs of revenue   60,503   52,902   118,305   102,496   Gross profit   33,798   27,633   66,485   54,256   Total operating expenses   24,022   20,204   47,780   39,958                       Income from operations   9,776   7,429   18,705   14,298                       Other income (expense):                   Interest income   846   754   1,602   1,469   Foreign currency transaction losses   (959 ) (490 ) (573 ) (49 ) Other, net   218   (23 ) 212   61   Total other income   105   241   1,241   1,481                       Income before income tax expense   9,881   7,670   19,946   15,779   Income tax expense   2,403   1,907   4,946   3,877                       Net income   $ 7,478   $ 5,763   $ 15,000   $ 11,902                       Net income per share of common stock:                   Basic   $ 0.29   $ 0.23   $ 0.59   $ 0.48   Diluted   $ 0.28   $ 0.23   $ 0.57   $ 0.47   Weighted average number of common shares outstanding                   Basic   25,553,237   24,886,477   25,423,169   24,846,056   Diluted   26,309,398   25,518,240   26,230,239   25,502,093    

  Virtusa Corporation and Subsidiaries Consolidated Statement of Cash Flows (In thousands, unaudited)       Six Months Ended       September 30,       2013   2012   Cash flows from operating activities:           Net income   $ 15,000   $ 11,902   Adjustments to reconcile net income to net cash provided by operating activities:           Depreciation and amortization   5,153   4,160   Share-based compensation expense   3,530   2,620   Provision for doubtful accounts   639   440   Loss/(Gain) on disposal of property and equipment   19   (110 ) Foreign currency losses, net   573   49   Excess tax benefits from stock option exercises   (1,783 ) —   Net changes in operating assets and liabilities:           Accounts receivable and unbilled accounts receivable   2,920   (9,363 ) Prepaid expenses and other current assets   (1,563 ) (58 ) Other long-term assets   (317 ) (932 ) Accounts payable   (2,332 ) (2,921 ) Accrued employee compensation and benefits   (663 ) (3,929 ) Accrued expenses and other current liabilities   (2,826 ) (828 ) Income taxes payable   3,680   1,580   Other long-term liabilities   (125 ) 167   Net cash provided by operating activities   21,905   2,777   Cash flows from investing activities:           Proceeds from sale of property and equipment   56   116   Purchase of short-term investments   (9,104 ) (5,918 ) Proceeds from sale or maturity of short-term investments   2,893   4,356   Purchase of long-term investments   (4,886 ) (5,837 ) Proceeds from sale or maturity of long-term investments   600   1,050   Decrease in restricted cash   322   2,423   Business acquisition   —   (2,775 ) Purchase of property and equipment   (3,487 ) (5,447 ) Net cash used in investing activities   (13,606 ) (12,032 ) Cash flows from financing activities:           Proceeds from exercise of common stock options   1,675   613   Purchase of common stock   —   (1,408 ) Principal payments on capital lease obligation   (9 ) (1,018 ) Excess tax benefits from stock option exercises   1,783   —   Net cash provided by (used in) financing activities   3,449   (1,813 ) Effect of exchange rate changes on cash and cash equivalents   (4,008 ) (441 ) Net Increase/(decrease) in cash and cash equivalents   7,740   (11,509 ) Cash and cash equivalents, beginning of period   57,199   58,105   Cash and cash equivalents, end of period   $ 64,939   $ 46,596     Supplemental Non-GAAP Financial Information as of September 30, 2013 and 2012   Reconciliation to total cash and cash equivalents, short-term investments and long-term investments:                       Cash and cash equivalents, end of period   $ 64,939   $ 46,596               Short-term investments   37,262   26,354   Long-term investments   8,155   7,006   Total short-term and long-term investments, end of period   45,417   33,360               Total cash and cash equivalents, short-term investments and long-term investments   $ 110,356   $ 79,956    

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. Virtusa Corporation next reports earnings on November 04, 2013.

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