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Luxoft Reports Results for Second Quarter Fiscal 2019

LONDON, Nov. 15, 2018 (GLOBE NEWSWIRE) -- Luxoft Holding, Inc (NYSE:LXFT), a global IT service provider, today announced results for the three months ended September 30, 2018.

Highlights — Three months ended September 30, 2018

  • Revenue of $228.4 million, up 0.2% year-over-year and up 7.3% sequentially
  • Net income of $14.4 million, compared to $18.4 million in the year-ago quarter and diluted EPS of $0.43, compared to $0.54 in the year-ago quarter
  • Adjusted EBITDA of $36.6 million and adjusted EBITDA margin of 16.0%, compared to $38.6 million and 16.9% in the year-ago quarter
  • Non-GAAP diluted EPS of $0.74, compared to $0.82 in the year-ago quarter
  • As of September 30, 2018, total number of employees was 12,897; Annual revenue per billable engineer was $83,043, up 0.4% from the prior year.

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

"Our second quarter results demonstrate continued execution of our strategic priorities and transformational initiatives," said Dmitry Loschinin, Luxoft’s CEO and President. "We continue to diversify our revenue and re-align our focus and resources to the highest growth opportunities. Growth in Financial Services remains healthy, despite challenges in the Investment Banking sector, while our leading Automotive solutions continue to drive strong customer demand. We remain sharply focused on enhancing our Digital solutions in order to advance our competitive position and meet the evolving needs of our clients."

"Looking ahead, we remain focused on advancing our transformation and building a stronger and more diversified company. While we expect some headwinds during the second half of the year, we are confident that further execution of our strategy will strengthen our long-term growth profile and position us to deliver increasing shareholder returns."

Second Quarter Key Operating Highlights

  • Revenue generated in APAC and Europe grew 64.7% and 16.8% year over year, respectively.
  • Expanding global presence and growth outside of Financial Services is meaningfully reducing client concentration. Revenue by line of business was 54.9% Financial Services, 23.1% Digital Enterprise and 22.0% Automotive.
  • Top Two1 accounts amounted to 30.2% of revenue, representing a 5.2 percentage-point decrease over the prior year.
  • Top Five accounts amounted to 43.4% of revenue, an annual 3.3 percentage-point decrease, and Top Ten accounts amounted to 54.3% of revenue, a 3.3 percentage point decrease.

1 Top Two accounts are UBS and Deutsche Bank and are included in our Financial Services line of business.

Third Quarter Fiscal 2019 Outlook

  • Revenue is expected to be in the range of $230-$235M.
  • Adjusted EBITDA is expected to be in the range of 14% to 15%.
  • Diluted GAAP EPS is expected to be in the range of $0.29 to $0.37.
  • Non-GAAP EPS is expected to be in the range of $0.62 to $0.69.

Conference Call Information

The Company will host a conference call to review the results on Thursday, November 15th, 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 13683917. The replay will be available until November 29, 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 approximately 12,900 employees across 42 offices in 22 countries within five continents, with its operating headquarters office in Zug, Switzerland. For more information, please visit the website.

Investor Inquires Media Inquiries
Tracy Krumme Robert Maccabe
Vice President, Investor Relations Director, Public Relations
212-964-9900 ext. 2460 +44 (0)20 3828 2346
IR@luxoft.com Press@luxoft.com
  Twitter: @Luxoft

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. 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, 2018 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)
 
