Sensitivity: Client Confidential

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM ~~10-Q~~10-Q

x☒Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, ~~2017~~2020

o☐Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from to

Commission File Number 001-33625

VIRTUSA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Delaware		~~7371~~		04-3512883
(State or Other Jurisdiction of	~~(Primary Standard Industrial~~		(I.R.S. Employer
Incorporation or Organization)	~~Classification Code Number)~~		Identification Number)

132 Turnpike Rd

Southborough, Massachusetts

(Address of principal executive offices)

01772

(Zip Code)

~~2000 West Park Drive~~(

~~Westborough, Massachusetts 01581~~508

~~(508)~~ ) 389-7300

(~~Address, Including Zip Code, and~~ Telephone Number,

Including Area Code,)

Securities registered pursuant to Section 12(b) of ~~Registrant’s Principal Executive Offices)~~the Act:

Title of each class
Common Stock, $0.01 par value per share

Trading Symbol(s)

VRTU

Name of each exchange on which registered
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large ~~accelerated filer~~ xAccelerated Filer ☒		Accelerated ~~filer~~ oFiler ☐
~~Non-accelerated filer~~ o
Non-Accelerated Filer ☐		Smaller reporting company o☐
~~(Do not check if a smaller reporting company)~~		Emerging growth company o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of February ~~05 2018:~~4, 2021:


Class		Number of Shares
Common Stock, par value $.01 per share		~~29,429,643~~30,340,986

Table of Contents

Virtusa Corporation and Subsidiaries



			Page

PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at December 31, ~~2017~~2020 and March 31, ~~2017~~2020	3
	Consolidated Statements of Income ~~(Loss)~~ for the Three and Nine Months Ended December 31, ~~2017~~2020 and ~~2016~~2019	4
	Consolidated Statements of Comprehensive Income ~~(Loss)~~(Loss) for the Three and Nine Months Ended December 31, ~~2017~~2020 and ~~2016~~2019	5
	Consolidated Statements of Stockholder’s Equity for the Three and Nine Months Ended December 31, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, ~~2017~~2020 and ~~2016~~2019	68
	Notes to Consolidated Financial Statements	710
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4750
Item 4.	Controls and Procedures	4851
PART II. OTHER INFORMATION		4852
Item 1.	Legal Proceedings	4852
Item 1A.	Risk Factors	4852
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4955
Item 5.6.	~~Other Information~~Exhibits	4956
~~Item 6.~~SIGNATURES		~~Exhibits~~	50
~~SIGNATURES~~		51
~~EXHIBIT INDEX~~		57

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

Virtusa Corporation and Subsidiaries

Consolidated Balance Sheets

~~(Unaudited)~~

(Unaudited)

(In thousands, except share and per share amounts)


	December 31, 2020		March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	347,173	$	290,837
Short-term investments		2,633		9,785
Accounts receivable, net of allowance of $1,085 and $1,541 at December 31, 2020 and March 31, 2020, respectively		140,012		148,950
Unbilled accounts receivable		79,681		137,839
Prepaid expenses		54,155		55,574
Restricted cash		5,786		659
Assets held for sale		—		8,334
Other current assets		33,338		29,214
Total current assets		662,778		681,192
Property and equipment, net		97,614		101,250
Operating lease right-of-use assets		40,750		48,684
Investments accounted for using equity method		—		1,336
Long-term investments		22		4
Deferred income taxes		29,715		30,225
Goodwill		295,591		296,493
Intangible assets, net		119,202		130,903
Other long-term assets		34,421		46,980
Total assets	$	1,280,093	$	1,337,067
Liabilities, Series A Convertible Preferred Stock and Stockholders’ equity
Current liabilities:
Accounts payable	$	25,253	$	38,537
Accrued employee compensation and benefits		97,364		79,373
Deferred revenue		15,484		8,054
Accrued expenses and other		82,733		95,124
Current portion of long-term debt		20,083		16,043
Operating lease liabilities		11,552		11,543
Income taxes payable		11,530		3,233
Total current liabilities		263,999		251,907
Deferred income taxes		15,239		16,067
Operating lease liabilities, noncurrent		34,468		41,697
Long-term debt, less current portion		358,441		480,154
Long-term liabilities		42,007		42,475
Total liabilities		714,154		832,300
Commitments and contingencies
Series A Convertible Preferred Stock: par value $0.01 per share, 108,000 shares authorized, 108,000 shares issued and outstanding at December 31, 2020 and March 31, 2020; redemption amount and liquidation preference of $108,000 at December 31, 2020 and March 31, 2020		107,450		107,326
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value; Authorized 5,000,000 shares at December 31, 2020 and March 31, 2020		—		—
Common stock, $0.01 par value; Authorized 120,000,000 shares at December 31, 2020 and March 31, 2020; issued 33,717,535 and 33,518,389 shares at December 31, 2020 and March 31, 2020, respectively; outstanding 30,331,971 and 30,132,825 shares at December 31, 2020 and March 31, 2020, respectively		337		335
Treasury stock, 3,385,564 common shares, at cost, at December 31, 2020 and March 31, 2020		(58,332)		(58,332)
Additional paid-in capital		257,187		246,862
Retained earnings		325,679		293,831
Accumulated other comprehensive loss		(66,382)		(85,255)
Total Stockholders' equity		458,489		397,441
Total liabilities, Series A convertible preferred stock, and stockholders’ equity	$	1,280,093	$	1,337,067

See accompanying notes to unaudited consolidated financial statement

Table of Contents

Virtusa Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

December 31, 2017

March 31, 2017

Assets

Current assets:

Cash and cash equivalents

$
226,718

$
144,908

Short-term investments

66,539

72,028

Accounts receivable, net of allowance of $3,063 and $1,805 at December 31, 2017 and March 31, 2017, respectively

138,294

135,453

Unbilled accounts receivable

67,196

66,122

Prepaid expenses

32,420

32,751

Restricted cash

265

174

Other current assets

23,641

28,806

Total current assets

555,073

480,242

Property and equipment, net

120,395

118,890

Investments accounted for using equity method

1,645

1,708

Long-term investments

10,676

20,057

Deferred income taxes

26,774

23,093

Goodwill

214,265

211,089

Intangible assets, net

52,215

58,361

Other long-term assets

12,514

9,980

Total assets

$
993,557

$
923,420

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$
22,069

$
20,514

Accrued employee compensation and benefits

55,684

52,582

Deferred revenue

9,914

7,479

Accrued expenses and other

39,261

33,251

Current portion of long-term debt

—

8,870

Income taxes payable

4,008

3,066

Total current liabilities

130,936

125,762

Deferred income taxes

23,155

26,682

Long-term debt, less current portion

130,439

176,722

Long-term liabilities

23,244

9,238

Total liabilities

307,774

338,404

Commitments and contingencies

—

—

Series A Convertible Preferred Stock: par value $0.01 per share, 108,000 shares authorized, 108,000 shares issued and outstanding at December 31, 2017; no shares authorized or issued at March 31, 2017; redemption amount and liquidation preference of $108,000 and $0 at December 31, 2017 and March 31, 2017, respectively

106,955

—

Stockholders’ equity:

Undesignated preferred stock, $0.01 par value: Authorized 5,000,000 shares at December 31, 2017 and March 31, 2017; zero shares issued and outstanding at December 31, 2017 and March 31, 2017

—

—

Common stock, $0.01 par value: Authorized 120,000,000 shares at December 31, 2017 and March 31, 2017; issued 32,223,386 and 31,762,214 shares at December 31, 2017 and March 31, 2017, respectively; outstanding 29,343,387 and 29,905,511 shares at December 31, 2017 and March 31, 2017, respectively

322

318

Treasury stock, 2,879,999 and 1,856,703 common shares, at cost, at December 31, 2017 and March 31, 2017, respectively

(39,652
)
(9,652
)
Additional paid-in capital

326,663

305,387

Retained earnings

236,224

240,728

Accumulated other comprehensive loss

(39,951
)
(39,749
)
Total Virtusa stockholders’ equity

483,606

497,032

Noncontrolling interest in subsidiaries

95,222

87,984

Total equity

578,828

585,016

Total liabilities and stockholders’ equity

$
993,557

$
923,420

(In thousands, except per share amounts)


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Revenue	$	346,100	$	335,107	$	964,352	$	982,632
Costs of revenue		232,142		236,427		697,772		709,746
Gross profit		113,958		98,680		266,580		272,886
Operating expenses:
Selling, general and administrative expenses		72,507		68,270		205,248		209,813
Income from operations		41,451		30,410		61,332		63,073
Other income (expense):
Interest income		230		520		698		1,744
Interest expense		(5,187)		(4,873)		(16,222)		(14,616)
Foreign currency transaction gains (losses), net		1,126		(3,065)		3,983		(5,300)
Other, net		(397)		209		1,145		1,137
Total other expense		(4,228)		(7,209)		(10,396)		(17,035)
Income before income tax expense		37,223		23,201		50,936		46,038
Income tax expense		11,776		10,363		15,826		19,932
Net income		25,447		12,838		35,110		26,106
Less: net income attributable to noncontrolling interests, net of tax		—		118		—		450
Net income available to Virtusa stockholders		25,447		12,720		35,110		25,656
Less: Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		3,262		3,262
Net income available to Virtusa common stockholders	$	24,360	$	11,633	$	31,848	$	22,394
Basic earnings per share available to Virtusa common stockholders	$	0.80	$	0.39	$	1.05	$	0.75
Diluted earnings per share available to Virtusa common stockholders	$	0.75	$	0.38	$	1.04	$	0.73

See accompanying notes to unaudited consolidated financial statements

Table of Contents

Virtusa Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

~~(Unaudited)~~

(Unaudited)

(In ~~thousands, except per share amounts)~~thousands)

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Revenue

$
263,809

$
217,209

739,328

$
632,769

Costs of revenue

183,420

154,847

528,103

460,776

Gross profit

80,389

62,362

211,225

171,993

Operating expenses:

Selling, general and administrative expenses

66,726

55,904

181,213

163,846

Income from operations

13,663

6,458

30,012

8,147

Other income (expense):

Interest income

1,080

1,021

3,012

3,050

Interest expense

(1,305
)
(1,920
)
(4,376
)
(5,657
)
Foreign currency transaction gains (losses)

2,576

(1,252
)
1,019

(2,802
)
Other, net

492

(180
)
1,376

371

Total other income (expense)

2,843

(2,331
)
1,031

(5,038
)
Income before income tax expense

16,506

4,127

31,043

3,109

Income tax expense (benefit)

24,427

(1,414
)
26,725

(1,378
)
Net income (loss)

$
(7,921
)
$
5,541

$
4,318

$
4,487

Less: net income attributable to noncontrolling interests, net of tax

2,134

1,106

5,947

3,094

Net income (loss) available to Virtusa stockholders

$
(10,055
)
$
4,435

$
(1,629
)
$
1,393

Less: Series A Convertible Preferred Stock dividends and accretion

1,087

—

2,875

—

Net income (loss) available to Virtusa common stockholders

(11,142
)
4,435

(4,504
)
1,393

Basic earnings (loss) per share available to Virtusa common stockholders

$
(0.38
)
$
0.15

$
(0.15
)
$
0.05

Diluted earnings (loss) per share available to Virtusa common stockholders

$
(0.38
)
$
0.15

$
(0.15
)
$
0.05


	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2020		2019		2020		2019

Net income	$	25,447	$	12,838	$	35,110	$	26,106
Other comprehensive income (loss):
Foreign currency translation adjustment		5,933		4,630		13,618		(2,106)
Pension plan adjustment, net of tax effect		114		79		285		(606)
Unrealized loss on available-for-sale debt securities, net of tax effect		—		—		—		—
Unrealized gain (loss) on effective cash flow hedges, net of tax effect		762		(2,817)		4,970		(5,031)
Other comprehensive income (loss)	$	6,809	$	1,892	$	18,873	$	(7,743)
Comprehensive income		32,256		14,730		53,983		18,363
Less: comprehensive income attributable to noncontrolling interest, net of tax		—		484		—		849
Comprehensive income available to Virtusa stockholders	$	32,256	$	14,246	$	53,983	$	17,514

See accompanying notes to unaudited consolidated financial statements

Table of Contents

Virtusa Corporation and Subsidiaries

Consolidated Statements of ~~Comprehensive Income (Loss)~~

~~(Unaudited)~~Stockholders’ Equity

For the Three and Nine Months Ended December 31, 2020 and 2019

(Unaudited)

(In ~~thousands)~~thousands, except share amounts)

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Net income (loss)

$
(7,921
)
$
5,541

$
4,318

$
4,487

Other comprehensive income (loss):

Foreign currency translation adjustments

$
4,641

$
(8,876
)
$
9,068

$
(12,079
)
Pension plan adjustment

31

42

123

358

Unrealized gain (loss) on available-for-sale securities, net of tax

8

49

212

(115
)
Unrealized gain (loss) on effective cash flow hedges, net of tax

(106
)
145

(8,314
)
4,734

Other comprehensive income (loss)

$
4,574

$
(8,640
)
$
1,089

$
(7,102
)
Comprehensive income (loss)

$
(3,347
)
$
(3,099
)
$
5,407

$
(2,615
)
Less: comprehensive income (loss) attributable to noncontrolling interest, net of tax

3,930

(856
)
7,238

684

Comprehensive loss available to Virtusa stockholders

$
(7,277
)
$
(2,243
)
$
(1,831
)
$
(3,299
)


											Accumulated
							Additional				Other		Total
	Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at March 31, 2020	33,518,389	$	335	(3,385,564)	$	(58,332)	$	246,862	$	293,831	$	(85,255)	$	397,441
Proceeds from the exercise of stock options	5,741		—	—		—		92		—		—		92
Restricted stock awards vested	108,414		1	—		—		(1)		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(1,914)		—		—		(1,914)
Share-based compensation	—		—	—		—		3,592		—		—		3,592
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,087)		—		(1,087)
Other comprehensive income	—		—	—		—		—		—		4,281		4,281
Net income	—		—	—		—		—		894		—		894
Balance at June 30, 2020	33,632,544	$	336	(3,385,564)	$	(58,332)	$	248,631	$	293,638	$	(80,974)	$	403,299
Proceeds from the exercise of stock options	24,868		—	—		—		472		—		—		472
Restricted stock awards vested	37,661		1	—		—		(1)		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(167)		—		—		(167)
Share-based compensation	—		—	—		—		4,078		—		—		4,078
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,088)		—		(1,088)
Other comprehensive income	—		—	—		—		—		—		7,783		7,783
Net income	—		—	—		—		—		8,769		—		8,769
Balance at September 30, 2020	33,695,073	$	337	(3,385,564)	$	(58,332)	$	253,013	$	301,319	$	(73,191)	$	423,146
Proceeds from the exercise of stock options	15,037		—	—		—		257		—		—		257
Restricted stock awards vested	7,425		—	—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(110)		—		—		(110)
Share-based compensation	—		—	—		—		4,027		—		—		4,027
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,087)		—		(1,087)
Other comprehensive income	—		—	—		—		—		—		6,809		6,809
Net income	—		—	—		—		—		25,447		—		25,447
Balance at December 31, 2020	33,717,535	$	337	(3,385,564)	$	(58,332)	$	257,187	$	325,679	$	(66,382)	$	458,489

