Revenue for the third quarter of fiscal 2010 was $41.7 million, an increase of 11% sequentially and a decrease of 7% year-over-year. On a constant currency basis (1), third quarter revenue increased 11% sequentially and decreased 8% year-over-year.
Virtusa reported income from operations of $3.4 million for the third quarter of fiscal 2010, an increase compared to $3.2 million for the second quarter of fiscal 2010, and a decrease compared to $5.4 million for the third quarter of fiscal 2009.
Net income for the third quarter of fiscal 2010 was $2.9 million, or $0.12 per diluted share, compared to $3.0 million, or $0.12 per diluted share, for the second quarter of fiscal 2010 and a decrease, compared to $6.3 million, or $0.27 per diluted share, for the third quarter of fiscal 2009. Net income for the third quarter of fiscal 2010 included $0.4 million of foreign exchange losses compared to $0.3 million of foreign exchange losses for the second quarter of fiscal 2010 and a $1.3 million foreign exchange gain in the third quarter of fiscal 2009.
The Company ended the third quarter of fiscal 2010 with $122.7 million of cash, cash equivalents, short-term investments and long-term investments (2) net of $7.3 million in cash consideration paid in connection with the acquisition of InSource. The Company generated cash from operations of $6.0 million during the third quarter of fiscal 2010.
Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “We are pleased with the results of our third quarter which, as expected, saw a return to sequential growth across all industry groups and geographies. Our sequential growth was driven by our underlying business momentum, the investments we have been making in business development, our expanded portfolio of services and consistent execution.â€
Ranjan Kalia, Chief Financial Officer, said, “Our revenue growth this quarter was broad based including more meaningful contribution from the clients added over the last 18 months.†Mr. Kalia added, “In the fourth fiscal quarter, we continue to expect sequential and year-over-year revenue growth both organically and inclusive of recent acquisitions. In addition, we continue to expect to realize full fiscal year operating margin expansion over fiscal year 2009.â€
Acquisition of ConVista Consulting, LLC
Virtusa extends its enterprise application rationalization and modernization capabilities with the closing of the acquisition of ConVista Consulting, LLC, (http://us.convista.com), on February 1, 2010. ConVista Consulting is a U.S.-based, privately-held, market leader in finance transformation, specifically focusing on high volume collection, disbursement, claims and billing systems in BFSI. ConVista Consulting employs approximately 50 experienced practitioners with knowledge in SAP related-solutions and forms the foundation of Virtusa’s finance transformation business unit. This strategic business unit will be led by Stefan Fraas, the co-founder of ConVista Consulting, LLC. Virtusa will add program management, enterprise integration, business intelligence and global delivery execution to complement ConVista Consulting’s focused expertise, expanding Virtusa’s overall market opportunity.
Under the terms of the asset purchase agreement, Virtusa acquired ConVista Consulting’s business for $24.8 million in cash, including up to an additional $2.0 million in earn-out consideration upon ConVista Consulting’s achievement of certain revenue and profit milestones for fiscal 2011.
Kris Canekeratne, Virtusa’s Chairman and CEO, stated, “ConVista Consulting is at the nucleus of key transaction processing systems of record for large enterprises where packaged implementation, systems integration and custom development converge. Through this acquisition, our combined capabilities will enable Virtusa to provide a broader range of services to accelerate our clients’ business outcomes. We welcome ConVista’s team members to Virtusa.â€
Financial Outlook
Virtusa’s current guidance for the fourth fiscal quarter and the full fiscal year ending March 31, 2010 reflects the inclusion of ConVista Consulting. Virtusa expects ConVista Consulting to contribute revenue of $3.0 million for the fourth quarter of fiscal 2010. In addition, Virtusa expects ConVista Consulting to be dilutive by $0.02 to $0.03 per share on a GAAP basis in the fourth quarter of fiscal 2010, inclusive of expected transaction and integration costs. Additionally, ConVista Consulting is expected to be slightly accretive for fiscal year 2011.
· Fourth quarter fiscal 2010 revenue is expected to be in the range of $46.8 to $48.8 million, with diluted EPS of $0.10 to $0.15.
- Fiscal year 2010 revenue is expected to be in the range of $163.4 to $165.4 million, with diluted EPS of $0.45 to $0.50.
The Company’s fourth quarter and fiscal year 2010 diluted EPS estimates assume an average share count of approximately 24.2 million and 24.1 million respectively (assuming no further exercises of stock-based awards) and assume a stock price of $8.85, which was derived from the average closing price of the Company’s stock over the five trading days ended on January 29, 2010. Deviations from this stock price may cause actual EPS to vary based on share dilution from Virtusa’s stock options and stock appreciation rights.
