Virtusa announces Third Quarter 2017 consolidated financial results

Virtusa Corporation, the business consulting and IT outsourcing company that combines innovation, technology leadership and industry solutions to enhance business performance, accelerate time-to-market, increase productivity and improve customer experience, today reported consolidated financial results for the third quarter of fiscal 2017, ended December 31, 2016.

Third Quarter Fiscal 2017 Consolidated Financial Results

Revenue for the third quarter of fiscal 2017 was $217.2 mn, an increase of 3.4% sequentially and 44.2% year-over-year. On a constant currency basis, third quarter revenue increased 4.2% sequentially and 48.6% year-over-year.

Virtusa reported GAAP income from operations of $6.5 mn for the third quarter of fiscal 2017, compared to $3.5 mn for the second quarter of fiscal 2017 and $14.1 mn for the third quarter of fiscal 2016. Third quarter fiscal 2017 GAAP income from operations includes $1.9 mn of restructuring charges related to certain cost savings initiatives.

On a GAAP basis, net income for the third quarter of fiscal 2017 was $4.4 mn, or $0.15 per diluted share, compared to $3.2 mn, or $0.11 per diluted share, for the second quarter of fiscal 2017, and $11.3 mn, or $0.38 per diluted share, for the third quarter of fiscal 2016. Third quarter fiscal 2017 GAAP net income includes the impact of the aforementioned restructuring charges related to certain cost savings initiatives, net of tax.

Non GAAP Results:

Non-GAAP income from operations, which excludes stock-based compensation expense, restructuring charges and acquisition related charges, was $16.3 mn for the third quarter of fiscal 2017, compared to $12.9 mn for the second quarter of fiscal 2017, and compared to $20.7 mn for the third quarter of fiscal 2016.

Non-GAAP net income, which excludes stock-based compensation expense, restructuring charges, acquisition related charges, and foreign currency transaction gains and losses, each net of tax, for the third quarter of fiscal 2017, was $11.0 million, or $0.37 per diluted share, compared to $8.4 mn, or $0.27 per diluted share, for the second quarter of fiscal 2017, and compared to $15.9 mn, or $0.54 per diluted share, for the third quarter of fiscal 2016.

Balance Sheet and Cash Flow

The Company ended the third quarter of fiscal 2017 with $237.2 million of cash, cash equivalents, and short-term and long-term investments. Cash flow from operations was $13.5 million for the third quarter of fiscal 2017.

Management Commentary

Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “We are pleased with our third quarter results. We see continuing client demand across our industry groups and geographies for our Digital Transformation and Innovation and Operational Excellence solutions. Our differentiated solution strategy and deep domain expertise are enabling us to win in the market, and position us well for sustained growth.”

Ranjan Kalia, Chief Financial Officer, said, “During the third quarter, we delivered solid revenue growth across all industry groups and geographies. We expect this trend will continue into the fourth quarter, leading to our fourth quarter sequential revenue growth guidance of 4% at the midpoint. In addition, our Q4 fiscal 2017 guidance calls for strong non-GAAP operating margin accretion driven by top-line growth and SG&A leverage. The midpoint of our fiscal 2017 non-GAAP EPS guidance is reduced by $0.04 primarily due to a change in our effective tax rate assumption.”

Financial Outlook

Virtusa management provided the following current financial guidance:

Fourth quarter fiscal 2017 revenue is expected to be in the range of $224 to $229 mn. GAAP diluted EPS is expected to be in the range of $0.31 to $0.35. Non-GAAP diluted EPS is expected to be in the range of $0.43 to $0.47.

Fiscal year 2017 revenue is expected to be in the range of $856.8 to $861.8 million. GAAP diluted EPS is expected to be in the range of $0.36 to $0.40. Non-GAAP diluted EPS is expected to be in the range of $1.24 to $1.28.

Virtusa anticipates a restructuring charge in the fourth quarter fiscal 2017 of approximately $0.8 million related to certain cost savings initiatives. This charge will not impact reported non-GAAP EPS.

The Company’s fourth quarter and fiscal year 2017 diluted EPS estimates are based on average share counts of approximately 30.4 million and 30.2 million, respectively, (assuming no further exercises of stock-based awards) and assumes a stock price of $25.57, which was derived from the average closing price of the Company’s stock over the five trading days ended on February 6, 2017. 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.