    As of September 30, 2018   As of March 31, 2018
    (Unaudited)    
Assets        
Current assets        
Cash and cash equivalents   $ 100,382     $ 104,357  
Restricted cash, current   1,901     70  
Trade accounts receivable, net of allowance for doubtful accounts of $1,399 at September 30, 2018 and $1,232 at March 31, 2018   184,627     186,991  
Unbilled revenue   37,610     33,310  
Work-in-progress   7,102     3,734  
Due from related parties   1,078     1,272  
VAT and other taxes receivable   3,889     4,082  
Advances issued   2,172     1,777  
Other current assets   8,671     8,041  
Total current assets   $ 347,432     $ 343,634  
Non-current assets        
Restricted cash, non-current   1,691     2,775  
Deferred tax assets   5,877     4,349  
Property and equipment, net   50,858     52,739  
Intangible assets, net   103,541     106,368  
Goodwill   102,228     88,908  
Other non-current assets   5,231     5,047  
Total non-current assets   269,426     260,186  
Total assets   616,858     603,820  
Liabilities and shareholders’ equity        
Current liabilities        
Short-term borrowings   11,627     856  
Accounts payable   22,294     25,964  
Accrued liabilities   42,563     49,593  
Deferred revenue   4,616     4,105  
Due to related parties   73     14  
Taxes payable   23,833     22,916  
Payable on derivative financial instruments   515     776  
Payable for acquisitions, current   4,936     6,415  
Other current liabilities   2,674     2,302  
Total current liabilities   $ 113,131     $ 112,941  
Deferred tax liability, non-current   8,211     10,830  
Payable for acquisitions, non-current   2,652     2,895  
Other non current liabilities   5,833     7,205  
Total liabilities   $ 129,827     $ 133,871  
Shareholders’ equity        
Share capital (80,000,000 shares authorized; 33,695,454 issued and outstanding with no par value as at September 30, 2018, and 80,000,000 shares authorized; 34,063,981 issued and outstanding with no par value as at March 31, 2018)        
Additional paid-in capital   150,069     155,456  
Common stock held in treasury, at cost (91,983 shares as of September 30, 2018; 61,874 shares as of March 31, 2018)   (4,460 )   (3,424 )
Retained earnings   344,937     320,521  
Accumulated other comprehensive loss   (3,547 )   (2,636 )
Total shareholders’ equity attributable to the Group   $ 486,999     $ 469,917  
Non-controlling interest   32     32  
Total equity   $ 487,031     $ 469,949  
Total liabilities and equity   $ 616,858     $ 603,820  
                 


 
LUXOFT HOLDING, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except share and per share amounts)
 
    For the three months ended September 30,   For the six months ended September 30,
    2018   2017   2018   2017
                 
    (Unaudited)   (Unaudited)
Sales of services   $ 228,411     $ 228,030     $ 441,201     $ 437,272  
Operating expenses                
Cost of services (exclusive of depreciation and amortization)   140,631     139,305     277,998     274,904  
Selling, general and administrative expenses   59,864     58,199     116,573     116,262  
Depreciation and amortization   10,969     9,915     21,739     20,645  
Gain from revaluation of contingent liability   (145 )   (870 )   (145 )   (2,090 )
Operating income   17,092     21,481     25,036     27,551  
Other income and expenses           0    
Interest income/ (loss), net   (77 )   42     (111 )   59  
Unwinding of discount for contingent liability, income/ (loss)   (32 )   103     (99 )   (698 )
Other income, net   433     457     1,131     946  
Gain/ (loss) from derivative financial instruments   469     (3 )   1,321     89  
Net foreign exchange loss   (836 )   (356 )   (4,290 )   1,124  
Income before income taxes   17,049     21,724     22,988     29,071  
Income tax expense   (2,638 )   (3,284 )   (3,879 )   (4,314 )
Net income   $ 14,411     $ 18,440     $ 19,109     $ 24,757  
Net income attributable to the non-controlling interest                
Net income attributable to the Group   $ 14,411     $ 18,440     $ 19,109     $ 24,757  
Basic EPS per Class A and Class B ordinary share                
Net income attributable to the Group per ordinary share   $ 0.43     $ 0.55     $ 0.57     $ 0.74  
Weighted average ordinary shares outstanding   33,606,144     33,570,633     33,816,836     33,537,185  
Diluted EPS per Class A and Class B ordinary share                
Diluted net income attributable to the Group per ordinary share   $ 0.43     $ 0.54     $ 0.56     $ 0.72  
Diluted weighted average ordinary shares outstanding   33,736,322     34,116,417     33,883,981     34,206,683  
                         


 
LUXOFT HOLDING, INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of US dollars)
 
    For the three months ended September 30,   For the six months ended September 30,
    2018   2017   2018   2017
                 
    (Unaudited)   (Unaudited)
Net income   $ 14,411     $ 18,440     $ 19,109     $ 24,757  
Other comprehensive income (loss), net of tax                
Gains/(losses) on derivative instruments, net of tax effect of $(6) and $(21); $(157) and $72   151     80     1,155     (653 )
Translation adjustments with no tax effects   (220 )   690     (2,066 )   1,360  
Total other comprehensive income   (69 )   770     (911 )   707  
Comprehensive income   $ 14,342     $ 19,210     $ 18,198     $ 25,464  
Comprehensive income (loss) attributable to the non-controlling interest                
Comprehensive income attributable to the Group   $ 14,342     $ 19,210     $ 18,198     $ 25,464  
                                 


 
LUXOFT HOLDING, INC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(In thousands of US dollars)
 
