Luxoft Holding, Inc Reports Results for Third Quarter FY2018

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LONDON–(BUSINESS WIRE)–Luxoft Holding Inc (NYSE:LXFT), a global IT service provider,
today announced results for the three months ended December 31, 2017.

Third Quarter FY2018 Highlights

  • Revenue of $236.6 million, up 14.3% year-over-year and up 3.8%
    sequentially
  • Adjusted EBITDA of $40.0 million and adjusted EBITDA margin of
    16.9%, compared to $37.5 million and 18.1% in the year-ago quarter
  • GAAP net income of $20.6 million, up 10.9% year-over-year and up
    11.4% sequentially
  • Non-GAAP net income of $30.5 million, up 9.0% from $27.9 million in
    the year-ago quarter and up 8.7% from $28.0 million last quarter
  • Diluted GAAP EPS of $0.60, up 9.1% from $0.55 in the year-ago
    quarter
  • Non-GAAP diluted EPS of $0.89, up 8.5% from $0.82 in the year-ago
    quarter
  • As of December 31, 2017, total number of employees was 13,101;
    Annual revenue per billable engineer was $85,392, up 4.5%
    year-over-year and up 3.2% sequentially
  • FY 2018 Guidance revised due to lower revenue from two Fortune 10
    healthcare & telecom clients

    Note: Reconciliations of
    non-GAAP to GAAP measures are included at the end of the release.

“Our third quarter results demonstrate our continued progress in
executing our strategic transformation to diversify our revenue streams,
expand our presence in attractive end markets and strengthen our global
delivery capabilities,” said Dmitry
Loschinin, Luxoft’s CEO and President
. “We had a number
of bright spots this quarter, including consolidated revenue growth of
26.5% year-over-year, excluding the top two accounts, and double-digit
revenue growth in each of our three lines of business. Ongoing strong
demand for advanced digital and cloud deployments drove 20.4%
year-over-year revenue growth in our Digital Enterprise line of
business. Financial Services’ revenue increased 12.9% compared to last
year, and was up 48.7% excluding the top two accounts. We also continue
to experience strong demand in our Automotive line of business as
autonomy drives investment in advanced technologies, improving
in-vehicle user experiences and increasing the need for connected
services and IT infrastructure. On a year-over-year basis, this line of
business grew 10.1% in the quarter and 37.5% in the nine-month period
and is on track to deliver annual growth of over 40%.”

“We continue to enhance our global competitive position and market
penetration utilizing our expansive and scalable delivery platform.
During the quarter, we opened a new delivery center in Berlin, the
result of a strategic collaboration, with a major German multinational
automotive manufacturer, to attract new talent for next-generation
intelligent user experience for cars. We continue to increase our
presence in Asia Pacific (APAC) following the opening of the Bangalore
office. We expect to quickly ramp our engineer headcount here as we see
many attractive opportunities to deliver IT services to financial
institutions and other industries in Singapore, Australia, Malaysia and
China from nearshore locations.”

The Company exhibited solid performance across key global markets.
Revenue generated in North America increased 8.4% year-over-year while
APAC and Europe revenues grew 114.2% and 22.0% year-over-year,
respectively. The success we are having expanding our global presence
and growing outside of financial services is meaningfully reducing our
client concentration. Our top two accounts amounted to 34.4% of revenue,
representing a 6.3 percentage point decrease year over year. On the same
basis, the top five accounts amounted to 46.0% of revenue, representing
a 7.2 percentage point decrease and the top ten accounts amounted to
57.2% of revenue, a decrease of 6.6 percentage points.

Mr. Loschinin concluded, “Looking ahead, we expect our full-year results
to be affected by lower revenue from two large acquired telecom and
healthcare clients. This is primarily the result of our de-emphasizing
lower-margin, non-core business and strategically aligning our resources
with an expanding number of attractive, higher-margin opportunities.
While this will impact our revenue generation this fiscal year, we
believe these actions position the Company more competitively in the
long term. As a result, we currently expect our full-year fiscal 2018
revenue to be in the range of $900-905 million, down approximately 2%,
and our adjusted EBITDA margin to be in the range of 15.0-15.2%.”