Table of Contents


											Accumulated		Total
							Additional				Other		Virtusa				Total		Redeemable
	Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive		Stockholders’		Noncontrolling		Stockholders’		Noncontrolling
	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity		Interest		Equity		Interest
Balance at March 31, 2019	33,012,775	$	330	(2,879,999)	$	(39,652)	$	239,204	$	250,279	$	(59,387)	$	390,774	$	—	$	390,774	$	23,576
Proceeds from the exercise of stock options	13,416		—	—		—		194		—		—		194		—		194		8
Restricted stock awards vested	96,763		1	—		—		(1)		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(2,011)		—		—		(2,011)		—		(2,011)		—
Share-based compensation	—		—	—		—		6,674		—		—		6,674		—		6,674		—
Adjustments of redeemable noncontrolling interest to redemption value	—		—	—		—		18		—		—		18		—		18		170
Purchase of redeemable noncontrolling interest related to Polaris	—		—	—		—		—		—		—		—		—		—		(5,549)
Foreign currency translation on redeemable noncontrolling interest	—		—	—		—		—		—		—		—		—		—		116
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,087)		—		(1,087)		—		(1,087)		—
Other comprehensive income (loss)	—		—	—		—		—		—		(1,194)		(1,194)		—		(1,194)		144
Net income	—		—	—		—		—		5,834		—		5,834		—		5,834		186
Balance at June 30, 2019	33,122,954	$	331	(2,879,999)	$	(39,652)	$	244,078	$	255,026	$	(60,581)	$	399,202	$	—	$	399,202	$	18,651
Restricted stock awards vested	101,178		1	—		—		(1)		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(1,647)		—		—		(1,647)		—		(1,647)		—
Share-based compensation	—		—	—		—		5,829		—		—		5,829		—		5,829		—
Repurchase of common stock	—		—	(505,565)		(18,680)		—		—		—		(18,680)		—		(18,680)		—
Adjustments of redeemable noncontrolling interest to redemption value	—		—	—		—		25		—		—		25		—		25		101
Purchase of redeemable noncontrolling interest related to Polaris	—		—	—		—		—		—		—		—		—		—		(3,126)
Foreign currency translation on redeemable noncontrolling interest	—		—	—		—		—		—		—		—		—		—		(533)
Reclassification of noncontrolling interest from temporary equity to permanent equity	—		—	—		—		—		—		—		—		15,093		15,093		(15,093)
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,088)		—		(1,088)		—		(1,088)		—
Other comprehensive income (loss)	—		—	—		—		—		—		(8,474)		(8,474)		(111)		(8,585)		—
Net income	—		—	—		—		—		7,102		—		7,102		146		7,248		—
Balance at September 30, 2019	33,224,132	$	332	(3,385,564)	$	(58,332)	$	248,284	$	261,040	$	(69,055)	$	382,269	$	15,128	$	397,397	$	—
Proceeds from the exercise of stock options	15,914		—	—		—		233		—		—		233		—		233		—
Restricted stock awards vested	6,027		—	—		—		—		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(126)		—		—		(126)		—		(126)		—
Share-based compensation	—		—	—		—		5,750		—		—		5,750		—		5,750		—
Reclassification of noncontrolling interest from permanent equity to liability	—		—	—		—		—		—		—		—		(13,564)		(13,564)		—
Adjustments for reclassification of noncontrolling interest	—		—	—		—		2,011		—		—		2,011		(2,048)		(37)		—
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,087)		—		(1,087)		—		(1,087)		—
Other comprehensive income (loss)	—		—	—		—		—		—		1,526		1,526		366		1,892		—
Net income	—		—	—		—		—		12,720		—		12,720		118		12,838		—
Balance at December 31, 2019	33,246,073	$	332	(3,385,564)	$	(58,332)	$	256,152	$	272,673	$	(67,529)	$	403,296	$	—	$	403,296	$	—

See accompanying notes to unaudited consolidated financialstatements

Table of Contents

Virtusa Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended
	December 31,
	2020		2019
Cash flows from operating activities:
Net income	$	35,110	$	26,106
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,930		23,672
Share-based compensation expense		11,697		18,285
Gain on redemption of equity method investment		(1,179)		—
Provision (recovery) for doubtful accounts		(22)		26
Loss (gain) on disposal of property and equipment		543		(403)
Impairment of investment		—		184
Foreign currency transaction (gains) losses, net		(3,983)		5,300
Amortization of discounts and premiums on investments		—		(6)
Impairment of operating lease right-of-use asset		1,413		—
Amortization of debt issuance cost		1,148		863
Deferred income taxes, net		39		(970)
Net changes in operating assets and liabilities
Accounts receivable and unbilled receivable		80,130		19,129
Prepaid expenses and other current assets		7,178		(1,258)
Other long-term assets		2,152		(11,239)
Accounts payable		(14,870)		(12,730)
Accrued employee compensation and benefits		8,861		4,611
Accrued expenses and other current liabilities		8,828		1,895
Operating lease liabilities		(715)		172
Income taxes payable		5,676		2,537
Other long-term liabilities		3,480		(1,720)
Net cash provided by operating activities		171,416		74,454
Cash flows from investing activities:
Proceeds from sale of property and equipment		11,902		825
Purchase of short-term investments		(42)		(34,969)
Proceeds from sale or maturity of short-term investments		7,217		47,716
Payment for asset acquisitions		(27)		(9,192)
Payment of contingent consideration of asset acquisitions		—		(942)
Payment of deferred consideration related to business acquisitions		(10,313)		(17,500)
Purchase of property and equipment		(5,865)		(10,865)
Net cash provided by (used in) investing activities		2,872		(24,927)
Cash flows from financing activities:
Proceeds from exercise of common stock options		821		427
Proceeds from exercise of subsidiary stock options		—		93
Payment of debt issuance costs		(813)		(808)
Proceeds from revolving credit facility		—		36,000
Payment of debt		(13,008)		(9,141)
Repurchase of common stock		—		(18,680)
Payments of withholding taxes related to net share settlements of restricted stock		(2,191)		(3,783)
Purchase of redeemable noncontrolling interest related to Polaris		—		(8,675)
Payment of noncontrolling interest		—		(12,534)
Principal payments on capital lease obligation		—		(36)
Payment of dividend on Series A Convertible Preferred Stock		(3,138)		(3,138)
Payment of debt issuance costs		—		—
Payment of revolving credit facility		(105,000)		—
Payment of contingent consideration related to acquisitions		(5,767)		—
Net cash used in financing activities		(129,096)		(20,275)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		16,269		(131)
Net increase in cash and cash equivalents and restricted cash		61,461		29,121
Cash, cash equivalents and restricted cash, beginning of year		291,601		190,113
Cash, cash equivalents and restricted cash, end of period	$	353,062	$	219,234

Table of Contents

Virtusa Corporation and Subsidiaries

Consolidated Statements of Cash Flows

~~(Unaudited)~~

(Unaudited)

(In thousands)

Nine Months Ended
December 31,

2017

2016

Cash flows from operating activities:

Net income

$
4,318

$
4,487

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

Depreciation and amortization

20,711

19,185

Share-based compensation expense

20,048

17,023

Provision for doubtful accounts

1,025

702

Gain on disposal of property and equipment

(40
)
(388
)
Foreign currency transaction (gains) losses, net

(1,019
)
2,802

Amortization of discounts and premiums on investments

258

807

Amortization of debt issuance cost

847

847

Deferred income taxes, net

5,219

454

Net change in operating assets and liabilities:

Accounts receivable and unbilled receivable

(6,754
)
(3,669
)
Prepaid expenses and other current assets

(3,860
)
(4,422
)
Other long-term assets

(2,760
)
10,753

Accounts payable

(352
)
7,356

Accrued employee compensation and benefits

2,167

(12,104
)
Accrued expenses and other current liabilities

6,855

1,033

Income taxes payable

(4,300
)
(14,593
)
Other long-term liabilities

11,818

(5,459
)
Net cash provided by operating activities

54,181

24,814

Cash flows from investing activities:

Proceeds from sale of property and equipment

217

2,536

Purchase of short-term investments

(88,033
)
(100,131
)
Proceeds from sale or maturity of short-term investments

118,614

99,888

Purchase of long-term investments

(16,772
)
(28,984
)
Proceeds from sale or maturity of long-term investments

1,606

7,116

(Increase) decrease in restricted cash

(119
)
92,651

Business acquisition, net of cash acquired

(600
)
(3,460
)
Purchase of property and equipment

(11,242
)
(10,947
)
Net cash provided by investing activities

3,671

58,669

Cash flows from financing activities:

Proceeds from exercise of common stock options

3,351

816

Proceeds from exercise of subsidiary stock options

636

357

Payment of debt

(81,000
)
(7,500
)
Payments of withholding taxes related to net share settlements of restricted stock

(2,753
)
(3,803
)
Series A Convertible Preferred Stock proceeds, net of issuance costs of $1,154

106,846

—

Repurchase of common stock

(30,000
)
—

Payment of contingent consideration related to acquisitions

—

(830
)
Acquisition of noncontrolling interest

—

(89,147
)
Payment of other noncontrolling interest

—

(50
)
Borrowings on revolving credit facility

25,000

—

Proceeds from subsidiary stock sale

—

7,236

Principal payments on capital lease obligation

(161
)
(118
)
Payment of dividend on Series A Convertible Preferred Stock

(2,081
)
—

Net cash provided by (used in) financing activities

19,838

(93,039
)
Effect of exchange rate changes on cash and cash equivalents

4,120

(5,552
)
Net increase (decrease) in cash and cash equivalents

81,810

(15,108
)
Cash and cash equivalents, beginning of period

144,908

148,986

Cash and cash equivalents, end of period

$
226,718

$
133,878

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



	December 31, 2020		March 31, 2020
Balance sheet classification
Cash and cash equivalents	$	347,173	$	290,837

Restricted cash in current assets		5,786		659
Restricted cash in other long-term assets		103		105
Total restricted cash	$	5,889	$	764
Total cash, cash equivalents and restricted cash	$	353,062	$	291,601

Seeaccompanying notes to unaudited consolidated financial statements

Table of Contents

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~(Unaudited)~~

(Unaudited)

(In thousands, except share and per share amounts)

(1) Nature of the Business

Virtusa Corporation (the “Company”, “Virtusa”, “we”, “us” or “our”) is a global provider of digital business strategy, digital engineering and information technology (“IT”) ~~consulting~~services and ~~outsourcing services~~solutions that ~~accelerate business outcomes for our clients.~~help clients change, disrupt, and unlock new value through innovation engineering. We support ~~Forbes~~ Global 2000 clients across ~~large, consumer facing~~key industries ~~like Banking & Financial Services, Insurance, Healthcare, Communications,~~including banking, financial services, insurance, healthcare, communications, technology, and ~~Media & Entertainment, as they look to~~media and entertainment. We help improve ~~their~~ business performance through accelerating revenue growth, delivering compelling consumer experiences, improving operational efficiencies, and lowering overall IT costs. We provide services across the entire spectrum of the IT services lifecycle, from ~~strategy &~~ consulting, to technology &and user experience (“UX”) design, development of IT applications, systems integration, digital engineering, testing &and business assurance, and maintenance and support services, including cloud, infrastructure and managed services. ~~Our services leverage~~We help our clients solve critical business problems by leveraging a combination of our distinctive consulting approach, ~~and~~end-to-end digital engineering capabilities, unique platforming methodology, ~~to transform our clients’ businesses through~~and deep domain and technology expertise.

Virtusa helps clients grow their business with innovative services that create operational efficiency using digital labor, future-proof operational and IT platforms, and rationalization and modernization of IT applications infrastructure. We help organizations realize the ~~innovative use~~benefits of ~~technology~~digital transformation and ~~domain knowledge to solve critical business problems. Our services enable our clients to accelerate business outcomes~~cloud transformation by ~~consolidating, rationalizing~~bringing together digital infrastructure, analytics and ~~modernizing their core customer-facing processes into one or more core systems.~~intelligence and customer experience by engineering the digital enterprise of tomorrow on the cloud. We deliver ~~cost-effective~~cost effective solutions through a global delivery model, applying advanced methods such as Agile, an industry standard technique designed to accelerate application development. We ~~also~~ use our ~~consulting methodology, which we refer~~Digital Transformation Studio (“DTS”) engineering tools to ~~as Accelerated Solution Design (“ASD”), which is a collaborative decision-making~~drive software development lifecycle automation to improve quality, enabling speed and ~~design process performed with the client, to ensure our solutions meet the client’s specifications~~increasing productivity. Our proprietary DTS was built by Virtusa’s engineering teams that have decades of industry knowledge and ~~requirements. Our~~experience. These teams are certified and leverage Virtusa’s industry leading ~~business transformational solutions combine deep domain expertise with our strengths in software engineering~~tools and ~~business consulting to support our clients’ business imperative initiatives across business growth~~assets, providing increased speed and ~~IT operations.~~

transparency.

Headquartered in Massachusetts, we have offices throughout the Americas, Europe, Middle East and Asia, with significant global delivery centers in the United States, ~~Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, Austria, the United Arab Emirates, Hong Kong, Japan, Australia and New Zealand, with global delivery centers in~~ India, Sri Lanka, Hungary, Singapore and ~~Malaysia, as well as near shore delivery centers in the United States.~~Malaysia.We also have many employees who work with our clients either onsite or virtually, which offers flexibility for both clients and employees.

(2) Unaudited Interim Financial Information

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles and Article 10 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, and should be read in conjunction with the Company’s audited consolidated financial statements (and notes thereto) for the fiscal year ended March 31, ~~2017~~2020 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May ~~26, 2017.~~28, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of the accompanying unaudited consolidated financial statements have been included, and all material adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire fiscal year.

Table of Contents

Principles of Consolidation

The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of Virtusa Corporation and all of its subsidiaries that are directly or indirectly more than 50% owned or controlled. When the Company does not have a controlling interest in an entity, but exerts a significant influence on the entity, the Company applies the equity method of accounting. For those majority-owned subsidiaries that are not 100% owned by the Company, the interests of the minority owners are accounted for as noncontrolling interests.

The consolidated financial statements reflect the accounts of the Company and its direct and indirect subsidiaries: Virtusa Consulting Services Private Limited, Virtusa Software Services Private Limited, Virtusa Technologies (India) Private Limited, Polaris Consulting & Services Limited and Optimus Global Services Limited, each organized and located in India; Virtusa (Private) Limited, organized and located in Sri Lanka; Virtusa UK Limited and Polaris Consulting & Services Limited, each organized and located in the United Kingdom; Virtusa US LLC, Virtusa Securities Corporation, a Massachusetts securities corporation and Apparatus, Inc. organized and located in Indiana, each organized and located in the United States; Virtusa International, B.V., Virtusa C.V., Virtusa

Netherlands Cooperatief U.A. and Polaris Consulting & Services B.V., each organized and located in the Netherlands; Virtusa Hungary Kft. and Polaris Consulting & Services, Kft., each organized and located in Hungary; Virtusa Germany GmbH and Polaris Consulting & Services GmbH, each organized and located in Germany; Virtusa Switzerland GmbH and Polaris Consulting & Services SA, each organized and located in Switzerland; Virtusa Singapore Private Limited and Polaris Consulting & Services Pte Limited, each organized and located in Singapore; Virtusa Malaysia Private Limited Company and Polaris Consulting & Services, SND BHD, each organized and located in Malaysia; Virtusa Austria GmbH, organized and located in Austria; Virtusa Philippines Inc., organized and located in the Philippines; TradeTech Consulting Scandinavia AB, organized and located in Sweden; Virtusa Canada, Inc. and Polaris Consulting & Services Inc, each organized and located in Canada; Polaris Consulting & Services Ireland Limited, organized and located in Ireland; Polaris Consulting & Services Japan K.K., organized and located in Japan; Polaris Consulting & Services Pty Ltd., organized and located in Australia; Polaris Consulting & Services FZ-LLC, organized and located in United Arab Emirates; and Polaris Software Lab (Shanghai) Limited, organized and located in China. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Management re-evaluates these estimates on an ongoing basis. The most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities, intangible assets ~~contingent consideration~~ and valuation of financial instruments including derivative contracts and investments. Management bases its estimates on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated financial statements.

