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Virtusa Announces Fourth Quarter and Full Year Fiscal 2014 Consolidated Financial Results

Virtusa Corporation (NASDAQ GS: 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 fourth quarter and full fiscal year 2014, ended March 31, 2014.

Fourth Quarter Fiscal 2014 Consolidated Financial Results

Revenue for the fourth quarter of fiscal 2014 was $111.1 million, an increase of 10% sequentially and 24% year-over-year in reported currency. On a constant currency basis,(1) fourth quarter revenue increased 9% sequentially and 22% year-over-year.

Virtusa reported income from operations of $12.5 million for the fourth quarter of fiscal 2014, an increase compared to $11.2 million for the third quarter of fiscal 2014, and an increase compared to $9.4 million for the fourth quarter of fiscal 2013.

Net income for the fourth quarter of fiscal 2014 was $10.0 million, or $0.35 per diluted share, compared to $9.3 million, or $0.35 per diluted share, for the third quarter of fiscal 2014, and compared to $9.1 million, or $0.35 per diluted share, for the fourth quarter of fiscal 2013.

Fiscal Year 2014 Consolidated Financial Results

For the fiscal year ended March 31, 2014, revenue increased 19% in both reported and constant currency, to a record $396.9 million, compared to $333.2 million for the fiscal year ended March 31, 2013.

Virtusa reported income from operations of $42.4 million for fiscal year 2014, an increase of 29% compared to $32.9 million for fiscal year 2013.

Net income for fiscal year 2014 was $34.4 million, or $1.27 per diluted share, an increase compared to $28.4 million, or $1.11 per diluted share, for fiscal year 2013.

The Company ended fiscal year 2014 with $200.7 million of cash, cash equivalents, and short-term and long-term investments.(2) Cash generated from operations was $9.4 million for the fourth quarter and $48.9 million for the fiscal year 2014.

Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “We are pleased with our fourth quarter and full fiscal year results, which reinforce that our strategic initiatives designed to differentiate our value proposition, grow our existing client base, expand geographically and enhance our service delivery are paying off. By being able to address the duality our clients are facing by helping them innovate new solutions and transform their operating costs, the market opportunity for Virtusa continues to grow. As we look to fiscal year 2015, our objectives are very much aligned with the success we have been having and we are optimistic about our growth trajectory.”

Ranjan Kalia, Chief Financial Officer, said, “During the quarter, our revenue grew faster than the industry, as we had meaningful increases across our Top 10 and non-Top 10 client portfolios. We are also pleased with the progress we are making to extend our presence internationally. There has been a mix shift towards international revenue, and we believe this diversification will continue to be a growth driver.” Mr. Kalia added, “Consistent with prior fiscal years, we expect operating margin expansion in fiscal year 2015 as we drive significant top line growth.”

Financial Outlook

Virtusa management provided the following current financial guidance:

  • First quarter fiscal year 2015 revenue is expected to be in the range of $111.0 to $113.0 million, with diluted EPS of $0.29 to $0.33.
  • Fiscal year 2015 revenue is expected to be in the range of $468.0 to $486.0 million, with diluted EPS of $1.44 to $1.60.

The Company’s first quarter and fiscal year 2015 diluted EPS estimates both assume an average share count of approximately 29.4 million, (assuming no further exercises of stock-based awards) and assume a stock price of $33.38, which was derived from the average closing price of the Company’s stock over the five trading days ended on May 9, 2014. Deviations from this stock price may cause actual 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 12, 2014 at 5:00 pm Eastern time to discuss the Company’s fourth fiscal quarter and full fiscal year 2014 financial results, current financial guidance, and other corporate developments. To access this call, please dial 888-293-6960 (domestic) or 719-325-2352 (international). The passcode is 3008306. A replay of this conference call will be available through May 19, 2014 at 877-870-5176 (domestic) or 858-384-5517 (international). The replay passcode is 3008306. 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 provides end-to-end information technology (IT) services to Global 2000 companies. These services, which include IT consulting, application maintenance, development, systems integration and managed services, leverage a unique Platforming methodology that transforms clients’ businesses through IT rationalization. Virtusa helps customers accelerate business outcomes by consolidating, rationalizing, and modernizing their core customer-facing processes into one or more core systems.

Virtusa delivers cost-effective solutions through a global delivery model, applying advanced methods such as 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 - 2014 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 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 fourth 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 March 31, 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 March 31, 2014 of 1.66 U.S. dollars to U.K. pounds sterling. To determine sequential revenue change in constant currency for the Company's fourth 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 December 31, 2013 of 1.62 U.S. dollars to U.K. pounds sterling, rather than the actual exchange rate in effect for the three months ended March 31, 2014 of 1.66 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.