“Despite this near-term challenge, our confidence in the business
remains strong. We see a number of attractive growth opportunities
across our verticals, and we are confident we have the right strategy to
further build our long-term growth potential and deliver increasing
value to shareholders. The entire Luxoft team is focused on driving
improved execution and entering fiscal 2019 with momentum across our
business as we further implement our revenue diversification and
business optimization strategies.”

Outlook for the Fiscal Year Ending March 31, 2018

The Company is revising its full-year outlook and expects:

  • Revenue to be in the range of $900 to $905 million, down approximately
    2%, from the previous $920 million guidance
  • Adjusted EBITDA margin to be in the range of 15.0-15.2%, down from the
    previous guidance of 15.5-16.5%
  • Diluted EPS on GAAP basis to be at least $1.53 (unchanged)
  • Diluted EPS on a non-GAAP basis to be in the range from $2.77- $2.85,
    down from at least $2.85
  • EPS to be based on an estimated weighted average of 34.4 million
    diluted shares

Conference Call Information

The Company will host a conference call to review the results
on Wednesday, February 14, 2018 at 8:00 a.m. ET. To participate, please
dial 877-407-8293 or 201-689-8349 (outside the U.S.) or access the live
webcast here.

A replay will be available two hours after the call at http://investor.luxoft.com
or by dialing 877-660-6853 or 201-612-7415 (outside the U.S.) and
entering the conference ID 13675016. The replay will be available until
February 28, 2018.

About Luxoft

Luxoft (NYSE:LXFT) is a global IT service provider of innovative
technology solutions that delivers measurable business outcomes to
multinational companies. Its offerings encompass strategic consulting,
custom software development services, and digital solution engineering.
Luxoft enables companies to compete by leveraging its multi-industry
expertise in the financial services, automotive, communications, and
healthcare & life sciences sectors. Its managed delivery model is
underpinned by a highly-educated workforce, allowing the Company to
continuously innovate upwards on the technology stack to meet evolving
digital challenges.

Luxoft has more than 13,100 employees across 41 cities in 20 countries
within five continents, with its operating headquarters office in Zug,
Switzerland. For more information, please visit the website.

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with US
GAAP, this press release includes the following measures defined by the
Securities and Exchange Commission as non-GAAP financial measures:
earnings before interest, tax, depreciation and amortization (EBITDA);
adjusted EBITDA; non-GAAP net income; non-GAAP diluted Earnings per
share (EPS) and Free Cash Flow (FCF). EBITDA is calculated as earnings
before interest, tax, depreciation and amortization, where interest
includes unwinding of the discount rate for contingent liabilities.
Prior year amounts were amended accordingly. Non-GAAP net income and
non-GAAP EPS exclude stock-based compensation expense, amortization of
fair value adjustments to intangible assets and impairment thereof and
other acquisitions related costs that may include changes in the fair
value of contingent consideration liabilities. Non-GAAP diluted EPS are
calculated as non-GAAP net income divided by weighted average number of
diluted shares. Free Cash Flow is calculated as operating cash flow less
capital expenditure which consists of purchases of property, plant and
equipment and intangible assets as defined in the cash flow statement.

We adjust our non-GAAP financial measures to exclude stock based
compensation, because it is a non-cash expense. We also adjust our
non-GAAP financial measures to exclude the change in fair value of
contingent consideration, because we believe these expenses are not
indicative of what we consider to be normal course of operations. Our
non-GAAP financial measures are adjusted to exclude amortization of
purchased intangible assets in order to allow management and investors
to evaluate our results from operating activities as if these assets
have been developed internally rather than acquired in a business
combination. Finally, we adjust our non-GAAP financial measures to
exclude acquisition-related costs, which comprise payments to consulting
firms as well as fees paid upon successful completion of acquisition; as
well as certain incentive payments for members of management of the
acquired companies as provided for in the acquisition agreements. These
payments are based on performance of the acquired businesses and are
classified as part of management compensation rather than part of
purchase consideration. These costs vary with the size and complexity of
each acquisition and are generally inconsistent in amount and frequency,
and therefore, we believe that they may not be indicative of the size
and volume of future acquisition-related costs.