Fair Value of Financial Instruments

At December 31, ~~2017~~2020 and March 31, ~~2017,~~2020, the carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits, other accrued expenses and long-term debt, approximate their fair values due to the nature of the items. See Note 5 ~~of the notes to our financial statements~~7 for a discussion of the fair value of the Company’s other financial instruments.

Recent accounting pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2018. Early application is permitted but not before periods beginning on or after January 1, 2017. In March, April and May 2016, the FASB issued updates to the new revenue standard to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross versus net, identifying performance obligations, accounting for licenses of intellectual property, transition, contract modifications, collectability, non-cash consideration and presentation of sales and other similar taxes with the same effective date. The standard permits the use of either the retrospective or cumulative effect transition method. The Company plans to adopt the standard using the modified retrospective method when it becomes effective for the Company in the first quarter of fiscal 2019.Recently Adopted Accounting Pronouncements

The Company’s project team is finalizing its review of existing customer contracts and current accounting policies to identify and assess the potential differences that would result from applying the requirements of the new standard including costs to obtain and fulfill a contract. The Company is also in the process of identifying and implementing changes to the Company’s processes to meet the reporting and disclosure requirements. The Company currently records approximately 86% of its annual revenue on a time-and-material (60%) or retainer-billing basis (26%), with the remaining 14% recorded under either a percentage of completion or proportional performance methods of accounting using an inputs methodology for fixed price projects. For the Company’s revenue recorded under the time-and-material or retainer billings methods of accounting, the Company does not expect this new standard to change the timing or the amount of revenue that is currently recorded. The Company is currently evaluating the revenue recorded under its fixed price percentage of completion and proportional performance projects to determine if the manner or timing of revenue recognition would change for existing projects. The Company generally expects to continue to recognize revenue over time based on the measured progress of satisfaction of the performance obligations for its fixed price projects, which is consistent with the Company’s current method. Overall, the Company believes that its implementation efforts are progressing as planned to allow a timely implementation.

December 15, 2017, including interim periods within those fiscal years. Upon adoption, entities will be required to make a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. However, the specific guidance on equity securities without readily determinable fair value will apply prospectively to all equity investments that exist as of the date of adoption. Early adoption of certain sections of this update is permitted. Based on the Company’s current investment portfolio,Unless otherwise discussed below, the adoption of ~~this guidance is~~new accounting standards did not ~~expected to~~ have ~~a material~~an impact on the consolidated financial statements.

In February 2016, the FASB issued as update (ASU 2016-02) to the standard on leases to increase transparency and comparability among organizations. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption of this new standard is permitted. Entities will be required to use a modified retrospective transition which provides for certain practical expedients. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued an update (ASU 2016-09) to the standard on Compensation- Stock Compensation, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Upon adoption, entities will be required to apply a modified retrospective, prospective or retrospective transition method depending on the specific section of the guidance being adopted. The Company adopted this guidance effective April 1, 2017 and the following describe the results of adoption:

· The Company prospectively recognized tax expenses of $23 and tax benefits of $1,127 in the income tax expense line item of its consolidated statements of income in the three and nine months ended December 31, 2017, respectively, related to excess tax benefits on stock options;

· The Company changed its accounting policy from estimated forfeitures to actual forfeitures effective April 1, 2017. The cumulative impact of the change in the accounting policy did not have a material impact on the consolidated financial statements, therefore prior period amounts have not been restated;

· The Company elected to adopt cash flow presentation of excess tax benefits retrospectively where these benefits are classified along with other income tax cash flows as operating cash flows. Accordingly, prior period amounts in the consolidated statement of cash flows have been restated;

· The Company adopted cash flow presentation of taxes paid when an employer withholds shares for tax-withholding purposes retrospectively and classified as a financing activity in the Company’s statement of cash flows. Accordingly, prior period amounts have been restated;

· The remaining amendments to this standard, as noted above, are either not applicable, or do not change the Company’s current accounting practices and thus do not impact its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. The FASB subsequently issued guidance which provide clarifications and improvements to this new standard. The amendments in this update changed how companies measure and recognize credit impairment for many financial assets. The new credit loss model requires companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets (including accounts receivables) that are in the scope of the update. The standard update also made amendments to the current impairment model for available-for-sale debt securities. This ~~standard~~ update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This update is effective for public entities from fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ~~Early adoption is permitted.~~

The Company ~~is currently evaluating the effect of~~adopted this ~~new~~ standard ~~will have on its consolidated financial statements and related disclosures.~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This update is intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows. This standard update addresses eight specific cash flow issues, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. The guidance is(“ASC Topic 326”) effective ~~for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires application~~April 1, 2020 using a modified retrospective ~~transition method.~~approach. Prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting policies. The adoption of this guidance isdid not ~~expected to~~ have a material impact on the consolidated financial ~~statements.~~

~~In October 2016,~~statements, therefore, the ~~FASB issued ASU 2016-16, an update~~Company did not record any cumulative adjustments to the standard on income taxes. This new standard requires the recognition of current and deferred income taxes when an intra-entity transfer of assets other than inventory occurs. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2017. Early adoption is

~~permitted~~opening retained earnings in the ~~first interim period. Upon adoption,~~consolidated financial statements.

See Note 9, “Revenues and Accounts Receivable” for additional information regarding credit losses.

Table of Contents

New Accounting Pronouncements

Unless otherwise discussed below, the ~~entities~~Company believes the impact of recently issued standards that are not yet effective will ~~be required to use a modified retrospective transition approach. The adoption of this guidance is~~ not ~~expected to~~ have a material impact on ~~the~~its consolidated financial statements.

In ~~November 2016,~~December 2019, the FASB issued ASU ~~2016-18, Restricted Cash~~2019-12, Income Taxes (Topic ~~230)~~740), which ~~is intended to reduce diversity~~enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as step up in ~~practice on how~~the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, ownership changes in ~~restricted cash are classified~~investments, and ~~presented~~interim-period accounting for enacted changes in the statement of cash flows. This ASU requires amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.tax law. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The amendments in this update should be applied using a retrospective transition method to each period presented. The adoption of this guidance will impact the Company’s presentation of cash and cash equivalents. As of December 31, 2017 and March 31, 2017, the Company’s restricted cash was $300 and $178, respectively.

In January 2017, the FASB issued ASU 2017-01, an update on business combinations, which clarifies the definition of a business. The update requires a business to include at least an input and a substantive process that together significantly contribute to the ability to create outputs. The update also states that the definition of a business is not met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2018. Upon adoption, entitiesstandard will be ~~required to apply the update prospectively. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.~~

In January 2017, the FASB issued ASU 2017-04, an update on goodwill, which eliminates the need to calculate the implied fair value of goodwill when an impairment is indicated. The update states that goodwill impairment is measured as the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, a guidance on presentation of net periodic pension cost and net periodic postretirement benefit cost. The new standard requires that an employer disaggregate the service costs components of net benefit cost. The employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component, such as in other income and expense. The guidance is effective for fiscal years beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements. The Company’s current presentation of service cost components is consistent with the requirements of the new standard. Upon adoption of the new standard, the Company expects to present the other components within other (income) expense.

In March 2017, FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this update shorten the amortization period for certain callable debt securities that are held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which would be amortized to maturity. This ASU is effective for fiscal years and2020, including interim periods within those fiscal ~~years, beginning after December 15, 2018, which for us is the first quarter ending December 31, 2019.~~years. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, an update that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under ASC 718, Compensation — Stock Compensation. Under the amendments in ASU 2017-09, an entity should account for the effects of a modification unless all of the following criteria are met: 1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified — if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2) the vesting conditions of the modified award are the same as the conditions of the original award immediately before the original award is modified; 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. These amendments are intended to better align a company’s risk management strategies and financial reporting for hedging relationships. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. In addition, the new guidance amends presentation and disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including the interim periods within those years. The guidance requires the use of a modified retrospective approach. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements and related disclosures.

(3) Earnings ~~(Loss)~~ per Share

Basic earnings ~~(loss)~~ per share available to Virtusa common ~~stock holders~~stockholders (“EPS”) is computed by dividing net income, ~~(loss),~~ less any dividends and accretion of issuance cost on the Series A Convertible Preferred Stock by the weighted average number of shares of common stock outstanding for the period. In computing diluted EPS, the Company adjusts the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the Series A Convertible Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A Convertible Preferred Stock to its redemption price. The Company adjusts the denominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from the issuance of restricted stock units, unvested restricted stock and stock options along with the conversion of the Series A Convertible Preferred Stock to common stock. The following table sets forth the computation of basic and diluted EPS for the periods set forth below:

The components of basic earnings ~~(loss)~~ per share are as follows:

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Numerator:

Net income (loss) available to Virtusa stockholders

$
(10,055
)
$
4,435

$
(1,629
)
$
1,393

Less: Series A Convertible Preferred Stock dividends and accretion

1,087

—

2,875

—

Net income (loss) available to Virtusa common stockholders

(11,142
)
4,435

(4,504
)
1,393

Denominator:

Basic weighted average common shares outstanding

29,295,730

29,704,526

29,387,977

29,602,331

Basic earnings (loss) per share available to Virtusa common stockholders

$
(0.38
)
$
0.15

$
(0.15
)
$
0.05


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Numerators:
Net income available to Virtusa stockholders	$	25,447	$	12,720	$	35,110	$	25,656
Less: Series A Convertible Preferred Stock dividends and accretion		(1,087)		(1,087)		(3,262)		(3,262)
Net income available to Virtusa common stockholders	$	24,360	$	11,633	$	31,848	$	22,394
Denominators:
Basic weighted average common shares outstanding		30,319,615		29,849,368		30,252,264		30,041,740
Basic earnings per share available to Virtusa common stockholders	$	0.80	$	0.39	$	1.05	$	0.75

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The components of diluted earnings ~~(loss)~~ per share are as follows:

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Numerator:

Net income (loss) available to Virtusa common stockholders

$
(11,142
)
$
4,435

$
(4,504
)
$
1,393

Add: Series A Convertible Preferred Stock dividends and accretion

—

—

—

—

Net income (loss) available to Virtusa common stockholders

(11,142
)
4,435

(4,504
)
1,393

Denominator:

Basic weighted average common shares outstanding

29,295,730

29,704,526

29,387,977

29,602,331

Dilutive effect of Series A Convertible Preferred Stock

—

—

—

—

Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units

—

447,064

—

519,414

Dilutive effect of stock appreciation rights

—

—

—

7,633

Weighted average shares-diluted

29,295,730

30,151,590

29,387,977

30,129,378

Diluted earnings (loss) per share available to Virtusa common stockholders

$
(0.38
)
$
0.15

$
(0.15
)
$
0.05


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Numerators:
Net income available to Virtusa common stockholders	$	24,360	$	11,633	$	31,848	$	22,394
Add : Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		—		—
Net income available to Virtusa common stockholders and assumed conversion	$	25,447	$	12,720	$	31,848	$	22,394
Denominators:
Basic weighted average common shares outstanding		30,319,615		29,849,368		30,252,264		30,041,740
Dilutive effect of Series A Convertible Preferred Stock if converted		3,000,000		3,000,000		—		—
Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units		577,981		608,863		412,878		658,529
Weighted average shares—diluted		33,897,596		33,458,231		30,665,142		30,700,269
Diluted earnings per share available to Virtusa common stockholders	$	0.75	$	0.38	$	1.04	$	0.73

During the three months ended December 31, ~~2017~~2020 and ~~2016,~~2019, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase ~~743,949~~823 and ~~649,414 shares of common stock, respectively, were excluded from the calculations of diluted earnings (loss) per share as their effect would have been anti-dilutive.~~ For the three months ended December 31, 2017, the 3,000,000 weighted average shares of the Series A Convertible Preferred Stock, on an as converted basis, were excluded from diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

~~During the nine months ended December 31, 2017 and 2016, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase 764,154 and 466,936~~24,037 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive. For the ~~nine~~three months ended December 31, ~~2017,~~2020 and 2019 all of the ~~2,637,363 weighted average~~3,000,000 shares of ~~the~~ Series A Convertible Preferred Stock ~~on an as converted basis,~~ were ~~excluded from~~included in the calculations of diluted earnings per share as their effect would have been ~~anti-dilutive using~~anti-dilutive.

During the ~~if-converted method.~~nine months ended December 31, 2020 and 2019, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase 127,504 and 100,434 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive. For the nine months ended December 31, 2020 and 2019, all of the 3,000,000 shares of Series A Convertible Preferred Stock were excluded in the calculations of diluted earnings per share as their effect would have been anti-dilutive.

(4)Proposed Merger with Austin HoldCo Inc., an entity wholly-owned by funds affiliated with Baring Private Equity Asia

On September 9, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Austin HoldCo Inc., an entity wholly-owned by funds affiliated with Baring Private Equity Asia (“Parent”), and Austin BidCo Inc., a wholly-owned subsidiary of Parent (“Sub”), with respect to the acquisition of the Company by Parent for $51.35 in cash for each share of Virtusa common stock.

Pursuant to the Merger Agreement, Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Consummation of the Merger is subject to various conditions, including, among others, customary conditions relating to the approval of the Merger Agreement by the requisite vote of the Company’s stockholders, the receipt of certain foreign regulatory approvals and the approval or other clearance of the Committee on Foreign Investments in the United States (“CFIUS”). The applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), with respect to the transactions contemplated by the Merger Agreement expired on October 23, 2020 without any review. Consummation of the Merger is not subject to any financing condition, and is expected to occur in the first half of calendar year 2021. On December 21, 2020, the Company received written notice from the Committee on Foreign Investment in the United States (“CFIUS”) that it had concluded its review under Section 721 of the Defense Production Act of 1950, as amended, of the Merger. CFIUS determined that there are no unresolved national security concerns with respect to the Merger. Receipt of the CFIUS clearance satisfies a certain condition to the closing of the Merger. On November 20, 2020, via a special meeting

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of stockholders, the stockholders of the Company approved and adopted the Merger Agreement. On January 11, 2021, the Competition Commission of India (“CCI”) approved the Merger. The closing of the Merger remains subject to the satisfaction or waiver of the remaining conditions to the Merger set forth in the Merger Agreement.

The Company expects to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Merger. During the nine months ended December 31, 2020, the Company incurred approximately $6,367 as transaction costs in connection with the Merger. If the Merger Agreement is terminated under specified circumstances, the Company may be required to pay a termination fee of $54,330 to Austin HoldCo Inc.

(5) Business Combinations

During the fiscal year ended March 31, 2020, the Company acquired 3 individually immaterial businesses with an aggregate purchase price of $29,624 being paid at closing and a deferred consideration of $10,313 payable within a one-year period. The purchase price is also subject to adjustment after the closing of up to an additional $28,853 in contingent consideration, in the aggregate, upon the achievement of certain revenue and operating margin targets. The performance period for these targets are ranging from 12 months to 24 months from the respective acquisition date. These acquisitions enhanced the breadth and depth of digital offerings and expanded the Company’s relationship with certain existing customers.

