Virtusa (VRTU) Misses Q1 EPS by 2c, Beats on Revenues; Offers 1Q18 & FY18 Revenues Above Consensus

Virtusa (NASDAQ: VRTU) reported Q1 EPS of $0.25, $0.02 worse than the analyst estimate of $0.27. Revenue for the quarter came in at $227.3 million versus the consensus estimate of $224.58 million.

• First quarter fiscal 2018 revenue of $227.3 million increased 0.6% sequentially and 10.6% year-over-year.
• First quarter fiscal 2018 GAAP diluted EPS was $0.10. Non-GAAP diluted EPS was $0.25, up 39% year-over-year.
• Purchased $27.3 million of shares under previously disclosed share buyback program.
• Raj Rajgopal appointed President Digital Business Strategy to expand Virtusa’s addressable market in digital.
• Samir Dhir appointed President of Virtusa, assumes leadership of BFS and ETS industry groups.

Financial Outlook

Virtusa management provided the following current financial guidance:

• Second quarter fiscal 2018 revenue is expected to be in the range of $236.5 to $241.5 million. GAAP diluted EPS is expected to be in the range of $0.14 to $0.20. Non-GAAP diluted EPS is expected to be in the range of $0.32 to $0.38.
• Fiscal year 2018 revenue is expected to be in the range of $940.0 to $960.0 million. GAAP diluted EPS is expected to be in the range of $0.78 to $0.96. Non-GAAP diluted EPS is expected to be in the range of $1.45 to $1.63.
• Virtusa anticipates a total restructuring charge of $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 inNon-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 $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.

GUIDANCE:

Virtusa sees Q2 2018 EPS of $0.32-$0.38, versus the consensus of $0.37. Virtusa sees Q2 2018 revenue of $236.5-241.5 million, versus the consensus of $229.67 million.

Virtusa sees FY2018 EPS of $1.45-$1.63, versus the consensus of $1.54. Virtusa sees FY2018 revenue of $940-960 million, versus the consensus of $935.43 million.

For earnings history and earnings-related data on Virtusa (VRTU) click here.

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