We provide these non-GAAP financial measures because we believe that
they present a better measure of our core business and management uses
them internally to evaluate our ongoing performance. Accordingly, we
believe that these non-GAAP measures are useful to investors in
enhancing and understanding of our operating performance. These non-GAAP
measures should be considered in addition to, and not as a substitute
for, comparable US GAAP measures. The non-GAAP results and a full
reconciliation between US GAAP and non-GAAP results are provided in the
accompanying tables at the end of this press release.

Forward-Looking Statements

In addition to historical information, this release contains
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933, and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements include information about possible or
assumed future results of our business and financial condition, as well
as the results of operations, liquidity, plans and objectives. In some
cases, you can identify forward-looking statements by terminology such
as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,”
“should,” “plan,” “expect,” “predict,” “potential,” or the negative of
these terms or other similar expressions. These statements include, but
are not limited to, statements regarding: the persistence and
intensification of competition in the IT industry; the future growth of
spending in IT services outsourcing generally and in each of our
industry verticals, application outsourcing and custom application
development and offshore research and development services; the level of
growth of demand for our services from our clients; the level of
increase in revenue from our new clients; seasonal trends and the budget
and work cycles of our clients; general economic and business conditions
in our locations, including geopolitical instability and social,
economic or political uncertainties, particularly in Russia and Ukraine,
and any potential sanctions, restrictions or responses to such
conditions imposed by some of the locations in which we operate; the
levels of our concentration of revenues by vertical, geography, by
client and by type of contract in the future; the expected timing of the
increase in our corporate tax rate, or actual increases to our effective
tax rate which we may experience from time to time; our expectations
with respect to the proportion of our fixed price contracts; our
expectation that we will be able to integrate and manage the companies
we acquire and that our acquisitions will yield the benefits we
envision; the demands we expect our rapid growth to place on our
management and infrastructure; the sufficiency of our current cash, cash
flow from operations, and lines of credit to meet our anticipated cash
needs; the high proportion of our cost of services comprised of
personnel salaries; our plans to introduce new products for commercial
resale and licensing in addition to providing services; our anticipated
joint venture with one of our clients; and our continued financial
relationship with IBS Group Holding limited and its subsidiaries
including expectations for the provision and purchase of services and
purchase and lease of equipment; and other factors discussed under the
heading “Risk Factors” in the Annual Report on Form 20-F for the year
ended March 31, 2017 and other documents filed with or furnished to the
Securities and Exchange Commission. Except as required by law, we
undertake no obligation to publicly update any forward-looking
statements for any reason after the date of this press release whether
as a result of new information, future events or otherwise.

 
LUXOFT HOLDING, INC
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share amounts)

 
 

December 31,

As of March 31,

2017   2017  
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 69,351 $ 109,558
Restricted cash, current 4,065 4,000
Trade accounts receivable, net of allowance for doubtful accounts of
$1,303 at December 31, 2017 and $435 at March 31, 2017

170,489

144,862

Unbilled revenue 41,291 14,454
Work-in-progress 4,241 2,805
Due from related parties 592 1,084
VAT and other taxes receivable 3,644 1,732
Advances issued 2,624 2,740
Other current assets   6,077     5,224  
Total current assets   302,374     286,459  
 