Under the purchase method of accounting, assets acquired are recorded at their estimated fair values. During the nine months ended December 31, 2020, the Company completed its purchase price allocation for all of the 3 acquired businesses. During the nine months ended December 31, 2020, the Company paid $10,313 in deferred consideration and $4,051 in contingent consideration related to these acquisitions. During the nine months ended December 31, 2020, the Company recorded $5,942 as a reduction of goodwill related to updating the fair value assessment of contingent consideration of $4,178, customer relationships of $1,513 and other adjustments of $251.

The following table shows the aggregate purchase price allocation for these acquisitions:


	Amount		Useful Life
Consideration Transferred:
Cash paid at closing	$	29,624
Deferred consideration payable		10,313
Fair value of contingent consideration		20,786
Fair value of consideration		60,723
Less: Cash acquired		(477)
Total purchase price, net of cash acquired	$	60,246
Assets and Liabilities:
Cash and cash equivalents		477
Goodwill		21,374
Customer relationships		39,319	5 -7 years
Other net		(447)
Total purchase price	$	60,723

The primary items that generated goodwill for these acquisitions are the value of the acquired assembled workforce and other benefits expected to result from combining the acquired operations with those of the Company, neither of which qualify as a separate intangible asset.

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During the nine months ended December 31, 2020, the Company recorded $453 in the Company’s consolidated statements income as fair value changes to the contingent consideration related to events that occurred in the current period. As of December 31, 2020, the fair value of contingent consideration for these acquisitions is $16,405.

(6) Investment Securities

At December 31, ~~2017~~2020 and March 31, ~~2017,~~2020, all of the Company’s investment securities were classified as time deposits, available-for-sale debt securities and equity securities. These were carried on its balance sheet at their fair market value. A fair market value hierarchy based on three levels of inputs was used to measure each security (See Note 5 ~~of the notes~~7 to our consolidated financial statements for a discussion of the fair value of the Company’s other financial ~~instruments.)~~instruments).

The following is a summary of investment securities at December 31, ~~2017:~~2020:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Available-for-sale securities:

Corporate bonds:

Current

$
20,129

$
—

$
(58
)
20,071

Non-current

8,816

—

(46
)
8,770

Preference shares: Non-current

1,771

—

(84
)
1,687

Agency and short-term notes:

Current

801

—

(3
)
798

Mutual funds:

Current

24,640

443

—

25,083

Equity Shares/ Options:

Non-current

15

204

—

219

Time deposits:

Current

20,587

—

—

20,587

Total available-for-sale securities

$
76,759

$
647

$
(191
)
$
77,215


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Time Deposits:
Current	$	1,851	$	—	$	—	$	1,851
Equity securities:
Mutual funds:
Current		652		130		—		782
Equity Shares/ Options:
Non-current		1		21		—		22
Total investment securities	$	2,504	$	151	$	—	$	2,655

The following is a summary of investment securities at March 31, ~~2017:~~2020:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:

												Gross		Gross
										Amortized		Unrealized		Unrealized
										Cost		Gains		Losses		Fair Value
Time deposits:
Current	$	36,722	$	7	$	(55	)	$	36,674	$	3,927	$	—	$	—	$	3,927
Non-current	17,511		3		(48		)	17,466
Preference shares:
Current	1,633		—		(75		)	1,558
Non-current	1,829		—		(101		)	1,728
Agency and short-term notes:
Current	1,816		—		(3		)	1,813
Non-current	803		—		(3		)	800
Equity securities:
Mutual funds:
Current	17,934		371		—			18,305
Commercial paper:
Current	2,993		—		—			2,993			5,623		235		—		5,858
Equity Shares/ Options:
Non-current	17		46					63			1		3		—		4
Time deposits:
Current	10,685		—		—			10,685
Total available-for-sale securities	$	91,943	$	427	$	(285	)	$	92,085
Total investment securities										$	9,551	$	238	$	—	$	9,789

The Company evaluates ~~investments~~available-for-sale debt securities with unrealized losses to determine ifwhether a credit loss exists. The estimate of credit loss is determined by considering available information relevant to the collectability of the security and information about past events, current conditions, and reasonable and supportable forecasts. The allowance for credit loss is recorded as a charge to other income (expense), not to exceed the amount of the unrealized loss. Any excess unrealized loss greater than the credit loss is recognized in accumulated other comprehensive income ("AOCI"). We assess expected credit losses ~~are~~at the end of each reporting period and adjust the allowance through other ~~than temporary.~~income (expense). The Company ~~has determined that the gross unrealized losses at~~does not hold any available-for-sale debt securities as of December 31, ~~2017~~2020 and March 31, ~~2017 are temporary. In making this determination, the Company considered the financial condition, credit ratings and near-term prospects~~2020.

Table of the issuers, the underlying collateral of the investments, and the magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position. Additionally, while the Company classifies the securities as available for sale, the Company does not currently intend to sell such investments and it is more likely than not the Company will not be required to sell such investments prior to the recovery of their carrying value.Contents

Proceeds from sales of available-for-sale ~~investment~~debt and equity securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:

	Three Months Ended December 31,					Nine Months Ended December 31,
	2017			2016		2017			2016

Proceeds from sales of available-for-sale investment securities	$	57,391		$	24,249	$	120,220		$	107,004

											Three Months Ended				Nine Months Ended
											December 31,				December 31,
											2020		2019		2020		2019
Proceeds from sales or maturities of available-for-sale debt securities and equity securities											$	649	$	9,476	$	7,217	$	47,716
Gross gains	$	241		$	107	$	916		$	850	$	—	$	123	$	176	$	563
Gross losses	(36		)	—		(127		)	—			—		—		—		—
Net realized gains on sales of available-for-sale investment securities	$	205		$	107	$	789		$	850
Net realized gains on sales of available-for-sale debt securities and equity securities											$	—	$	123	$	176	$	563

~~(5)~~(7) Fair Value of Financial Instruments

The Company uses a framework for measuring fair value under U.S. generally accepted accounting principles and enhanced disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company’s financialcarries certain assets and liabilities ~~reflected in the consolidated financial statements~~ at carrying value include marketable securities and other financial instruments which approximate fair value. Fair value for marketable securities is determined using a market approach based on quoted market prices at period end in active markets. ~~The~~ fair value ~~hierarchy is based~~ on ~~three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following.~~

· ~~Level 1—Quoted prices in active markets for identical assets or liabilities.~~

· Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· ~~Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.~~

a recurring basis on its consolidated balance sheets. The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, ~~2017:~~2020

	Level 1		Level 2		Level 3		Total

									Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sales securities—current	$	—	$	66,539	$	—	$	66,539
Available-for-sales securities—non-current	—		10,676		—		10,676
Foreign currency derivative contracts	—		5,488		—		5,488
Interest Rate Swap Contracts	—		2,030		—		2,030
Time deposits—current									$	—	$	1,851		—	$	1,851
Equity securities—current										—		782		—		782
Equity securities—non-current										—		22		—		22
Derivative financial instruments:
Foreign currency derivative contracts—current										—		1,759		—		1,759
Foreign currency derivative contracts—non-current										—		—		—		—
Interest rate swap contracts										—		—		—		—
Total assets	$	—	$	84,733	$	—	$	84,733	$	—	$	4,414	$	—	$	4,414
Liabilities:
Foreign currency derivative contracts	$	—	$	110	$	—	110
Foreign currency derivative contracts—current										—		1,186		—		1,186
Foreign currency derivative contracts—non-current										—		—		—		—
Interest rate swap contracts—non-current										—		8,884		—		8,884
Contingent consideration	—		—		100		100			—		—		16,405		16,405
Total liabilities	$	—	$	110	$	100	$	210	$	—	$	10,070	$	16,405	$	26,475

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The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, ~~2017:~~2020:


	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Time deposits—current	$	—	$	3,927		—	$	3,927
Equity securities—current		—		5,858		—		5,858
Equity securities—non-current		—		4		—		4
Derivative financial instruments:
Foreign currency derivative contracts—current		—		103		—		103
Foreign currency derivative contracts—non-current		—		56		—		56
Interest rate swap contracts		—		—		—		—
Total assets	$	—	$	9,948	$	—	$	9,948
Liabilities:
Foreign currency derivative contracts—current	$	—		3,689	$	—		3,689
Foreign currency derivative contracts—non-current		—		364	$	—		364
Interest rate swap contracts—non-current		—		11,128		—		11,128
Contingent consideration		—		—		25,012		25,012
Total liabilities	$	—	$	15,181	$	25,012	$	40,193

Level 1

Level 2

Level 3

Total

Assets:

Investments:

Available-for-sales securities—current

$
—

$
72,028

$
—

$
72,028

Available-for-sales securities—non-current

—

20,057

—

20,057

Foreign currency derivative contracts

—

16,431

—

16,431

Interest Rate Swap Contracts

—

1,842

—

1,842

Total assets

$
—

$
110,358

$
—

$
110,358

Liabilities:

Foreign currency derivative contracts

$
—

$
—

$
—

—

Interest Rate Swap Contracts

—

—

—

—

Total liabilities

$
—

$
—

$
—

$
—

The Company ~~determines~~estimates the fair value of our contingent consideration associated with our business combinations utilizing one or more significant inputs that are unobservable. The Company calculates the fair value of the contingent consideration ~~related to the Company’s acquisition of a small consulting company~~ based on the ~~probability of attaining a specific contract renewal target. See Note 7~~probability-weighted expected performance of the ~~notes~~acquired business against the target performance metric, discounted to ~~our financial statements included herein for a description of this acquisition.~~ present value when appropriate.

The following table ~~provides~~shows a ~~summary of changes in fair value~~reconciliation of the ~~Company’s~~beginning and ending balances of Level 3 ~~financial~~contingent consideration liabilities ~~at December 31, 2017.~~associated with our business combinations:

Level 3
Liabilities

Balance at April 1, 2017

$
—

Contingent consideration arising from acquisition (See Note 7)

100

Payments made during the period

—

Balance at December 31, 2017

$
100


	December 31, 2020
Beginning balance	$	25,012
Purchase price adjustments		(4,178)
Payments made during the period		(4,051)
Contingent consideration recognized in earnings		(453)
Foreign currency translation adjustments		75
Ending balance	$	16,405

~~(6)~~(8) Derivative Financial Instruments

The Company evaluates its foreign exchange policy on an ongoing basis to assess its ability to address foreign exchange exposures on its consolidated balance sheets, consolidated statements of income and consolidated statement of cash flows from all foreign currencies, including most significantly the U.K. pound sterling ~~Indian rupee~~ and ~~Sri Lankan~~Indian rupee. The Company enters into hedging programs with highly rated financial institutions in accordance with its foreign exchange policy (as approved by the Company’s audit committee and board of directors) which permits hedging of material, known foreign currency exposures. There is no margin required, no cash collateral posted or received by us related to our foreign exchange forward contracts. Currently, the Company maintains four hedging programs, each with varying contract types, duration and purposes. The Company’s “Cash Flow Program” is designed to mitigate the impact of volatility in the U.S. dollar equivalent of the Company’s Indian rupee denominated expenses over a rolling 18-month period. The Cash Flow Program transactions currently meet the criteria for hedge accounting as cash flow hedges. In addition, as part of the Polaris acquisition, the Company has assumed a cash flow program designed to mitigate the impact of the volatility of the translation of Polaris U.S. dollar denominated revenue into Indian rupees over a rolling 18 month period (“Polaris Cash Flow Program”). These cash flow hedges meet the criteria for hedge accounting as cash flow hedges. The Company’s “Balance Sheet Program” involves the use of 30-day derivative instruments designed to mitigate the monthly impact of foreign exchange gains/losses on certain intercompany balances and payments. The Company’s Balance Sheet Program is currently inactive. The Company’s “Economic Hedge Program” involves the purchase of derivative instruments with maturities of up to 92 days, and is designed to mitigate the impact of foreign exchange on U.K. pound sterling, the euro and Swedish krona denominated revenue and costs with respect to the quarter for which such instruments are purchased. The Balance Sheet Program and the Economic Hedge Program are treated as economic hedges as these programs do not meet the criteria for hedge accounting and all gains and losses are recognized in consolidated statement of income under the same line item as the underlying exposure being hedged.

The Company is exposed to credit losses in the event of non-performance by the counterparties on its financial instruments. All counterparties currently have investment grade credit ratings. The Company anticipates that these counterparties will be able to fully satisfy their obligations under the contracts. The Company has derivative contracts with six counterparties as of December 31, 2017.

The Company’s agreements with its counterparties contain provisions pursuant to which the Company could be declared in default of its derivative obligations. As of December 31, 2017, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of December 31, 2017, it could have been required to settle its obligations under these agreements at amounts which approximate the December 31, 2017 fair values reflected in the table below. During the three months ended December 31, 2017, the Company was not in default of any of its derivative obligations.

Changes in fair value of the designated cash flow hedges for our Cash Flow Program as well as the Polaris Cash Flow Program are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”), net of tax until the forecasted hedged transactions occur and are then recognized in the consolidated statements of income in the same line item as the item being hedged. The Company evaluates hedge effectiveness at the time a contract is entered into, as well as on an ongoing basis. If and when hedge relationships are discontinued, and should the forecasted transaction be deemed probable of not occurring by the end of the originally specified period or within an additional two-month period of time thereafter, any related derivative amounts recorded in equity are reclassified to earnings in other income (expense). There were no amounts reclassified to earnings as a result of hedge ineffectiveness for the nine months ended December 31, 2017 and 2016.

Changes in the fair value of the hedges for the Balance Sheet Program and the Economic Hedge Program, if any, are recognized in the same line item as the underlying exposure being hedged and the ineffective portion of cash flow hedges, if any, is recognized as other income (expense). The Company values its derivatives based on market observable inputs including both forward and spot prices for currencies. Any significant change in the forward or spot prices for hedged currencies would have a significant impact on the value of the Company’s derivatives.

The U.S. dollar notional value of all outstanding foreign currency derivative contracts was ~~$118,195~~$87,693 and ~~$153,435~~$128,728, respectively, at December 31, ~~2017~~2020 and March 31, ~~2017, respectively.~~2020. Unrealized net gains related to these contracts which are expected to be reclassified from AOCI to earnings during the next 12 months ~~were $5,256~~are $573 at December 31, ~~2017.~~2020. At December 31, ~~2017,~~2020, the maximum outstanding term of any derivative instrument was 1512 months.

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The Company also uses interest rate swaps to mitigate the Company’s interest rate risk on the Company’s variable rate debt. The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the ~~Existing~~ Credit Agreement ~~(see note 12~~(See Note 14 to the ~~Consolidated~~consolidated financial statements), by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. The Company will recognize these transactions in accordance with ASC 815 ~~“Derivatives~~"Derivatives and Hedging,”" and have designated the interest rate swaps as cash flow hedges.