Forward-Looking Statements

Certain statements made in this press release that are not based on historical information are forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This press release contains express or implied forward-looking statements relating to, among other things, Virtusa's expectations concerning management's forecast of financial performance, the growth of our business and management's plans, objectives, and strategies. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond Virtusa's control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things: Virtusa’s ability to integrate the operations of, and achieve expected synergies and operating efficiencies in connection with, acquired businesses, including Virtusa's most recent acquisitions of OSB Consulting LLC and TradeTech Consulting Scandanavia AB and its subsidiaries; unanticipated acquisition related costs and negative effects on Virtusa’s reported results of operations from acquisition-related charges; 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; 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; currency exchange rate fluctuations of the Indian and Sri Lankan rupee, the U.S. dollar and the U.K. pound sterling; and the volatility of the market price of Virtusa's common stock. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Virtusa undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances or otherwise. 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, 2013 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)
         
 
 
March 31, 2014 March 31, 2013
   
Assets:
Cash and cash equivalents $82,761 $57,199
Short-term investments 55,888 29,452
Accounts receivable, net 64,662 68,612
Unbilled accounts receivable 26,548 15,702
Prepaid expenses 9,036 7,562
Deferred income taxes 6,610 7,674
Restricted cash 2,662 350
Other current assets 11,922 8,333
Total current assets 260,089 194,884
 
Property and equipment, net 35,346 36,775
Long-term investments 62,015 8,319
Deferred income taxes 4,651 9,275
Goodwill 53,448 35,472
Intangible assets, net 28,661 15,692
Other long-term assets 5,215 3,502
Total assets $449,425 $303,919
 
Liabilities:
Accounts payable $11,002 $9,231
Accrued employee compensation and benefits 27,175 17,683
Accrued expenses and other current liabilities 27,299 17,811
Income taxes payable 1,294 4,509
Total current liabilities 66,770 49,234
Long-term liabilities 8,585 2,478
Total liabilities 75,355 51,712
 
Stockholders' equity 374,070 252,207
Total liabilities and stockholders' equity $449,425 $303,919
 
 
Virtusa Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands except share and per share amounts, unaudited)
                 
 
Three Months Ended Year Ended
March 31, March 31,
2014 2013 2014 2013
 
Revenue $111,100 $89,949 $396,933 $333,175
Costs of revenue 68,407 57,672 250,533 215,866
Gross profit 42,693 32,277 146,400 117,309
Total operating expenses 30,182 22,858 103,988 84,450
 
Income from operations 12,511 9,419 42,412 32,859
 
Other income (expense):
Interest income 1,104 743 3,726 2,977
Foreign currency transaction gains (losses) 38 176 (396) (68)
Other, net (26) 26 182 91
Total other income (expense) 1,116 945 3,512 3,000
 
Income before income tax expense 13,627 10,364 45,924 35,859
Income tax expense 3,580 1,272 11,549 7,461
 
Net income $10,047 $9,092 $34,375 $28,398
 
Net income per share of common stock:
Basic $0.36 $0.36 $1.32 $1.14
Diluted $0.35 $0.35 $1.27 $1.11

Weighted average number of common shares outstanding

Basic 27,967,187 25,086,734 26,116,516 24,937,162
Diluted 28,890,846 25,936,859 26,973,001 25,638,839
 
 
Virtusa Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands, unaudited)
         
Year Ended
March 31,
2014 2013
Cash flows provided by operating activities:
Net income $34,375 $28,398
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,502 9,040
Share-based compensation expense 8,166 5,876
Provision for doubtful accounts,net 750 193
Loss (gain) on disposal of property and equipment 53 (100)
Deferred income taxes, net 1,618 (1,836)
Foreign currency loss, net 396 68
Excess tax benefits from stock option exercises (3,198) (759)
Net changes in operating assets and liabilities:
Accounts receivable and unbilled receivable (3,429) (19,462)
Prepaid expenses and other current assets (4,905) (3,501)
Other long-term assets (1,598) 471
Accounts payable (228) 1,604
Accrued employee compensation and benefits 4,452 (1,440)
Accrued expenses and other current liabilities (2,717) 3,883
Income taxes payable 3,886 550
Other long-term liabilities (204) (232)
Net cash provided by operating activities 48,919 22,753
Cash flows used for investing activities:
Proceeds from sale of property and equipment 80 117
Purchase of short-term investments (23,313) (13,676)
Proceeds from sale or maturity of short-term investments 10,802 12,717
Purchase of long-term investments (70,151) (11,303)
Proceeds from sale or maturity of long-term investments 800 1,258
Business acquisition, net of cash acquired (21,460) (2,775)
(Increase) decrease in restricted cash (2,320) 2,544
Purchase of property and equipment (7,482)   (12,587)
Net cash used for investing activities (113,044)   (23,705)
Cash flows provided by financing activities:
Proceeds from exercise of common stock options 2,575 2,169
Proceeds from issuance of common stock 86,227 -
Purchase of common stock - (1,408)
Borrowings on revolving credit facility 20,000 -
Repayment of revolving credit facility (20,000) -
Payment of debt issuance cost (242) -
Principal payments on capital lease obligation (18) (1,026)
Excess tax benefits from stock option exercises 3,198 759
Net cash provided by financing activities 91,740 494
Effect of exchange rate changes on cash and cash equivalents (2,053) (448)
Net increase (decrease) in cash and cash equivalents 25,562 (906)
Cash and cash equivalents, beginning of period 57,199 58,105
Cash and cash equivalents, end of period $82,761 $57,199
 
 
Supplemental Non-GAAP Financial Information as of March 31, 2014 and 2013
 
Reconciliation to total cash and cash equivalents, short-term investments and long-term investments:
 
Cash and cash equivalents, end of period $82,761 $57,199
 
Short-term investments 55,888 29,452
Long-term investments 62,015 8,319
Total short-term and long-term investments, end of period 117,903 37,771
 
Total cash and cash equivalents, short-term investments and long-term investments $200,664 $94,970

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