Non-current assets
Restricted cash, non-current 2,818 1,399
Deferred tax assets 4,435 3,423
Property and equipment, net 46,829 49,571
Intangible assets, net 122,416 120,430
Goodwill 93,579 76,918
Other non-current assets   5,367     9,007  
Total non-current assets   275,444     260,748  
Total assets $ 577,818   $ 547,207  
 
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings $ 515 $ 633
Accounts payable 6,684 24,402
Accrued liabilities 37,263 38,513
Deferred revenue 3,800 3,815
Due to related parties 13 460
Taxes payable 24,920 21,283
Payable on derivative financial instruments 945 295
Payable for acquisitions, current 12,781 17,221
Other current liabilities   1,721     2,025  
Total current liabilities   88,642     108,647  
 
Deferred tax liability, non-current 11,489 16,907
Payable for acquisitions, non-current 18,556 32,206
Other non-current liabilities   4,415     2,629  
Total liabilities   123,102     160,389  
 
Shareholders’ equity

Share capital (80,000,000 shares authorized; 33,842,002 issued and
outstanding with no par value as at December 31, 2017, and
80,000,000 shares authorized; 33,540,034 issued and outstanding
with no par value as at March 31, 2017)

 

 

 

 

Additional paid-in capital 150,132 133,192

Common stock held in treasury, at cost (25,422 shares as of
December 31, 2017; 93,813 shares as of March 31, 2017)

(1,375

)

(6,028

)

Retained earnings 308,815 263,508
Accumulated other comprehensive loss   (2,888 )   (3,886 )
Total shareholders’ equity attributable to the Group   454,684     386,786  
Non-controlling interest   32     32  
Total equity   454,716     386,818  
Total liabilities and equity $ 577,818   $ 547,207  
 
 
LUXOFT HOLDING, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of US dollars, except share and per share amounts)

   

For the three months ended
December 31,

For the nine months ended
December 31,

2017 2016 2017 2016
(Unaudited) (Unaudited)
Sales of services $ 236,613 $ 206,924 $ 673,885 $ 581,430
Operating expenses
Cost of services (exclusive of depreciation and amortization) 144,332 124,688 419,236 345,348
Selling, general and administrative expenses 63,485 54,291 179,747 157,530
Depreciation and amortization 11,050 9,362 31,695 24,587
Gain from revaluation of contingent liability   (3,930 ) (2,143 )   (6,020 ) (2,587 )
Operating income   21,676   20,726     49,227   56,552  
 
Other income and expenses
Interest income, net 17 6 76 10
Unwinding of discount rate for contingent liability, loss (588 ) (719 ) (1,286 ) (1,224 )
Other gain, net 934 3,630 1,880 4,364
Gain from derivative financial instruments 57 953 146 1,314
Net foreign exchange gain/ (loss)   177   (2,847 )   1,301   (3,493 )
Income before income taxes 22,273 21,749 51,344 57,523
Income tax expense   (1,723 ) (3,217 )   (6,037 ) (8,620 )
Net income

$

20,550

 

$

18,532

 

$

45,307

 

$

48,903

 
Net income attributable to the non-controlling interest  

         
Net income attributable to the Group $ 20,550   $ 18,532   $ 45,307   $ 48,903  
 
Basic EPS per Class A and Class B ordinary share
Net income attributable to the Group per ordinary share $ 0.61   $ 0.56   $ 1.35   $ 1.47  
Weighted average ordinary shares outstanding   33,756,866   33,225,850     33,611,350   33,210,119  
 
Diluted EPS per Class A and Class B ordinary share
Diluted net income attributable to the Group per ordinary share $ 0.60   $ 0.55   $ 1.32   $ 1.44  
Diluted weighted average ordinary shares outstanding   34,102,625   33,878,605     34,254,345   33,879,650  
 
 
LUXOFT HOLDING, INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of US dollars)

 
 

For the three months

  For the nine months ended
ended December 31, December 31,
2017   2016   2017   2016
(Unaudited) (Unaudited)
Net income $ 20,550   $ 18,532 $ 45,307   $ 48,903
Other comprehensive income (loss), net of tax
Gains/(losses) on derivative instruments, net of tax effect of $3
and $74; $75 and $173