The ~~Interest Rate Swap Agreements have~~Company purchased interest rate swaps in July 2016 with an effective date of July ~~31,~~ 2017 and ~~a maturity date of~~in November 2018. The interest rate swaps purchased in July ~~31,~~2016 matured in July 2020. The ~~swaps have an aggregate~~November 2018 interest rate swap was entered into to mitigate the interest rate risk associated with the Credit Agreement executed in February 2018 and subsequent additional borrowings. The November 2018 interest rate swap is at a fixed rate of 2.85% and is designed to maintain a 50% coverage of our LIBOR debt, therefore the notional amount changes over the life of the interest rate swap to retain the 50% coverage target. During the three months ended September 30, 2020 and operating as designed, the 2018 interest rate swap increased to cover the notional amount of ~~$91,300~~debt that the expired interest rate swaps had been covering. In addition, the Company conducted a simultaneous de-designation and a re-designation of the hedge for this interest rate swap to align with the ~~pre-payment~~May 2020 debt amendment and maintain a highly effective hedge relationship given the increase of ~~$81,000 of principal on our existing debt, hedge approximately 85% of~~ the ~~Company’s outstanding debt balance as of December 31, 2017. The~~ notional amount of the ~~swaps amortizes~~interest rate swap and in consideration of the increase in interest rate floor to 1%. At December 31, 2020, the total notional amounts of the interest rate swap was $170,200 with remaining maturity of approximately 2.2 years. As of the date of de-designation and re-designation, the unrealized losses associated with the interest rate swap of $10,864 will be amortized to interest expense over the remaining ~~swap periods. The Interest Rate Swap agreements require the Company to make monthly fixed~~ interest rate ~~payments based on the amortized notional amount at a blended weighted average rate of 1.025% and the Company will receive 1-month LIBOR on the same notional amounts.~~

The counterparties to the Interest Rate Swap Agreements could demand an early termination of the 2016 Swap Agreements if the Company is in default under the Existing Credit Agreement, or any agreement that amends or replaces the Existing Credit Agreement in which the counterparty is a member, and the Company is unable to cure the default. An event of default under the Existing Credit Agreement includes customary events of default and failure to comply with financial covenants, including a maximum consolidated leverage ratio commencing on December 31, 2016, of not more than 3.25 to 1.00 for the first year of the Existing Credit Agreement, of not more than 3.00 to 1.00 for the second year of the Existing Credit Agreement, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter and a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00. As of December 31, 2017, the Company was in compliance with these covenants.swap period. The unrealized ~~gain~~losses associated with the ~~2016 Swap Agreements~~interest rate swap agreement was ~~$2,030~~$8,884 and ~~$1,842~~ $11,128 at December 31, ~~2017~~2020 and March 31, ~~2017,~~2020, respectively, which represents the estimated amount that the Company would ~~receive from~~pay to the counterparties in the event of an early termination.

The following table sets forth the fair value of derivative instruments included in the consolidated balance sheets ~~at December 31, 2017 and March 31, 2017:~~as of:

Derivatives designated as hedging instruments

	December 31, 2017		March 31, 2017

					December 31, 2020		March 31, 2020
Foreign currency exchange contracts:
Other current assets	$	5,366	$	15,544	$	1,759	$	103
Other long-term assets	$	122	$	887	$	—	$	56
Accrued expenses and other	$	110	$	—	$	1,186	$	3,689
Long-term liabilities	$	—	$	—	$	—	$	364

	December 31, 2017		March 31, 2017
Interest rate swap contracts:

					December 31, 2020		March 31, 2020
Interest rate swap contracts:
Other long-term assets	$	2,030	$	1,842	$	—	$	—

Long-term liabilities					$	8,884	$	11,128

The following tables set forth the effect of the Company’s foreign currency exchange contracts and interest rate swap contracts on the consolidated financial statements of the Company:


	Amount of Gain or (Loss) Recognized in AOCI on Derivatives
Derivatives Designated as	Three Months Ended December 31,				Nine Months Ended December 31,
Cash Flow Hedging Relationships	2020		2019		2020		2019
Foreign currency exchange contracts	$	(338)	$	(3,158)	$	2,707	$	148
Interest rate swaps	$	(11)	$	782	$	(747)	$	(3,054)

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Location of Gain or (Loss) Reclassified	Amount of Gain or (Loss) Reclassified from AOCI into Income
from AOCI into Income (loss) (Effective	Three Months Ended December 31,				Nine Months Ended December 31,
Portion)	2020		2019		2020		2019
Revenue	$	—	$	—	$	—	$	(18)
Costs of revenue	$	(199)	$	827	$	(1,276)	$	2,351
Operating expenses	$	(72)	$	337	$	(484)	$	1,020
Interest Expenses	$	(1,191)	$	(100)	$	(2,991)	$	209


		Amount of Gain or (Loss) Recognized in Income
		(loss) on Derivatives
		Three Months Ended				Nine Months Ended
Derivatives not Designated	Location of Gain Or (Loss)	December 31,				December 31,
as Hedging Instruments	Recognized in Income (loss) on Derivatives	2020		2019		2020		2019
Foreign currency exchange contracts	Revenue	$	(543)	$	(1,449)	$	(1,534)	$	(205)
	Costs of revenue	$	334	$	1,105	$	1,055	$	380
	Selling, general and administrative expenses	$	33	$	114	$	93	$	29

(9) Revenues and Accounts Receivable

Disaggregation of Revenue

The table below presents disaggregated revenues from the Company’s contracts with customers by geography, industry groups, service offerings and contract-type. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by industry, market and other economic factors.


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by geography:	2020		2019		2020		2019
North America	$	256,536	$	251,229	$	713,868	$	724,005
Europe		59,182		55,154		163,740		175,258
Rest of World		30,382		28,724		86,744		83,369
Consolidated revenue	$	346,100	$	335,107	$	964,352	$	982,632


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by customer’s industry groups (1)	2020		2019		2020		2019
Banking Financial Services and Insurance	$	190,288	$	180,070	$	528,579	$	548,977
Communications and Technology		77,155		82,848		227,481		226,944
Media & Information and Other		26,232		23,107		75,165		63,830
Healthcare		52,425		49,082		133,127		142,881
Consolidated revenue	$	346,100	$	335,107	$	964,352	$	982,632

(1)	Prior year amounts have been reclassified to conform to the current period presentation


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by service offerings	2020		2019		2020		2019
Application outsourcing	$	195,941	$	183,777	$	536,105	$	547,303
Consulting		150,159		151,330		428,247		435,329
Consolidated revenue	$	346,100	$	335,107	$	964,352	$	982,632

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	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by contract type	2020		2019		2020		2019
Time-and-materials	$	173,097	$	190,423	$	528,207	$	579,657
Fixed-price*		173,003		144,684		436,145		402,975
Consolidated revenue	$	346,100	$	335,107	$	964,352	$	982,632

*Fixed-price includes both retainer-billing basis and fixed-price progress towards completion

Receivables and Contract Balances

The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). The Company presents such receivables in accounts receivable or unbilled accounts receivable, in its consolidated statements of financial position at their net estimated realizable value.

Contract assets included in unbilled accounts receivable are recorded when services have been provided but the Company does not have an unconditional right to receive consideration. Contract assets are primarily related to unbilled amounts on fixed-price contracts utilizing the input method of revenue recognition. The timing between services rendered and timing of payment is less than one year. The Company recognizes an impairment loss when the contract carrying amount is greater than the remaining consideration receivable, less directly related costs to be incurred.

The table below shows the movements in contract assets during the nine months ended:



	December 31, 2020		December 31, 2019
Beginning balance	$	14,241	$	18,538
Revenues recognized during the period but not yet billed		66,293		67,594
Amounts billed		(66,888)		(68,314)
Other		52		(20)
Ending balance	$	13,698	$	17,798

Contract liabilities comprise of amounts billed to customers for revenues not yet earned. Such amounts are anticipated to be recorded as revenues when services are performed in subsequent periods.

The table below shows movements in the deferred revenue during the nine months ended:




	December 31, 2020		December 31, 2019
Beginning balance	$	8,054	$	6,421
Amounts billed but not yet recognized as revenues		14,204		5,342
Revenues recognized related to the opening balance of deferred revenue		(6,782)		(5,017)
Other		8		(154)
Ending balance	$	15,484	$	6,592

Remaining performance obligation

ASC Topic 606 - Revenue from Contracts with Customers requires that the Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2020. This disclosure is not required for:

(1)

contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty,

(2)

contracts for which the Company recognizes revenues based on the right to invoice for services performed,

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(3)

variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or

(4)

variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.

Many of the Company’s performance obligations meet one or more of these exemptions. As of December 31, 2020, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $13,627 and will be recognized as revenue within 4 years.

From time to time, the Company enters into arrangements to deliver IT services that include upfront payments to its clients. As of December 31, 2020, the total unamortized upfront payments related to these services were $15,735 and are recorded in prepaid expenses and other long-term assets in the consolidated balance sheet. These upfront payments are expected to be amortized as a reduction to revenue over a benefit period of 3 years.

Allowance for Credit Losses on Accounts Receivable

The allowance for credit losses on accounts receivable is determined using the loss-rate approach and is measured on a collective (pool) basis when similar risk characteristics exist. Where financial instruments do not share risk characteristics, they are evaluated on an individual basis. The Company calculates expected credit losses for accounts receivable based on historical credit loss rates for each aging category as adjusted for the ~~three~~current market conditions and ~~nine months ended December 31, 2017~~forecasts about future economic conditions. The allowance is based on relevant available information, from internal and ~~2016:~~external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The following table presents the activity in the allowance for credit losses on accounts receivable:

Amount of Gain or (Loss) Recognized in AOCI on Derivative
(Effective Portion)

Derivatives Designated as Cash Flow
Hedging Relationships

Three Months Ended December 31,

Nine Months Ended December 31,

2017

2016

2017

2016

Foreign currency exchange contracts

$
4,211

$
1,947

$
4,811

$
11,807

Interest rate swaps

$
518

$
1,826

$
281

$
1,723


	Nine Months Ended
	December 31, 2020
Balance at March 31, 2020	$	1,541
Transition period adjustment on accounts receivable pursuant to ASC 326		—
Adjusted balance at April 1, 2020		1,541
Current-period provision/ (reversal) for expected credit losses		(22)
Write-offs charged against the allowance		(476)
Foreign currency translation adjustments		42
Balance at December 31, 2020	$	1,085

Location of Gain Reclassified
from AOCI into Income (Effective
Portion)

Amount of Gain Reclassified from AOCI into Income
(Effective Portion)

Three Months Ended December 31,

Nine Months Ended December 31,

2017

2016

2017

2016

Revenue

$
2,334

$
932

$
7,846

$
2,409

Costs of revenue

$
1,432

$
1,505

$
5,484

$
2,877

Operating expenses

$
750

$
877

$
3,060

$
1,722

Interest expense

$
59

$
—

$
93

$
—

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Amount of Gain or (Loss) Recognized in Income on Derivatives

Derivatives not Designated
as Hedging Instrument

Location of Gain or (Loss)
Recognized in Income on Derivatives

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Foreign currency exchange contracts

Foreign currency transaction gains (losses)

$
—

$
—

$
—

$
(180
)

Revenue

$
216

$
(94
)
$
(120
)
$
(10
)

Costs of revenue

$
(177
)
$
(11
)
$
55

$
(50
)

Selling, general and administrative expenses

$
(94
)
$
(42
)
$
(41
)
$
(55
)

~~(7) Acquisitions~~(10) Series A Convertible Preferred Stock

On ~~March~~May 3, ~~2016,~~2017, the Company entered into an investment agreement with The Orogen Group (‘‘Orogen’’) pursuant to ~~a share purchase agreement (the “SPA”), dated as of November 5, 2015, by and among Virtusa Consulting Services Private Limited (“Virtusa India”), a subsidiary~~which Orogen purchased 108,000 shares of the Company, Polaris Consulting & Services Limited (“Polaris”) and the Promoter Sellers named therein, as amended, the Company completed the purchase of 53,133,127 shares, or approximately 51.7% of the fully-diluted capitalization of Polaris from certain Polaris shareholders for approximately $168,257 (Indian rupees 11,391,365) in cash (the “Polaris SPA Transaction”). In addition, on April 6, 2016, Virtusa India completed an unconditional mandatory open offer with successful tender to purchase an additional 26% of the fully diluted outstandingCompany’s newly issued Series A Convertible Preferred Stock, initially convertible into 3,000,000 shares of Polaris common stock from Polaris’ public shareholders. The mandatory open offer was conducted in accordance with requirements of the Securities and Exchange Board of India (“SEBI”) and the applicable Indian rules on takeovers. Virtusa India purchased 26,719,942 shares of Polaris common stock, for an aggregate purchase price of ~~approximately $89,147 (Indian rupees 5,935,260). Pursuant to the mandatory open offer, during the fiscal year ended March 31, 2016, the Company transferred $89,220 into~~$108,000 with an escrow account in accordance with the India takeover rules, which was recorded as restricted cash at March 31, 2016, and the mandatory open offer closed on April 6, 2016. On April 6, 2016, the restricted cash was released from the escrow account and used for settlement for the mandatory open offer.

Upon the closing of the mandatory offering, Virtusa’s ownership interest in Polaris increased from approximately 51.7% to 77.7% of Polaris’ fully diluted shares of common stock outstanding, and from approximately 52.9% to 78.8% of Polaris’ basic shares of common stock outstanding. Under applicable Indian rules on takeovers, Virtusa India was required to sell within one year of the settlement of the unconditional mandatory offer its shares of common stock in Polaris in excess of 75% of the basic outstanding shares of common stock of Polaris. In order to comply with the applicable Indian rules on takeovers, during the three months ended December 31, 2016, the Company sold 3.7% of its shares of Polaris common stock through a public offering. The sale offer closed on December 14, 2016, and the Company received approximately $7,645 in proceeds, net of $188 in brokerage fees and taxes. In addition to these costs, the Company incurred additional costs of $409 towards professional and legal fees and expense. The Company’s ownership interest in Polaris prior to the sale offer was 78.6% of the outstanding shares of common stock, and upon the closing of the sale offer, the Company’s ownership interest decreased from 78.6% to 74.9% of Polaris’ basic shares of common stock outstanding. As of December 31, 2017 the Company has 74.2% of ownership interest on Polaris basic shares of common stock.

On October 26, 2017, the Company announced its intention to commence through its Indian subsidiary, Virtusa India, a process that could lead to the delisting of its Indian subsidiary, Polaris, from all stock exchanges on which Polaris’ common shares are listed. In December 2017, the Company drew down $25,000 from its existing revolving credit facility to prepare to meet the minimum escrow requirements in accordance with the applicable SEBI delisting regulations. In addition, In January 2018, the Company funded the minimum escrow requirements of approximately $96,285 for the delisting offer towards the purchase of up to 26,416,725 shares, comprised of a combination of cash and bank guarantee.

~~On February 5, 2018, Virtusa India closed its delisting offer to all public shareholders of Polaris in accordance with the provisions of the SEBI Delisting Regulations, which resulted in a discovered~~initial conversion price of ~~INR 480 per share. On February 8, 2018, Virtusa India accepted the discovered price of INR 480 per share~~$36.00 (the “Exit Price”) which will be offered to all Polaris public shareholders. Upon settlement by Virtusa India of an amount of approximately $145,000, exclusive of transaction and closing costs, for the Polaris shares tendered during the delisting process at the Exit Price, the shareholding of Virtusa India shall increase from approximately 74% to at least 93% of the share capital of Polaris. Upon closing of the transaction ~~and receipt of final approvals from the stock exchanges on which Polaris is traded, the common shares of Polaris will be delisted from all public exchanges on which the Polaris shares are traded.~~ The public shareholders of Polaris who have yet to tender their shares to Virtusa India may offer their shares for sale to Virtusa India at the Exit Price for a period of one year following the date of the delisting ~~from all stock exchanges on which Polaris common shares are listed~~.

In accordance with ASC 810-10, changes in a parent’s ownership, while retaining its financial controlling interest are accounted for as equity transactions. Therefore, the purchase of additional shares of Polaris through its Indian subsidiary, would result in a reduction of minority interest and an increase to the Company’s equity. In connection with the Polaris delisting, on February 6, 2018 the Company entered into ~~an amended and restated credit agreement (the “Credit Agreement”) dated as of February 6, 2018 (See Note 12 of the notes to the financial statements for further discussion).~~

On June 29, 2017, the Company acquired certain assets of a small consulting company located in India. The purchase price was approximately $750 payable in cash subject to a holdback payment of $50 after one year and a payment of $100 in earn-out consideration after two years based on certain achievement. The purchase price allocation was as follows: goodwill of $150 and customer relationships of $600.