    For the six months ended September 30,
    2018   2017
         
    (Unaudited)
Operating activities        
Net income   $ 19,109     $ 24,757  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   21,739     20,645  
Deferred tax benefit   (265 )   (1,711 )
Gain from derivative financial instruments   (1,321 )   (89 )
Net foreign exchange (gain)/ loss   4,290     (1,124 )
Provision for doubtful accounts   215     622  
Gain from revaluation of contingent liability   (145 )   (2,090 )
Unwinding of discount for contingent liability, loss   99     698  
Share-based compensation   14,208     14,237  
Other   111      
Changes in operating assets and liabilities:        
Trade accounts receivable and unbilled revenue   (2,532 )   (45,423 )
Work-in-progress   (3,772 )   732  
Due to and from related parties   233     234  
Accounts payable and accrued liabilities   (7,948 )   (4,114 )
Deferred revenue   625     2,604  
Changes in other assets and liabilities   4,798     (792 )
Net cash provided by operating activities   49,444     9,186  
Investing activities        
Purchases of property and equipment   (10,997 )   (11,332 )
Purchases of intangible assets   (1,856 )   (2,127 )
Acquisitions, net of cash acquired   (19,590 )   (32,685 )
Net cash used in investing activities   (32,443 )   (46,144 )
Financing activities        
Proceeds from/ Net repayment of short-term borrowings   10,353     (138 )
Acquisition of business, deferred consideration   (3,604 )   (12,707 )
Repayment of capital lease obligations   (1,842 )   (69 )
Repurchases of common stock   (21,022 )   (2,017 )
Net cash used in financing activities   (16,115 )   (14,931 )
Effect of exchange rate changes on cash and cash equivalents and restricted cash   (4,114 )   (103 )
Net decrease in cash, cash equivalents and restricted cash   (3,228 )   (51,992 )
Cash, cash equivalents and restricted cash at beginning of period   107,202     114,957  
Cash, cash equivalents and restricted cash at end of period   $ 103,974     $ 62,965  
                 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:

   
  As of
  September 30, 2018   March 31, 2018
  (Unaudited)    
Cash and cash equivalents $ 100,382     $ 104,357  
Restricted cash, current 1,901     70  
Restricted cash, non-current 1,691     2,775  
Total restricted cash 3,592     2,845  
Total cash, cash equivalents and restricted cash $ 103,974     $ 107,202  
               


         
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)
         
    For the three months ended September 30,   For the six months ended September 30,
    2018   2018       2018   2018   2018       2018
    GAAP   Adjustments       Non-GAAP   GAAP   Adjustments       Non-GAAP
Operating income   17,092     12,058     (a)   29,150     25,036     23,011     (a)   48,047  
Operating margin   7.5 %   5.3 %       12.8 %   5.7 %   5.2 %       10.9 %
Net income   14,411     10,691     (b)   25,102     19,109     20,516     (b)   39,625  
Diluted earnings per share   $ 0.43             $ 0.74     $ 0.56             $ 1.17  
                                                     


         
    For the three months ended September 30,   For the six months ended September 30,
    2017   2017       2017   2017   2017       2017
    GAAP   Adjustments       Non-GAAP   GAAP   Adjustments       Non-GAAP
Operating income   21,481     10,715     (a)   32,196     27,551     22,619     (a)   50,170  
Operating margin   9.4 %   4.7 %       14.1 %   6.3 %   5.2 %       11.5 %
Net income   18,440     9,596     (b)   28,036     24,757     20,399     (b)   45,156  
Diluted earnings per share   $ 0.54             $ 0.82     $ 0.72             $ 1.32  
                                                     


 
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)
         
    For the three months ended September 30,   For the six months ended September 30,
(a)   2018   2017   2018   2017
Adjustments to GAAP operating income                
Stock-based compensation expense   $ 8,022     $ 6,185     $ 14,208     $ 14,237  
Amortization of purchased intangible assets   3,574     3,657     7,534     8,030  
Gain from revaluation of contingent liability   (145 )   (870 )   (145 )   (2,090 )
Acquisition related costs   607     1,743     1,414     2,442  
Total Adjustments to GAAP income from operations:   $ 12,058     $ 10,715     $ 23,011     $ 22,619  
                                 


    For the three months ended September 30,   For the six months ended September 30,
(b)   2018   2017   2018   2017
Adjustments to GAAP net income                
Stock-based compensation expense   $ 8,022     $ 6,185     $ 14,208     $ 14,237  
Amortization of purchased intangible assets   3,574     3,657     7,534     8,030  
Gain from revaluation of contingent liability and unwinding of discount for contingent liability   (113 )   (973 )   (46 )   (1,392 )
Acquisition related costs   607     1,743     1,414     2,442  
Tax effect of the adjustments   (1,399 )   (1,016 )   (2,594 )   (2,918 )
Total Adjustments to GAAP net income :   $ 10,691     $ 9,596     $ 20,516     $ 20,399  
                                 


