Virtusa Announces ThirdQuarter Fiscal2016Consolidated Financial Results

• Third quarter fiscal 2016revenue of $150.6 million increased5% sequentially and 22% year-over-year.
• Third quarter fiscal 2016 diluted EPS on a GAAP basis was $0.38, compared to $0.40 in the year ago period.
• Third quarter fiscal 2016 revenue and GAAP EPSwere impacted by approximately $(0.8) million and $(0.02), respectively,as a result of recent floods affecting Virtusa’s Chennai, India facility.
• Incurred $1.2 million of Polaris transaction-related expenses including an incremental $0.6 million, or $(0.01) per share, not previously contemplated in guidance.
• Generated $22.4 million of cash from operating activities during the third quarter of fiscal 2016. 

Westborough, MA –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, reported consolidated financial results for thethird quarter fiscal year 2016, ended December31, 2015.

Third Quarter Fiscal 2016 Consolidated Financial Results

Revenue for the third quarter of fiscal 2016 was $150.6 million, an increase of 5% sequentially and 22% year-over-year.  On a constant currency basis,⁽¹⁾third quarter revenue increased 6% sequentially and 23% year-over-year.

Virtusa reportedGAAP income from operations of $14.1million for the third quarter of fiscal 2016, compared to $13.3 million for the second quarter of fiscal 2016 and $14.6million for the third quarter of fiscal 2015.

GAAP net income for the thirdquarter of fiscal 2016 was $11.3million, or $0.38per diluted share, compared to $11.1million, or $0.37per diluted share, for the second quarter of fiscal 2016, and compared to $11.8 million, or $0.40per diluted share, for the third quarter of fiscal 2015.

In the third quarter of fiscal 2016, Virtusa incurred approximately $1.2 million, or $(0.02) per diluted share, of transaction expensesrelated tothe proposed acquisition of a majority interest in Polaris Consulting & Services, Ltd., compared to the prior guidance of $0.6 million, or $(0.01) per diluted share.

Non-GAAP Results

Non-GAAP income from operations, which excludes stock-based compensation expense andacquisition related expenses, was $20.7million for the third quarter of fiscal 2016, compared to $18.7 million for the secondquarter of fiscal 2016, and an increase compared to $19.1 million for the third quarter of fiscal 2015.

Non-GAAP net income,which excludes stock-based compensation expense, acquisition related expenses, and foreign currency transaction gains and losses,each net of tax, for the third quarter of fiscal 2016 was $15.9million, or $0.54per diluted share, compared to $15.0 million, or $0.50per diluted share, for the second quarter of fiscal 2016, and compared to $15.2 million, or $0.51 per diluted share, for the third quarter of fiscal 2015.

Chennai Flood Impact

Heavy rainfall and the resultant flooding in Chennai, India in December 2015 temporarily affectedVirtusa’s regular business operations atits Chennai facility. Operations in Virtusa’s Chennai facility have been fully restored; however, the incidentresulted in an unfavorable revenue impact of approximately $(0.8) million in the third fiscal quarter of 2016. In addition, Virtusa incurred approximately $0.4 million of incremental expenses associated with the deployment of its business continuity program. In total, Virtusa’s earnings per share were impacted by approximately $(0.02) in the third quarter of fiscal 2016 due to the effects of the flood.

Balance Sheet and Cash Flow

The Company ended the third quarter of fiscal 2016with $201.2million of cash, cash equivalents, and short-term and long-term investments⁽²⁾.  Virtusa’s fiscal third quarter ending cash balance excludes $20.3 million of restricted cash held in escrow for the mandatory unconditional offer related to the proposed acquisition of a majority interest in Polaris Consulting & Services, Ltd.Cash flow from operations for the third quarter of fiscal 2016was $22.4million.

Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “I am pleased with our fiscal third quarter performance.  While we faced some unexpected challenges brought on by the Chennai floods, outstanding execution by our local team enabled us to navigate this event with minimal interruption to our critical business operations.From a demand perspective, corporations are increasingly investing in IT solutions which enable them to run their business more efficiently, secure the business, and grow the business. Virtusa’s value proposition of delivering industry-leading, transformational services and solutions that squarely address these critical business objectives continues to resonate in the market and is enabling us to win market share.”

Ranjan Kalia, Chief Financial Officer, said, “We delivered solid sequential and year-over-year revenue growth in the fiscal third quarter. Our strong quarterly cash flow providesus with increased flexibility to invest in our growth initiatives including in the upcoming Polaris acquisition. Our fiscal fourth quarter guidance reflects sequential revenue growth across all three of our industry verticals, partially offset by greater foreign exchange headwinds, continued pressure on our insurance segment, and a later than previously expected close of the Polarisacquisition.”

Financial Outlook

Virtusa management provided the following current financial guidance:

• Fourth quarter fiscal 2016 revenue is expected to be in the range of $172.0to $175.0million,and assumes a later than previously anticipated closing of the Polaris acquisition expected now in late February 2016. GAAP diluted EPS is expected to be in the range of $(0.01)to $0.01.Virtusa management currently expects Polaris to contribute revenue of approximately $20 million and to be approximately ($0.36) dilutive to Virtusa’s GAAP earnings per share, including approximately ($0.20) of dilution from acquisition-related charges. Fourth quarter fiscal 2016 non-GAAP diluted EPS is expected to be in the range of $0.44to $0.46, including $(0.10) dilution from the Polaris transaction.

• Fiscal year 2016 revenue is expected to be in the range of $600.4 to $603.4 million. GAAP diluted EPS is expected to be in the range of $1.07to $1.09. Virtusa management currently expects Polaris to contribute revenue of approximately $20 million and to be approximately ($0.39) dilutive to Virtusa’s GAAP earnings per share, including approximately ($0.23) of dilution from acquisition-related charges. Non-GAAP diluted EPS is expected to be in the range of $1.96to $1.98, including $(0.10) dilution from the Polaris transaction.

Virtusa’s current GAAP diluted EPS guidance for the fourth fiscal quarter and the full fiscal year ending March 31, 2016 estimates Polaris transaction and integration expenses of $8.8 million and $10.0 million, respectively.

The Company’s fourth quarter diluted EPS estimates an average share count of approximately 30.2 millionand fiscal year 2016 diluted EPS estimates an average share count of approximately 30.0million,(assuming no further exercises of stock-based awards) and assume a stock price of $44.95, which was derived from the average closing price of the Company’s stock over the five trading days ended on February 4, 2016.  Deviations from this stock price may cause actual EPS to vary based on share dilution from Virtusa’s stock options and stock appreciation rights.