~~(8) Series A Convertible Preferred Stock~~

~~On May 3, 2017, the Company and~~ ‘‘Orogen Viper LLC (the “Purchaser”), entered into an Investment Agreement (the “Investment Agreement”), pursuant to which the Company issued and sold to the Purchaser, and the Purchaser purchased from the Company, an aggregate of 70,000 shares of voting convertible preferred stock of the Company, designated as the Company’s 3.875% Series A Convertible Preferred Stock ~~par value $0.01 per share (the “Series A Voting Preferred Stock”~~Financing’’), and 38,000 shares of a separate class of non-voting convertible preferred stock of the Company, designated as the Company’s 3.875% Series A-1 Convertible Preferred Stock, par value $0.01 per share (the “Series A-1 Preferred Stock” and, together with the Series A Voting Preferred Stock, the “Series A Convertible Preferred Stock”), in each case for a purchase price of $1,000 per share, representing $108,000 of gross proceeds to the Company.

~~The Investment Agreement provides the Purchaser the right, pursuant to~~. Under the terms of the ~~Series A Convertible Preferred Stock, to appoint a director to serve on our Board. Pursuant to~~investment, the Investment Agreement, in connection with the closing of the transactions contemplated by the Investment Agreement (the “Closing”), our Board of Directors (the “Board”) increased the size of the Board from nine directors to ten directors and elected Vikram S. Pandit, the initial nominee designated by the Purchaser, to the Board, subject to replacement pursuant to the procedures described in the Investment Agreement. Such appointment right will terminate if the Purchaser and its affiliates fail to retain beneficial ownership of at least 50% of the number of shares of our common stock underlying the Series A Convertible Preferred Stock held by the Purchaser immediately following the Closing.

Following the conversion of the Series A Convertible Preferred Stock into shares of our common stock, so long as the Purchaser retains beneficial ownership of at least 50% of the number of shares of our common stock underlying the Series A Convertible Preferred Stock held by the Purchaser immediately following the Closing, we have agreed to include one nominee of the Purchaser for election as a director of the same class (whether Class I, Class II or Class III) as the other directors nominated by us for election at our next meeting of stockholders following such conversion, and to renominate such individual thereafter at each meeting of stockholders electing such class of directors. We are required to use our reasonable efforts to cause the election of such person.

Pursuant to the Investment Agreement, the Purchaser has agreed, subject to certain exceptions, that until the later of (1) the first date on which there is no Purchaser-affiliated director serving on our Board, and (2) May 3, 2019 (the “Standstill Period”), the Purchaser will not, among other things, subject to certain exceptions described in the Investment Agreement: (i) acquire any securities of the Company if, immediately after such acquisition, the Purchaser would collectively own in the aggregate more than 20.0% of the then outstanding common stock of the Company, (ii) propose or seek to effect any tender or exchange offer, merger or other business combination involving the Company or its securities, or make any public statement with respect to such transaction, (iii) make, or in any way participate in any “proxy contest” or other solicitation of proxies, (iv) seek election or appointment to, or representation on, our Board other than as set forth in the Investment Agreement or the Series A Certificate of Designations (as defined below), or seek the removal of any of our directors, or (v) conduct any referendum of stockholders of the Company or make or be the proponent of any stockholder proposal.

The Investment Agreement restricts the Purchaser’s ability to transfer the Series A Convertible Preferred Stock or shares of our common stock issued or issuable upon conversion of the Series A Convertible Preferred Stock, subject to certain exceptions specified in the Investment Agreement. In particular, prior to the earliest of (i) May 3, 2019, (ii) a change of control of the Company or entry into a definitive agreement for a transaction that, if consummated, would result in a change of control of the Company, and (iii) the later of May 3, 2018 and the first date on which there is no Purchaser-affiliated director serving on our Board, the Purchaser will be restricted from selling, offering, transferring, assigning, pledging, mortgaging, hypothecating, gifting or disposing the Series A Convertible Preferred Stock or shares of common stock issued or issuable upon conversion of the Series A Convertible Preferred Stock. Such restrictions also prohibit the Purchaser from entering into or engaging in any hedge, swap, short sale, derivative transaction or other agreement or arrangement that transfers any ownership of, or interests in, the shares of Series A Convertible Preferred Stock or shares of common stock issued or issuable upon conversion of the Series A Convertible Preferred Stock. These restrictions do not apply to, among others, transfers to affiliates or in connection with certain third-party tender offers.

Subject to certain limitations, the Investment Agreement provides the Purchaser with certain registration rights for the shares of common stock underlying the Series A Convertible Preferred Stock (including any shares issued or issuable as dividends on the Series A Convertible Preferred Stock) held by the Purchaser. The Investment Agreement contains other customary terms for private investments in public companies, including representations, warranties and covenants.

On May 3, 2017, we filed with the Secretary of State of the State of Delaware (i) a Certificate of the Powers, Designations, Preferences and Rights of the 3.875% Series A Preferred Stock (the “Series A Certificate of Designations”) and (ii) a Certificate of the Powers, Designations, Preferences and Rights of the 3.875% Series A-1 Preferred Stock (the “Series A-1 Certificate of Designations” and, together with the Series A Certificate of Designations, the “Certificates of Designations”). Generally, except with respect to certain voting rights, and a conversion trigger applicable to the Series A-1 Preferred Stock described below as the “HSR Conversion,” the rights, preferences and privileges of the Series A Preferred Stock and the Series A-1 Preferred Stock are substantially identical.

~~The~~ Series A Convertible Preferred Stock has a ~~liquidation preference of $1,000 per share. In addition, cumulative Series A Convertible Preferred Stock dividends accumulate on the Series A Convertible Preferred Stock at a rate of~~ 3.875% dividend per annum, ~~and are~~ payable quarterly in arrears. The payments on such dividends may be paid in cash or, at our option, in shares of our common stock. We may only pay such dividends in shares of common stock on or after August 1, 2018, subject to an aggregate share cap and so long as we have paid full cumulative dividends on the Series A Convertible Preferred Stock for all past dividend periods, and there is adequate current public information with respect to the Company and no volume limitations would apply to the resale of such shares, in each case under Rule 144 under the Securities Act of 1933.

The Series A Convertible Preferred Stock is convertible at the option of the holders at any time into shares of the Company’s common stock at an initial conversion rate of 27.77778 shares of the Company’s common stock per share of Series A Convertible Preferred Stock (which is equal to an initial conversion price of approximately $36.00 per share of the Company’s common stock), subject to certain customary anti-dilution adjustments. If at any time after May 3, 2020, the closing sale price of our common stock exceeds 150% of the then applicable conversion price of the Series A Convertible Preferred Stock for at least 20 trading days during a period of 30 consecutive trading days, the Company may cause some or all of the Series A Convertible Preferred Stock to be converted into shares of common stock at the then applicable conversion rate. Upon the conversion of the Series A Convertible Preferred Stock into common stock, we are required to pay all accumulated but unpaid dividends in additional shares of common stock ~~valued~~and/or cash at the ~~then applicable conversion price on the date of such conversion.~~

Holders of Series A Convertible Preferred Stock are entitled to vote generally with the holders of common stock on an as-converted basis (including with respect to election of the members of our Board). Holders of Series A Convertible Preferred Stock are also entitled to certain limited special approval rights, including with respect to amendments to the Company’s organizational documents that have an adverse effect on the Series A Convertible Preferred Stock, certain issuances of senior or pari passu securities, certain purchases, redemptions or other acquisitions of junior securities or payments, dividends or distributions thereon. In addition, so long as any shares of Series A Convertible Preferred Stock are outstanding and the Purchaser and its affiliates collectively beneficially own at least a majority of the shares of Series A Convertible Preferred Stock beneficially owned by such holders immediately following the Closing, the holders of Series A Convertible Preferred Stock, voting as a separate class by majority vote, are entitled to elect one director to serve on our Board.

Holders of Series A-1 Preferred Stock generally have no voting rights except as required by law and with respect to amendments to the Company’s organizational documents that have an adverse effect on the Series A-1 Preferred Stock. At such time as any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 applicable to the acquisition of shares of Preferred Stock expires or is terminated, all shares of the Series A-1 Preferred Stock then issued and outstanding shall immediately and automatically convert on a one for one basis to shares of Series A Preferred Stock (the “HSR Conversion”). Upon such HSR Conversion (which occurred in May 2017), all accumulated but unpaid dividends on such shares of Series A-1 Preferred Stock immediately prior to such HSR Conversion converted into an equivalent amount of accumulated but unpaid dividends on shares of Series A Preferred Stock immediately following such HSR Conversion.

With certain exceptions, upon a Fundamental Change (as defined in the Certificates of Designations), the holders of the Series A Convertible Preferred Stock may require that the Company repurchase for cash all or any whole number of shares of Series A Convertible Preferred Stock at a per-share repurchase price equal to 100% of the liquidation preference of such shares, plus accumulated and unpaid dividends. If we fail to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of the date that the Company is required to effect such repurchase, during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum. The definition of Fundamental Change includes a sale of substantially all the Company’s assets, a change of control of the Company by way of a tender offer, merger or similar event, the adoption of a plan relating to the Company’s liquidation or dissolution and certain delistings of our common stock, except in certain cases described in the Certificates of Designations in which the consideration received or to be received by the Company’s common stockholders in a sale or change of control transaction consists primarily of publicly listed and traded securities.

Holders of Series A Convertible Preferred Stock that are converted in connection with a Make-Whole Fundamental Change, as defined in the Certificates of Designations, are, under certain circumstances, entitled to an increase in the conversion rate for such shares of Series A Convertible Preferred Stock based on the effective date of such event and the applicable price attributable to the event as set forth in a table contained in the Certificates of Designations. The definition of Make-Whole Fundamental Change includes a sale of substantially all the Company’s assets, a change of control of the Company by way of a tender offer, merger or similar event, the adoption of a plan relating to the Company’s liquidation or dissolution and certain delistings of our common stock.

option. If any shares of Series A Convertible Preferred Stock have not been converted into common stock prior to May 3, 2024, the Company will be required to repurchase such shares at a repurchase price equal to the liquidation preference of the repurchased shares plus the amount of accumulated and unpaid dividends thereon. If ~~we fail~~the Company fails to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of May 3, 2024 during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum.

In connection with the issuance of the Series A Convertible Preferred Stock, the Company incurred direct and incremental expenses of $1,154, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. These issuance costs are recorded as a reduction to the proceeds received from issuance of Series A Convertible

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Preferred Stock. These direct and incremental expenses reduced the Series A Convertible Preferred Stock, and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, May 3, 2024. During the three and nine months ended December 31, ~~2017,~~2020 and 2019, the Company recorded ~~$41 and $109, respectively, as an accretion~~accretions to the Series A Convertible Preferred ~~Stock.~~Stock related to its issuance cost. Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 3.875% per annum, payable quarterly in arrears. During the nine months ended December 31, ~~2017,~~2020 and 2019, the Company has paid ~~$2,081~~$3,138 as cash dividend on Series A Convertible Preferred Stock. As of December 31, ~~2017,~~2020 and 2019, the Company had declared and accrued dividends of ~~$685~~$686 associated with the Series A Convertible Preferred Stock.

~~(9)~~(11) Goodwill and Intangible Assets

Goodwill:

The Company has ~~one~~1 operating segment. The following are details of the changes in goodwill ~~balance at December 31, 2017:~~balances at:

	Amount
Balance at April 1, 2017	$	211,089


			December 31, 2020		March 31, 2020
Beginning balance			$	296,493	$	279,543
Goodwill arising from acquisitions	150			—		27,316
Purchase price adjustments				(5,942)		—
Foreign currency translation adjustments	3,026			5,040		(10,366)
Balance at December 31, 2017	$	214,265
Ending balance			$	295,591	$	296,493

The acquisition costs and goodwill balance deductible for our business acquisitions for tax purposes are ~~$74,124.~~$286,516. The acquisition costs and goodwill balance not deductible for tax purposes are ~~$152,029 and relate~~$21,979, primarily related to the Company’s TradeTech acquisition (closed on January 2, 2014), and the ~~Polaris~~eTouch India acquisition.

The Company performed the annual assessment of its goodwill during the fourth quarter of the fiscal year ended March 31, 2017 and determined that the estimated fair value of the Company’s reporting unit exceeded its carrying value and therefore goodwill was not impaired. The Company will continue to complete goodwill impairment assessments at least annually during the fourth quarter of each ensuing fiscal year. The Company will continue to evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets, including intangible assets, may warrant revision or that the carrying value of these assets may be impaired. Any write-downs are treated as permanent reductions in the carrying amount of the assets.

Intangible Assets:

The following are details of the Company’s intangible asset carrying amounts acquired and amortization ~~at December 31, 2017.~~at:

	Weighted Average Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

								December 31, 2020
								Weighted	Gross					Net
								Average Useful Life	Carrying		Accumulated			Carrying
								at Acquisition	Amount		Amortization			Amount
Amortizable intangible assets:													��
Customer relationships	10.8	$	84,010	$	32,346	$	51,664	10.6	$	179,966	$	61,598		$	118,368
Trademark	2.1	3,007		2,729		278		2.0		900		900			—
Technology	5.0	500		227		273		5.0		500		500			—
		$	87,517	$	35,302	$	52,215
Other								5.0		1,214		380			834
								10.5	$	182,580	$	63,378		$	119,202


	March 31, 2020
	Weighted	Gross				Net
	Average Useful Life	Carrying		Accumulated		Carrying
	at Acquisition	Amount		Amortization		Amount
Amortizable intangible assets:
Customer relationships	10.6	$	176,373	$	46,494	$	129,879
Trademark	2.0		900		900		—
Technology	5.0		500		500		—
Other	5.0		1,214		190		1,024
	10.5	$	178,987	$	48,084	$	130,903

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The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

During the fiscal year ended March 31, 2020, the Company acquired certain assets of three consulting companies located in the United States, which were accounted as asset acquisitions and were not material to the Company. The purchase price was approximately $9,651 in cash and an additional earn-out consideration of up to $9,853 payable within one year based on achievement of certain revenue targets. During the nine months ended December 31, 2020, the Company paid $3,572 towards earn-out consideration based on achievement of revenue targets. The remaining probable and estimable value of the contingent consideration as of December 31, 2020 is $204.