    For the three months ended September 30,   For the six months ended September 30,
    2018   2017   2018   2017
Net income   $ 14,411     $ 18,440     $ 19,109     $ 24,757  
Adjusted for:                
Interest (income)/ loss   77     (42 )   111     (59 )
Unwinding of discount for contingent liability, (income)/ loss   32     (103 )   99     698  
Income tax   2,638     3,284     3,879     4,314  
Depreciation and Amortization   10,969     9,915     21,739     20,645  
EBITDA   $ 28,127     $ 31,494     $ 44,937     $ 50,355  
Adjusted for                
Stock based compensation   8,022     6,185     14,208     14,237  
Gain from revaluation of contingent liability   (145 )   (870 )   (145 )   (2,090 )
Acquisition related costs   607     1,743     1,414     2,442  
Adjusted EBITDA   $ 36,611     $ 38,552     $ 60,414     $ 64,944  
                                 


 
Luxoft Holding, Inc
Schedule of supplemental information
(Unaudited)
(In thousands; except percentages)
         
    Revenue for the three months ended September 30,   Revenue for the six months ended September 30,
    2018   2017   2018   2017
Client location   Amount   % of sales   Amount   % of sales   Amount   % of sales   Amount   % of sales
North America   $ 72,639     31.8 %   $ 78,835     34.6 %   $ 140,786     31.9 %   $ 158,661     36.3 %
Europe (excl. U.K.)   79,488     34.8 %   68,033     29.8 %   152,650     34.6 %   133,534     30.5 %
U.K.   45,455     19.9 %   52,164     22.9 %   90,855     20.6 %   100,293     22.9 %
APAC   16,470     7.2 %   10,002     4.4 %   29,738     6.7 %   17,027     3.9 %
Russia   11,381     5.0 %   17,872     7.8 %   21,699     4.9 %   25,434     5.8 %
Other   2,978     1.3 %   1,124     0.5 %   5,473     1.3 %   2,323     0.6 %
Total   $ 228,411     100.0 %   $ 228,030     100.0 %   $ 441,201     100.0 %   $ 437,272     100.0 %
                                                         


         
    Revenue for the three months ended September 30,   Revenue for the six months ended September 30,
    2018   2017   2018   2017
Line of Business   Amount   % of sales   Amount   % of sales   Amount   % of sales   Amount   % of sales
Financial Services   $ 125,384     54.9 %   $ 129,174     56.6 %   $ 243,473     55.2 %   $ 242,644     55.5 %
Digital Enterprise   52,725     23.1 %   58,868     25.9 %   103,484     23.4 %   119,276     27.3 %
Automotive   50,302     22.0 %   39,988     17.5 %   94,244     21.4 %   75,352     17.2 %
Total   $ 228,411     100.0 %   $ 228,030     100.0 %   $ 441,201     100.0 %   $ 437,272     100.0 %
                                                         


 
LUXOFT HOLDING, INC.
Reconciliations of Non-GAAP Forward-looking Financial Measures
to Comparable GAAP Forward-looking Measures
(Unaudited)
(In thousands of US dollars, except share, per share amounts and percentages)
 
  Three Months Ended
December 31, 2018
Revenue $ 230,000  
   
Net income $ 9,918  
Adjusted for:  
Interest expense and unwinding of discount for contingent liability 40  
Income tax 1,943  
Depreciation and Amortization 11,546  
EBITDA $ 23,448  
Adjusted for:  
Stock based compensation 7,524  
Change in fair value of contingent consideration  
Acquisition related costs 1,158  
Adjusted EBITDA $ 32,130  
Adjusted EBITDA margin 14.0 %
   
Net income $ 9,918  
Adjusted for:  
Stock-based compensation expense 7,524  
Amortization of purchased Intangible assets 3,869  
Change in fair value of contingent consideration  
Unwinding of discount rate for contingent liability, loss 30  
Acquisition related costs 1,158  
Tax effect of the adjustments (1,650 )
Total adjustments to Net income $ 10,931  
Adjusted Net income $ 20,849  
Diluted weighted average ordinary shares outstanding 33,805,337  
Adjusted EPS $ 0.62  
       


     
    Three Months Ended
December 31, 2018
    GAAP   Adjustments   Non-GAAP
Net income   $ 9,918     $ 10,931     $ 20,849  
Diluted earnings per share   $ 0.29         $ 0.62  
                     

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