Virtusa announces 1Q18 consolidated financial results

Virtusa Corporation, a global business consulting and IT outsourcing company that accelerates business outcomes for its clients, reported consolidated financial results for the first quarter fiscal 2018, ended June 30, 2017.

1Q fiscal 2018 consolidated financial results
Revenue for the first quarter of fiscal 2018 was US $ 227.3 million, an increase of 0.6 percent sequentially and 10.6 percent year-over-year. On a constant currency basis, (1) first quarter revenue was flat sequentially and increased 12.7 percent year-over-year.  

Virtusa reported GAAP income from operations of US $ 6.1 million for the first quarter of fiscal 2018, compared to income from operations of US $ 10.2 million for the fourth quarter of fiscal 2017 and a loss from operations of US $ 1.8 million for the first quarter of fiscal 2017.

On a GAAP basis, net income available to common shareholders for the first quarter of fiscal 2018 was US $ 3.0 million or US $ 0.10 per diluted share, compared to US $ 10.5 million or US $ 0.34 per diluted share, for the fourth quarter of fiscal 2017 and a net loss of US $ 6.3 million or US $ (0.21) per diluted share, for the first quarter of fiscal 2017.  

Balance sheet and cash flow
The company ended the first quarter of fiscal 2018 with US $ 235.1 million of cash, cash equivalents and short-term and long-term investments (4). Cash flow from operations was US $ 1.1 million for the first quarter of fiscal 2018. In the first quarter of fiscal 2018, Virtusa repurchased 947,706 shares of its common stock at an average price of US $ 28.80 for a total of US $ 27.3 million. 

Virtusa Chairman and CEO Kris Canekeratne stated, “We are pleased with our first quarter fiscal 2018 results and the momentum we are building in our business. We are announcing key changes to our organisational model that will help us further position Virtusa for above-industry growth. Raj Rajgopal has been appointed President, Digital Business Strategy, and in his new role will lead our efforts to build our digital business strategy offerings.  

Samir Dhir has been appointed President of Virtusa, and will assume leadership of our banking and financial services (BFS) and enterprise technology and solutions (ETS) industry groups. I want to congratulate both Samir and Raj on their recent appointments. I firmly believe these organisational changes, combined with the investments we have made 
to expand our addressable 
market, position Virtusa well for long-term success.”

Chief Financial Officer Ranjan Kalia said, “FY 2018 is off to a solid start as we delivered 1Q revenue at the high end of our guidance range and operating margins at the midpoint of our expectations. Non-GAAP EPS came in below the midpoint of guidance primarily due to non-operating income line items. We are pleased to raise the midpoint of our fiscal 2018 revenue guidance, which includes strong sequential growth in the second quarter. Lastly, I look forward to working closely with Raj and Samir in their new roles and intensifying our efforts to realize sustainable cost synergies.”

Financial outlook 
Virtusa management provided the following current financial guidance:
Second quarter fiscal 2018 revenue is expected to be in the range of US $ 236.5 to US $ 241.5 million. GAAP diluted EPS is expected to be in the range of US $ 0.14 to US $ 0.20.Non-GAAP diluted EPS is expected to be in the range of US $ 0.32to US $ 0.38.

Fiscal year 2018 revenue is expected to be in the range of US $ 940.0 to US $ 960.0 million. GAAP diluted EPS is expected to be in the range of US $ 0.78 to US $ 0.96. Non-GAAP diluted EPS is expected to be in the range of US $ 1.45 to US $ 1.63.

Virtusa anticipates a total restructuring charge of US $ 1.5 million in the second and third fiscal quarters of 2018 related to resource optimization initiatives. This charge is reflected in the current second quarter and full-year GAAP EPS guidance and not included in Non-GAAP EPS guidance.
In accordance with US GAAP, Virtusa will be applying the if-converted method to its newly issued convertible preferred shares when reporting its fiscal year 2018 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 our reported results and full-year guidance.

First quarter GAAP and Non-GAAP EPS were 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.
GAAP EPS guidance was calculated under the assumption that these convertible securities will not be dilutive until the fiscal fourth quarter 2018. Hence, when calculating EPS, dividends and accretion on the convertible preferred shares have been 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 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 the company expects these convertible preferred 
shares to be dilutive on a non-GAAP basis.

The company’s second quarter and fiscal year 2018 diluted GAAP EPS estimates are based on average share counts of approximately 29.8 million and 30.8 million, respectively, (assuming no further exercises of stock-based awards). The company’s second quarter and fiscal year 2018 diluted Non-GAAP EPS estimates are based on average share counts of approximately 32.8 million and 32.3 million, respectively, (assuming no further exercises of stock-based awards). GAAP and Non-GAAP average share counts assume a stock price of US $ 33.08, which was derived from the average closing price of the company’s stock over the five trading days ended on August 4, 2017.  Deviations from this stock price may cause actual diluted EPS to vary based on share dilution from Virtusa’s stock-based awards.