Virtusa records steady growth in 4Q and FY18
Virtusa Corporation, a global provider of digital engineering and IT outsourcing services that accelerate business outcomes for its clients, reported consolidated financial results for the fourth quarter and fiscal year ended March 31, 2018.
Fourth Quarter Fiscal 2018 Consolidated Financial Results
Revenue for the fourth quarter of fiscal 2018 was US$ 281.3 million, an increase of 6.6 percent sequentially and 24.5 percent year-over-year. On a constant currency basis, fourth quarter revenue increased 5.7 percent sequentially and 21.7 percent yearover-year. Virtusa’s previously announced acquisition of etouch, which closed on March 12, 2018, contributed approximately US$ 5.7 million of revenue to the fiscal fourth quarter.
Virtusa reported GAAP income from operations of US$ 16.4 million for the fourth quarter of fiscal 2018, an increase from US$ 13.7 million for the third quarter of fiscal 2018 and US$ 10.2 million for the fourth quarter of fiscal 2017.
GAAP net income available to common shareholders for the fourth quarter of fiscal 2018 was US$ 1.8 million, or US$ 0.06 per diluted share, compared to net loss of US$ 11.1 million, or US$0.38 per diluted share, for the third quarter of fiscal 2018, and net income of US$ 10.5 million, or US$ 0.34 per diluted share, for the fourth quarter of fiscal 2017. Fourth quarter fiscal 2018 GAAP net income includes US$ 4.6 million of net unrealised foreign exchange losses and US$3.2 million of mandatory repatriation tax due to increased ownership in Polaris, which were not included in Virtusa’s prior guidance.
Fiscal Year 2018 Consolidated Financial Results
For the fiscal year ended March 31, 2018, revenue was US$ 1,020.7 million, an increase of 18.9 percent compared to US$ 858.7 million for the fiscal year ended March 31, 2017. On a constant currency basis,revenue increased 18.2 percent year-over-year.
Virtusa reported GAAP income from operations of US$ 46.4 million for fiscal year 2018, an increase from US$ 18.4 million for fiscal year 2017.
GAAP net loss available to common shareholders was US$ 2.7 million for fiscal year 2018, or a loss of US$ 0.09 per diluted share, compared to net income of US$ 11.9 million, or US$ 0.39 per diluted share for fiscal year 2017. Virtusa’s fiscal year 2018 GAAP net loss includes a tax expense of US$ 22.7 million, or US$ 0.77 per diluted share,related to the Tax Cuts and Jobs Act (the ‘Tax Act’) enacted in December 2017.
Balance Sheet and Cash Flow
The company ended fiscal year 2018 with US$ 244.9 million of cash, cash equivalents, and short-term and longterm investments. Cash flow from operations was US$ 8.5 million for the fourth quarter and US$ 62.7 million for fiscal year 2018.
Management Commentary
Virtusa Chairman and CEO Kris Canekeratne said: “We are pleased with our strong fiscal 2018 financial results, increasing our top-line by 19 percent and ending the year in excess of US$ 1 billion of revenue for the first time in our company’s history. Our continued above-industry growth is a testament to the success of our strategy. As we look to fiscal 2019 and beyond, we believe Virtusa is in a position of strength, given our ability to help transform our clients’ businesses at every level through end-to-end digital transformation and IT platform rationalisation and modernisation, driving significant ROI for our clients.”
Chief Financial Officer Ranjan Kalia said: “We delivered strong fiscal year 2018 financial results highlighted by approximately 19 percent revenue growth, 200 basis points of NON-GAAP operating margin accretion, and 30 percent NON-GAAP earnings per share growth. Our fourth quarter revenue was modestly below the midpoint of our guidance range, and our NONGAAP EPS was above the midpoint driven by slightly better than expected etouch contribution. Looking to fiscal 2019, our current guidance calls for continued above-industry organic revenue growth, coupled with earnings growing faster than consolidated revenue growth.”
Financial Outlook
Virtusa management provided the following current financial guidance: First quarter fiscal 2019 revenue is expected to be in the range of US$ 293.5 to US$ 301.5 million. GAAP diluted EPS is expected to be in the range of US$ 0.09 to US$ 0.13. NONGAAP diluted EPS is expected to be in the range of US$ 0.45to US$ 0.51.
year 2019 revenue is expected to be in the range of US$ 1,230 to US$ 1,270 million. GAAP diluted EPS is expected to be in the range of US$ 0.50 to US$ 0.66. NON-GAAP diluted EPS is expected to be in the range of US$ 2.08 to US$ 2.32. In accordance with US GAAP, Virtusa applies the if-converted method to its convertible preferred shares when reporting its fiscal year 2018 and 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. Fourth 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. 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.
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 first quarter and fiscal year 2019 diluted GAAP EPS estimates are both based on average share counts of approximately 30.5 million (assuming no further exercises of stock-based awards). The company’s first quarter and fiscal year 2019 diluted NON-GAAP EPS estimates are both based on average share counts of approximately 33.5 million (assuming no further exercises of stock-based awards). GAAP and NON-GAAP average share counts assume a stock price of US$ 49.01, which was derived from the average closing price of the company’s stock over the five trading days ended on May 9, 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.