(28)

1,648

(681)

2,258

Translation adjustments with no tax effects 314 (367) 1,679 (2,012)
Total other comprehensive income   286     1,281     998     246
Comprehensive income   20,836     19,813     46,305     49,149
Comprehensive income (loss) attributable to the non-controlling
interest
 

   

   

   

Comprehensive income attributable to the Group

$

20,836

 

$

19,813

 

$

46,305

 

$

49,149

 
 
LUXOFT HOLDING, INC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

(In thousands of US dollars)

 
For the nine months ended
December 31,
2017   2016
(Unaudited)
Operating activities
Income from operations $ 45,307 $ 48,903
 

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation and amortization 31,695 24,587
Deferred tax benefit (3,449 ) (1,434 )
Income from derivative financial instruments (146 ) (1,314 )
(Income)/ Loss on foreign exchange (1,301 ) 3,493
Provision for doubtful accounts 827 417
Gain from revaluation of contingent liability (6,020 ) (2,587 )
Unwinding of discount rate for contingent liability, loss 1,286 1,224
Share-based compensation 22,940 21,515
 

Changes in operating assets and liabilities:

Trade accounts receivable and unbilled revenue (36,581 ) (3,389 )
Work-in-progress (1,436 ) (514 )
Due to and from related parties 45 261
Accounts payable and accrued liabilities (21,807 ) (8,943 )
Deferred revenue (32 ) (2,897 )
Changes in other assets and liabilities 1,565   (4,781 )
Net cash provided by operating activities 32,893   74,541  
 
Investing activities
Purchases of property and equipment (17,348 ) (14,574 )
Purchases of intangible assets (3,395 ) (2,930 )
Acquisitions, net of cash acquired (34,155 ) (54,464 )
Restricted cash 125    
Net cash used in investing activities (54,773 ) (71,968 )
 
Financing activities
Net repayment of short-term borrowings (1,127 ) (5,998 )
Acquisition of business, deferred consideration (12,945 ) (4,534 )
Repurchases of common stock (3,361 ) (1,266 )
Repayment of capital lease obligations (132 ) (123 )
Net cash used in financing activities (17,565 ) (11,921 )
 
Effect of exchange rate changes on cash and cash equivalents (762 ) (1,133 )
Net decrease in cash and cash equivalents (40,207 ) (10,481 )
Cash and cash equivalents at beginning of year 109,558   108,545  
Cash and cash equivalents at end of period $ 69,351   $ 98,064  
 
 

Luxoft Holding, Inc

Reconciliations of Non-GAAP Financial Measures to Comparable GAAP
Measures (Unaudited)
(In thousands of US dollars, except per share amounts and
percentages)
 
  Three Months Ended December 31, Nine Months Ended December 31,

 

2017 2017 2017 2017 2017 2017
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Operating income   21,676 10,849 (a)   32,525   49,227 33,468 (a)   82,695
Operating margin   9.2 % 4.5 %   13.7 %   7.3 % 5.0 %   12.3 %
Net income   20,550 9,921 (b)   30,471   45,307 30,320 (b)   75,627
Diluted earnings per share $ 0.60   $ 0.89 $ 1.32   $ 2.21
 
Three Months Ended December 31,

 

  Nine Months Ended December 31,
2016 2016 2016 2016 2016 2016
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Operating income   20,726 9,512 (a)   30,238   56,552 29,615 (a)   86,167
Operating margin   10.0 % 4.6 %   14.6 %   9.7 % 5.1 %   14.8 %
Net income   18,532 9,416 (b)   27,948   48,903 27,913 (b)   76,816
Diluted earnings per share $ 0.55   $ 0.82 $ 1.44   $ 2.27
 
 
Luxoft Holding, Inc
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP
Measures (Unaudited)