~~(10)~~(12) Income Taxes

The Company applies an estimated annual effective tax rate to its year-to-date operating results to determine the interim provision (benefit) for income tax expense. The Company’s effective tax ~~rate was 148.0%~~rates were 31.6% and ~~86.1%~~31.1% for the three and nine months ended December 31, ~~2017,~~2020, respectively, as compared to an effective tax ~~rate~~rates of ~~(34.3)%~~44.7% and ~~(44.3)%~~43.3% for the three and nine months ended December 31, ~~2016.~~2019, respectively. The ~~Company’s~~decrease in the effective tax rate for the three and nine months ended December 31, ~~2017~~2020, was ~~significantly impacted~~primarily due to a reduction in Base Erosion and Anti-Abuse Tax (“BEAT) impact, the election of foreign tax credits, reduction of global intangible low-taxed income, lower statutory rates in India and the merger of our Indian operations, partially offset by ~~the Tax Cuts and Jobs Act (the “Tax Act”), enacted~~tax expense on ~~December 22, 2017 by the U.S. government.~~increased income from operations. The Company’s reported effective tax rate is also impacted by jurisdictional mix of profits and losses in which the Company operates, foreign statutory tax rates in effect, unusual or infrequent discrete items requiring a provision during the period and certain exemptions or tax holidays applicable to the Company. ~~The Company’s aggregate income tax rate in foreign jurisdictions is comparable to its income tax rate in the United States, as a result of the Tax Act~~, ~~other than jurisdictions in which the Company operates and applicable tax holiday benefits of the Company, obtained primarily in India and Sri Lanka.~~

The Tax Act contains several key tax provisions that will impact the Company, including the reduction of the corporate income tax rate to 21% effective January 1, 2018. The Tax Act also includes a variety of other changes, such as a deemed repatriation tax on accumulated foreign earnings, a limitation on the tax deductibility of interest expense, acceleration of business asset expensing, and reduction in the amount of executive pay that could qualify as a tax deduction, among others. The lower corporate income tax rate will require the Company to remeasure its U.S. deferred tax assets and liabilities as well as reassess the realizability of its deferred tax assets and liabilities. ASC Topic 740, Income Taxes, requires the Company to recognize the effect of the tax law changes in the period of enactment. However, the Securities and Exchange Commission has issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Job Act (“SAB 118”), which will allow the Company to record provisional amounts during a measurement period of up to one year after the enactment of the Tax Act to finalize the recording of the related tax impacts. During the three months ended December 31, 2017, the Company recorded a provisional charge of $14,597 for deemed repatriation of unremitted earnings and a provisional charge of $5,219 primarily to remeasure our deferred tax assets to reflect the lower statutory rate at which they will be realized. Both of these provisional charges are based on the Company’s reasonable estimates. The $14,597 for deemed repatriation will be paid over the next 8 years, of which approximately $1,168 is included in income tax payable and $13,429 is included in long-term liabilities in the consolidated balance sheet as of December 31, 2017.

Due to the complexities involved in determining the previously unremitted earnings of all of our foreign subsidiaries, the Company is still in the process of obtaining, preparing and analyzing the computations of accumulated earnings and profits balances as of December 31, 2017. In addition, the impact of the rate change to our deferred tax assets is provisional as the Company is still in process of obtaining, preparing and analyzing ~~the underlying timing differences.~~

A valuation allowance is required if, based on available evidence, it is more likely than not that all or some portion of the asset will not be realized due to the inability of the Company to generate sufficient taxable income in a specific jurisdiction. ~~Net loss in the United States has decreased during the nine months ended December 31, 2017 compared with the nine months ended December 31, 2016.~~ The Company has ~~$21,888~~$29,888, $2,152 and $76 of net deferred tax assets in the United States, the United Kingdom and Sweden, respectively, at December 31, ~~2017.~~2020. The Company has ~~not completed its~~a valuation allowance ~~assessment~~in the U.S. related to ~~the Tax Act, primarily related to the impact~~utilization of ~~the global intangible low taxed income (“GILTI”), interest expense limitation and executive pay, which might impact the need for a valuation allowance.~~

The changes included in the Tax Act are broad and complex. The final impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the impacts, including impacts from changes to current year earnings estimates andcertain foreign ~~exchange rates of foreign subsidiaries.~~

~~The Company continues to review the anticipated impacts of the GILTI and base erosion anti-abuse~~ tax ~~(“BEAT”),~~credits, which are not ~~effective until fiscal year 2019. The Company has not recorded any impact associated with either GILTI or BEAT in the tax rate for the third quarter of fiscal year 2018. The Company will continue~~expected to ~~assess the impact of the recently enacted tax law on its business and consolidated financial statements.~~be realized.

The Company created two export oriented units in India, one in Bangalore during the fiscal year ended March 31, 2011 and a second unit in Hyderabad (Special Economic Zone or “SEZ”) during the fiscal year ended March 31, 2010 for which no income tax exemptions were availed. The Indian subsidiaries also operate two development centers in areas designated as a SEZ, under the SEZ Act of 2005. In particular, the Company was approved as an SEZ Co-developer and has built a campus on a 6.3 acre parcel of land in Hyderabad, India that has been designated as an SEZ. As an SEZ Co-developer, the Company is entitled to certain tax benefits for any consecutive period of 10 years during the 15 year period starting in fiscal year 2008. The Company has elected to claim SEZ Co-developer income tax benefits starting in fiscal year ended March 31, 2013. In addition, the Company has leased facilities in SEZ designated locations in Hyderabad and Chennai, India. The Company’s profits from the Hyderabad and Chennai SEZ operations are eligible for certain income tax exemptions for a period of up to 15 years beginning in fiscal March 31, 2009. The Company’s India profits ineligible for SEZ benefits are subject to corporate income tax at the current rate of 34.6%. In the fiscal years ended March 31, 2013 and March 31, 2014, the Company leased a facility in an SEZ designated location in Bangalore and Pune, India each of which is eligible for tax holidays for up to 15 years beginning in the fiscal years ended March 31, 2013 and March 31, 2014 respectively. During the fiscal year ended March 31, ~~2016,~~2020, the Company ~~established~~merged Polaris Consulting and Software Limited (“Polaris”) with into Virtusa Consulting Services Private Limited (“Virtusa India”). The merger of Polaris into Virtusa India is considered an entity liquidation for US income tax purposes. The earnings of this entity will be subject to US taxation as well as local taxation with a ~~new unit~~corresponding foreign tax credit or deduction, at the election of the Company. The election also makes available to the Company the benefits of future foreign tax credits. The merger makes available to the Company tax deductions under Indian Laws for interest on debt used to purchase the group as well as amortization of intangible assets. Under local Indian law, the merger was retroactive to April 1, 2018 resulting in ~~Hyderabad,~~amended tax return filing in ~~an SEZ designated area,~~India for the year ended March 31, 2019. The Company’s effective tax rate for the three and nine months ended December 31, 2020, reflects the merger of Polaris India into Virtusa India.

The Company’s income tax provision for the three and nine months ended December 31, 2020 includes the expected impact of the Global Intangible Low-taxed Income (“GILTI”) and executive compensation limitations of the Tax Cuts and Jobs Act (the “Tax Act”) impacting the operating results. The Company’s aggregate income tax rate in foreign jurisdictions is comparable to its income tax rate in the United States, as a result of the Tax Act, other than in Singapore and Sri Lanka in which ~~it is eligible for~~the Company has tax holiday benefits and eligible tax exemptions respectively.

During the fiscal year ended March 31, 2019, the Company elected to treat several foreign entities as disregarded entities. The earnings of these subsidiaries will be subject to US taxation as well as local taxation with a corresponding foreign tax credit or deduction, at the election of the Company. GILTI provisions and executive compensation limitations enacted in the Tax Act, enacted on December 22, 2017 by the U.S. government continue to impact the results. The Company’s reported effective tax rate is also impacted by jurisdictional mix of profits and losses in which the Company operates, foreign statutory tax rates in effect, unusual or infrequent discrete items requiring a provision and certain exemptions or tax holidays applicable to the Company.

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The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act provided for ~~up to 15 years. Based on the latest changes~~net operating losses arising in tax ~~laws, book profits~~years beginning after December 31, 2017, and before January 1, 2021, may be carried back to each of ~~SEZ units~~the five tax years preceding the tax year of such loss. Net operating losses have an unlimited carry forward period, although there are ~~subject~~annual limitations on their use suspended for certain years as result of CARES Act. The Company has filed an immediate carry back claim in the United States for losses generated in fiscal years ended March 31, 2018 and March 31, 2019. The income tax expense for the nine months ended December 31, 2020,included an immaterial adjustment to ~~MAT, commencing~~reflect actual tax receivable.

On September 20, 2019, the Indian government issued Ordinance 2019 making certain amendments in the Income-tax Act 1961, which substantially reduces tax rates. The effective rate of tax on India-based companies was reduced from 34.9% to 25.17%, effective for fiscal years beginning April 1, ~~2011,~~2019. The Company adopted the new ordinance for the fiscal year beginning April 1, 2019. The new rates require the surrendering of tax holidays and other attributes of which ~~will continue to negatively impact~~ the ~~Company’s cash flows.~~Company historically was taking advantage of and favorably impacting our tax rate.

In addition, the Company’s Sri Lankan subsidiary, Virtusa (Private) Limited, iswas operating under a 12-year income tax holiday arrangement that ~~is set to expire~~expired on March 31, 2019 and required Virtusa (Private) Limited to retain certain job creation and investment criteria through the expiration of the holiday period. ~~During the fiscal year ended March 31, 2017, the~~The Company ~~believed~~believes it had fulfilled its hiring and investment commitments and is eligible for tax holiday through March 2019. Beginning April 1, 2019, the Company is taking advantage of certain tax exemptions offered to IT service providers in Sri Lanka.

The ~~current agreement provides~~Company has been under income tax ~~exemption~~examination in India, the U.K., Singapore and the United States. The Indian taxing authorities issued an assessment order with respect to their examination of the various tax returns for ~~all export business income. On November 23, 2017,~~ the ~~Company received confirmation from the Board of Investments that it had satisfied investment criteria through~~fiscal years ended March 31, 2006 to March 31, 2017 of the Company’s Indian subsidiary, Virtusa (India) Private Ltd, and ~~is eligible for holiday benefits.~~Polaris Consulting & Services Limited (Polaris India) now merged with and into Virtusa Consulting Services Private Limited (collectively referred to as “Virtusa India”). At ~~December~~issue were several matters, the most significant of which was the redetermination of the arm’s-length profit which should be recorded by Virtusa India on the intercompany transactions with its affiliates. These matters are currently at different level of appeals beginning with the fiscal year ended March 31, ~~2017,~~2006. In the United Kingdom, the Company ~~believes it~~ is ~~eligible~~currently under examination for ~~continued~~transfer pricing and research benefits for the ~~entire 12 year tax holiday.~~

years ended March 31, 2014 to March 31, 2019. In ~~connection with~~Singapore, the Inland Revenue Authority is confirming the appropriateness of the Company’s ~~adoption of ASU 2016-09 (Stock Compensation), during the nine months ended December 31, 2017, the Company has accounted on a prospective basis in the Consolidated Statements of Income~~deductions for the year ended March 31, 2017. In the United States, the Internal Revenue Service has concluded an examination of fiscal years ended March 31, 2015 and March 31, 2017. These ongoing audits are not expected to have a material impact on the consolidated statements of income ~~tax expense or benefit for the tax effects~~and consolidated statements of differences recognized on or after the effective date of the equity-based payment awards between the deduction for an award for tax purposes and the cumulative compensation costs of that award recognized for financial reporting purposes. During the three and nine months ended December 31, 2017, the Company recorded a tax expense of $23 and tax benefit of $1,127, respectively, in the Company’s income tax expense. cash flows.The Company ~~also presented the excess~~considers its reserve position adequate to cover any anticipated exposure from these or other positions taken on filed tax ~~benefits (deficiencies) as operating activities in the Consolidated Statements of Cash Flows on a retrospective basis and the prior period has been restated.~~returns.

Unrecognized tax benefits represent uncertain tax positions for which the Company has established reserves. At December 31, ~~2017~~2020 and March 31, ~~2017,~~2020, the total liability for unrecognized tax benefits was ~~$7,505~~$6,674 and ~~$7,612,~~$6,627, respectively. Unrecognized tax benefits may be adjusted upon the closing of the statute of limitations for income tax returns filed in various jurisdictions. ~~During the nine months ended December 31, 2017, the~~The unrecognized tax benefits ~~decreased~~increased by ~~$107~~$47 and ~~decreased by $117~~$161 during the nine months ended December 31, ~~2016.~~2020 and nine months ended December 31, 2019, respectively. The ~~decrease~~increase in unrecognized tax benefits in the nine months ~~period ending~~
ended December 31, ~~2017~~2020 was predominantly due to increase in the ~~release of a prior period domestic tax position as~~liability related to the ~~statute has expired, offset by increases for~~UK audit, certain sale proceeds in India and incremental interest accrued on existing uncertain tax ~~positions.~~positions offset by the release of certain benefits no longer considered required.

Undistributed Earnings of Foreign Subsidiaries

A substantial amount of the Company’s income before provision for income tax is from operations earned in its Indian and Sri Lankan ~~subsidiaries and is subject to tax holiday.~~subsidiaries. The Company intends to use accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and, accordingly, undistributed income is considered ~~to be~~ indefinitely reinvested. The Company does not provide for U.S. income taxes on foreign currency translation or applicable withholding tax until a distribution is declared. At December 31, ~~2017,~~2020, the Company had approximately ~~$252,543~~$126,648 of cash, cash equivalents, short-term and long-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested. If required, such cash and investments could be repatriated to the United States. ~~However, under current law, any repatriation would be subject to United States federal income tax on currency translation and applicable withholding tax.~~ Due to the various methods by

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which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable.

~~(11)~~(13) Concentration of Revenue and Assets

Total revenue is attributed to geographic areas based on the location of the client. Geographic information of total revenue is summarized as follows:


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Customer revenue:
United States of America	$	244,004	$	237,754	$	676,790	$	685,023
United Kingdom		29,304		42,902		91,916		137,795
Rest of World		72,792		54,451		195,646		159,814
Consolidated revenue	$	346,100	$	335,107	$	964,352	$	982,632

Revenue from significant clients as a percentage of the Company’s consolidated revenue was as follows:


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Customer A	19.6	%	16.4	%	18.5	%	15.9	%

Long-lived assets represent property, plant and equipment, intangible assets and goodwill, net of accumulated depreciation and amortization, and are attributed to geographic area based on their location. ~~Geographic~~The following table summarizes the geographic information ~~is summarized~~of long-lived assets as ~~follows:~~of:

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Client revenue:

United States of America

$
162,549

$
136,141

$
453,013

$
394,571

United Kingdom

49,598

38,879

139,612

121,184

Rest of World

51,662

42,189

146,703

117,014

Consolidated revenue

$
263,809

$
217,209

$
739,328

$
632,769



	December 31, 2020		March 31, 2020
Long-lived assets, net of accumulated depreciation and amortization:
United States of America	$	272,187	$	291,959
India		252,070		255,623
Rest of World		28,900		29,748
Consolidated long-lived assets, net	$	553,157	$	577,330

December 31,
2017

March 31,
2017

Long-lived assets, net of accumulated depreciation and amortization:

United States of America

$
88,446

$
91,500

India

272,709

271,346

Rest of World

25,720

25,494

Consolidated long-lived assets, net

$
386,875

$
388,340

~~Revenue from significant clients as a percentage of the Company’s consolidated revenue was as follows:~~

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Customer 1

20.0
%
16.6
%
19.2
%
16.3
%

~~(12)~~(14) Debt

On February ~~25, 2016, in connection with the Polaris SPA Transaction,~~6, 2018, the Company entered into a credit agreement ~~(the “Existing Credit~~(as amended the “Credit Agreement”) dated as of February ~~25, 2016,~~6, 2018, by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and ~~J.P. Morgan Securities LLC and~~ Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The ~~Existing~~ Credit Agreement ~~provides~~replaced the prior $300,000 credit agreement with J.P. Morgan Securities and Merrill Lynch, Pierce, Fenner & Smith Incorporated. and provided for a ~~$100,000~~$200,000 revolving credit facility, a $180,000 term loan facility, and a ~~$200,000~~$70,000 delayed-draw term ~~loan (together, the “Existing Credit Facility”). To finance the Polaris SPA Transaction, on February 25, 2016, the~~loan. The Company drew down $180,000 under the ~~full $200,000~~term loan of the Credit Agreement and $55,000 under the revolving credit facility under the Credit Agreement to repay in full the amount outstanding under the prior credit agreement and fund the Polaris delisting transaction. On March 12, 2018, we drew down the $70,000 delayed draw to fund the eTouch Systems Corp. acquisition.