(In thousands of US dollars, except per share amounts and
percentages)

 
  Three Months Ended   Nine Months Ended
December 31, December 31,
(a) 2017 2016 2017 2016
Adjustments to GAAP operating income
Stock-based compensation expense $ 8,703 $ 7,625 $ 22,940 $ 21,515
Amortization of purchased Intangible assets 4,711 3,806 12,741 8,359
Gain from revaluation of contingent liability (3,930 ) (2,143 ) (6,020 ) (2,587 )
Acquisition related costs 1,365     224     3,807   2,328  
Total Adjustments to GAAP income from operations: $ 10,849   $ 9,512   $ 33,468   $ 29,615  
 
Three Months Ended Nine Months Ended
December 31, December 31,
(b) 2017 2016 2017 2016
Adjustments to GAAP net income
Stock-based compensation expense $ 8,703 $ 7,625 $ 22,940 $ 21,515
Amortization of purchased Intangible assets 4,711 3,806 12,741 8,359
Gain from revaluation of contingent liability and unwinding of
discount rate for contingent liability

(3,342

)

(1,424

)

(4,734

)

(1,363

)

Acquisition related costs 1,365 224 3,807 2,328
Tax effect of the adjustments   (1,516 )   (815 )   (4,434 )   (2,926 )
Total Adjustments to GAAP net income $ 9,921   $ 9,416   $ 30,320   $ 27,913  
 
Three Months Ended Nine Months Ended
December 31, December 31,
2017 2016 2017 2016
Net income $ 20,550 $ 18,532 $ 45,307 $ 48,903
Adjusted for:
Interest Income (17 ) (6 ) (76 ) (10 )
Unwinding of discount rate for contingent liability, loss 588 719 1,286 1,224
Income tax 1,723 3,217 6,037 8,620
Depreciation and Amortization   11,050     9,362     31,695     24,587  
EBITDA $ 33,894   $ 31,824   $ 84,249   $ 83,324  
Adjusted for
Stock based compensation 8,703 7,625 22,940 21,515
Gain from revaluation of contingent liability (3,930 ) (2,143 ) (6,020 ) (2,587 )
Acquisition related costs   1,365     224     3,807     2,328  
Adjusted EBITDA $ 40,032   $ 37,530   $ 104,976   $ 104,580  
 
 
Luxoft Holding, Inc
Schedule of supplemental information
(Unaudited)

(In thousands; except percentages)

 
  Revenue for the three Months Ended December 31,
2017   2016
Client location Amount % of sales Amount % of sales
North America $ 78,609 33.2 %   72,542 35.1 %
Europe (excl. U.K.) 77,526 32.8 % 63,557 30.7 %
U.K. 52,446 22.2 % 50,230 24.3 %
Russia 13,159 5.6 % 12,633 6.1 %
APAC 12,456 5.3 % 5,815 2.8 %
Other   2,417 0.9 %   2,147 1.0 %
Total $ 236,613 100.0 % 206,924 100.0 %
 
Revenue for the nine Months Ended December 31,
2017   2016
Client location Amount % of sales Amount % of sales
North America $ 237,270 35.2 % 187,883 32.3 %
Europe (excl. U.K.) 211,060 31.3 % 172,738 29.7 %
U.K. 152,739 22.7 % 168,571 29.0 %
Russia 38,593 5.7 % 27,633 4.8 %
APAC 29,483 4.4 % 20,120 3.5 %
Other   4,740 0.7 %   4,485 0.7 %
Total $ 673,885 100.0 % 581,430 100.0 %
 

Contacts

Luxoft Holding Inc
Investor Inquires
Tracy
Krumme

Vice President, Investor Relations
212-964-9900
ext. 2460
IR@luxoft.com
or
Media
Inquiries

Patrick
R. Corcoran

Global Director, External Relations
212-964-9900
ext. 2453
Press@luxoft.com
Twitter: @Luxoft

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