On October 15, 2019, the Company entered into Amendment No. 2 to Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and the lenders party thereto (the “Second Credit Agreement Amendment”), which Credit Agreement to, among other things, increase the revolving commitments available to the Company under the Credit Agreement from $200,000 to $275,000, reduce the interest rate margins applicable to

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term ~~loan.~~loans and revolving loans outstanding under the Credit Agreement from time to time and reduce the commitment fee payable by the Company to the lenders in respect of unused revolving commitments under the Credit Agreement. The Company executed the Second Credit Agreement Amendment to provide additional lending capacity which the Company used to fund the completion of the Polaris delisting transaction, as well as to provide excess lending capacity in the event of future opportunistic, strategic, investment opportunities. The Second Credit Agreement Amendment contains customary terms for amendments of this type, including representations, warranties and covenants. Interest under ~~these facilities~~the credit facility accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to ~~adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense (“EBITDA”). The~~EBITDA. During the fiscal year ended March 31, 2020, the Company ~~was required under~~drew down $145,000 from the ~~terms~~credit facility, inclusive of $84,000 drawn in the three months ended March 31, 2020 as a proactive measure in light of the ~~Existing~~uncertainty resulting from the COVID-19 pandemic. Earlier draws in the fiscal year March 31, 2020 were used to fund the eTouch 18-month anniversary payment of $17,500 and to fund opportunistic, strategic, investment opportunities.

On May 27, 2020, the Company entered into Amendment No. 3 to Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. (the “ Administrative Agent” ) and the lenders party thereto (the “ Third Credit Agreement Amendment” ), which amends the Credit Agreement to, ~~make quarterly principal payments~~among other things, (i) provide for $62,492 in incremental 364-day delayed draw term loans (the “New Delayed Draw Term Loans” ), which can be drawn down up to 3 times on ~~the term loan, however, the prepayment of the $81,000 from the proceeds from the Orogen Viper LLC investment~~ ~~(See Note 8 of the notes to our financial statements), has satisfied this obligation~~or before September 27, 2020 and ~~no further principal payments are required. The Existing Credit Agreement includes customary minimum cash, maximum~~(ii) extend out the debt to EBITDA ratio covenant step down by two quarters such that the leverage covenant remains at 3.25:1.00 through December 31, 2020. The Administrative Agent increased the LIBOR floor to 1.00% from 0% as part of the Third Credit Agreement Amendment. The Company executed the Third Credit Agreement Amendment to provide additional liquidity in light of the COVID-19 pandemic which the Company could use to fund general working capital and ~~minimum fixed charge coverage covenants.~~refinance existing indebtedness under the credit facility. On May 27, 2020, the Company prepaid $55,000 on its existing revolving facility as a condition to closing the Third Credit Agreement Amendment. The Third Credit Agreement Amendment contains customary terms for amendments of this type, such as representations, warranties and covenants, including pro forma compliance with the Credit Agreement debt to EBITDA covenant as a condition to borrowing. Interest under the New Delayed Draw Term Loans accrues at a rate per annum of LIBOR plus 3.50%. The New Delayed Draw Term Loans mature on May 26, 2021 and do not amortize. The Company did not elect to draw down on the New Delayed Draw Term Loans.

For the fiscal year ending March 31, 2021, the Company is required to make principal payments of $4,336 per quarter. The term of the ~~Existing~~ Credit Agreement is five years ending February ~~24, 2021.~~6, 2023. During the nine months ended December 31, 2020, the Company paid $13,008 and $105,000 towards the term loan and revolving credit facility, respectively. At December 31, ~~2017,~~2020, the total outstanding amount under the Credit Agreement was $381,961 and the weighted average interest rate on the ~~Existing Credit Facility~~term loan and revolving line of credit was ~~3.82%~~3.50%. On December 20, 2017, the Company drew down $25,000 from its existing revolving credit facility to prepare to meet the minimum escrow requirements in accordance with the applicable SEBI delisting regulations.

The Existing Credit Agreement has financial covenants that require that the Company maintain a Total Leverage Ratio, commencing on December 31, 2016, of not more than 3.25 to 1.00 for the first year of the Existing Credit Facility, of not more than 3.00 to 1.00 for the second year of the Existing Credit Facility, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter (the “Reference Period”). In addition, for a period, expected to be at least one year from the completion of the Company’s closing of the Polaris SPA Transaction, until the occurrence of certain events described in the Existing Credit Agreement, at any time when the Total Leverage Ratio exceeds 1.50 to 1.00 as of the last day of a quarter, the Company must maintain at least $30,000 in unrestricted cash, cash equivalents and certain permitted investments under the Existing Credit Facility held in bank deposits in the U.S., and $20,000 in unrestricted cash and certain permitted investments under the Existing Credit Facility and long-term securities investments held in accordance with the Company’s current investment policy. The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio, commencing on December 31, 2017, of not less than 1.25 to 1.00, as of the last day of any Reference Period. For purposes of these covenants, “Total Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of Funded Debt to

Adjusted EBITDA for the reference period ended on such date. “Funded Debt” refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees and “Adjusted EBITDA” is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection with the Existing Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring losses or expenses, and (vii) all other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period, subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Existing Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

~~The Existing Credit Facility~~credit facility is secured by substantially all of the Company’s assets, including all intellectual property and all securities in domestic subsidiaries (other than certain domestic subsidiaries where the material assets of such subsidiaries are equity in foreign subsidiaries), subject to customary exceptions and exclusions from the collateral. All obligations under the ~~Existing~~ Credit Agreement are unconditionally guaranteed by substantially all of the Company’s material direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.

At December 31, 2017, the Company is in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the Existing Credit Agreement to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the existing revolving credit facility at December 31, 2017 and through the date of this filing.

Current portion of long-term debt

The following summarizes our short-term debt balances as of:

	December 31, 2017		March 31, 2017
Notes outstanding under the revolving credit facility	$	—	$	—

						December 31, 2020		March 31, 2020
Term loan- current maturities	—		10,000				21,680		17,344
Less: deferred financing costs — current	—		(1,130		)
Less: deferred financing costs, current							(1,597)		(1,301)
Total	$	—	$	8,870		$	20,083	$	16,043

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Long-term debt, less current portion

The following summarizes our long-term debt balance as of:

	December 31, 2017			March 31, 2017

							December 31, 2020		March 31, 2020
Term loan	$	109,000		$	190,000		$	212,461	$	225,469
Borrowings under revolving credit facility	25,000			—				169,500		274,500
Less:
Current maturities	—			(10,000		)		(21,680)		(17,344)
Deferred financing costs, long-term	(3,561		)	(3,278		)		(1,840)		(2,471)
Total	$	130,439		$	176,722		$	358,441	$	480,154

~~In accordance with the recently adopted FASB ASU 2015-03, the Company has presented debt issuance costs in the balance sheet as a direct deduction from the carrying value of that debt liability.~~

In July 2016, the Company entered into 12-month forward starting interest rate swap transactions to mitigate Company’s interest rate risk on Company’s variable rate debt (collectively, “The Interest Rate Swap Agreements”). The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the Existing Credit Agreement by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. The Company will recognize these transactions in accordance with ASC 815 ~~“Derivatives and Hedging,”~~ ~~and have designated the swaps as cash flow hedges.~~

The three Interest Rate Swap Agreements have an effective date of July 31, 2017 and a maturity date of July 31, 2020. As of December 31, 2017, the swaps have an aggregate notional amount of $91,300 and, with the pre-payment of $81,000 of principal on our existing debt, hedge approximately 85% of our outstanding debt balance. The notional amount of the swaps amortizes over the remaining swap periods. The Interest Rate Swap Agreements require the Company to make monthly fixed interest rate payments based on the amortized notional amount at a blended weighted average rate of 1.025% and the Company will receive 1-month LIBOR on the same notional amounts. The unrealized gain associated with the 2016 Swap Agreement was $2,030 at December 31, 2017, which represents the estimated amount that the Company would receive from the counterparties in the event of an early termination.

On February 6, 2018, in connection with the Polaris delisting as discussed in Note 7, the Company entered into an amended and restated $450,000 credit agreement (the “Credit Agreement”) dated as of February 6, 2018, among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and JPMorgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint bookrunners and lead arrangers. The Credit Agreement amends and restates the Company’s existing $300,000 credit agreement (the “Existing Credit Agreement”) dated as of February 25, 2016, among the Company, the lenders party thereto and the Administrative Agent and provides for a $200,000 revolving credit facility, a $180,000 term loan facility and a $70,000 delayed-draw term loan (together, the “Credit Facility”). Proceeds of borrowings under the Credit Facility will be used (i) to refinance loans and other outstanding obligations under the Existing Credit Agreement and pay fees, costs and expenses incurred in connection with such refinancing and related transactions, (ii) acquisition financing, (iii) to finance consummation of the public tender offer for the outstanding equity interests of Polaris Consulting & Services Limited and (iv) for working capital and other general corporate purposes of the Company and its subsidiaries (including acquisitions, investments, capital expenditures and restricted payments). Interest on the loans under the Credit Facility accrues at a rate per annum of LIBOR plus 3.00%, subject to step-downs based on the Company’s ratio of debt to adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense (“EBITDA”). The Company intends to enter into an interest rate swap agreement to minimize interest rate exposure. The Credit Agreement includes customary maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years from the Closing Date (as defined below), ending February 6, 2023.

The Credit Agreement has financial covenants that require that the Company maintain a Total Net Leverage Ratio, during the period commencing on December 31, 2017 and ending prior to December 31, 2019, of not more than 3.50 to 1.00, during the period commencing on December 31, 2019 and ending prior to September 30, 2020, of not more than 3.25 to 1.00, and during the period commencing on September 30, 2020 and ending on the maturity date of the Credit Facility, of not more than 3.00 to 1.00, in each case as determined for the four consecutive fiscal quarter period ending on the last day of each fiscal quarter ending during the applicable period (the “Reference Period”). The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio during the term of the Credit Agreement of not less than 1.25 to 1.00, determined as of the last day of each Reference Period. For purposes of these covenants, “Total Net Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of Net Funded Debt to Adjusted EBITDA for the reference period ended on such date. “Net Funded Debt” refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees, net of up to $50,000 of unrestricted cash and cash equivalents of the Company, and “Adjusted EBITDA” is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection with the Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring losses or expenses, and (vii) all other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period, subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

The Credit Facility amortizes at a rate of 5% per annum of the outstanding principal amount for first two years, 7.5% per annum in the third year, 10% in the fourth year and 15% in the fifth year, in each case payable in equal quarterly instalments. To the extent funded, the delayed draw term loan will amortize in equal quarterly instalments on the same amortization schedule described above.

Beginning in fiscal 2009, the Company’s U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse or continuing involvement, certain of its European-based accounts receivable balances from one client to such third party financial institution. During the nine months ended December 31, ~~2017, $17,293~~2020, $42,630 of receivables were sold under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the ~~three and~~ nine months ended December 31, ~~2017. No~~2020. NaN amounts were due as of December 31, ~~2017,~~2020, but the Company may elect to use this program again in future periods. However, the Company cannot provide any assurances that this or any other financing facilities will be available or utilized in the future.

~~(13) Pensions and post-retirement benefits~~(15) Stock-Based Compensation Plans

~~The~~In May 2015, the Company ~~has noncontributory defined benefit plans covering its employees in India~~adopted the 2015 Stock Option and ~~Sri Lanka as mandated~~Incentive Plan (“2015 Plan”) which was also approved by the ~~Indian~~Company’s stockholders on September 1, 2015. The 2015 Plan permits the granting of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, unrestricted stock awards, performance share awards, performance-based awards to covered employees, cash-based awards and ~~Sri Lankan governments. The following tables provide information regarding pension expense recognized:~~dividend equivalent rights. Stock options, restricted stock and restricted stock units generally vest over four years. Performance share awards and performance-based awards generally vest over three years. Under the 2015 Plan, the Company grants both service condition awards and performance condition awards. Performance awards are contingent upon meeting various departmental or company-wide performance goals in addition to service conditions. Stock compensation is recognized over the vesting period based on the probability of achievement of the performance condition.

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Components of net periodic pension cost

Service cost

$
365

$
325

$
1,098

$
990

Interest cost

165

133

495

416

Expected return on plan assets

(172
)
(155
)
(519
)
(459
)
Amortization actuarial loss

38

40

115

122

Amortization past service cost

2

2

7

7

Net periodic pension cost

$
398

$
345

1,196

$
1,076

~~During~~In May 2020, the Company issued 250,075 performance shares to its executive officers with a three-year performance measurement period. As of December 31, 2020, the Company had not yet established the significant terms of the performance shares relevant to vesting (three-year cumulative target) for the three-year performance measurement period. Therefore, as of December 31, 2020, a grant date for financial accounting purposes had not occurred and the Company did not record any stock compensation related to these performance shares during the nine months ended December 31, ~~2017,~~2020. Upon the grant date, the Company ~~made cash contributions~~will recognize the stock compensation expense over the remaining future requisite service period from the grant date.

Table of ~~$2,638 towards the plans for the fiscal year 2018~~Contents

~~(14) Restructuring~~

During the three months ended September 30, 2017, the Company implemented certain cost saving and restructuring initiatives related to a workforce reduction. During the nine months ended December 31, 2017, the Company incurred $985, primarily related to termination benefits, which have been included in selling, general and administrative expenses in the consolidated statements of income. The Company expects to incur additional restructuring costs of approximately $250 in the remainder of fiscal year 2018. The Company expects to complete these initiatives by March 31, 2018.

~~The following table summarizes the above restructuring charges during the period ending December 31, 2017:~~

December 31, 2017

Balance at April 1, 2017

$
—

Provisions

985

Cash Payments

(700
)
Balance at December 31, 2017

$
285

~~(15)~~(16) Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) by component were as ~~follows~~follows:


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Investment securities
Beginning balance	$	12	$	12	$	12	$	12
Other comprehensive income (loss) (OCI) before reclassifications, net of tax of $0 for all periods		—		—		—		—
Reclassifications from OCI to other income, net of tax of $0 for all periods		—		—		—		—
Less: Noncontrolling interests, net of tax of $0 for all periods		—		—		—		—
Comprehensive income (loss) on investment securities, net of tax of $0 for all periods		—		—		—		—
Closing balance	$	12	$	12	$	12	$	12
Currency translation adjustments
Beginning balance	$	(63,522)	$	(64,116)	$	(71,207)	$	(57,354)
OCI before reclassifications		5,933		4,630		13,618		(2,106)
Less: Noncontrolling interests		—		(363)		—		(389)
Comprehensive income (loss) on currency translation adjustments		5,933		4,267		13,618		(2,495)
Closing balance	$	(57,589)	$	(59,849)	$	(57,589)	$	(59,849)
Cash flow hedges
Beginning balance	$	(7,610)	$	(2,175)	$	(11,818)	$	39
OCI before reclassifications net of tax of $8, $(386), $614 and $(666)		(358)		(1,993)		1,346		(2,240)
Reclassifications from OCI to
—Revenue, net of tax of $0, $0, $0 and $7		—		—		—		11
—Costs of revenue, net of tax of $28, $(188), $260 and $(504)		171		(639)		1,016		(1,847)
—Selling, general and administrative expenses, net of tax of $10, $(77), $100 and $(220)		62		(260)		384		(800)
—Interest expenses, net of tax of $304, $26, $767 and $(54)		887		75		2,224		(155)
Less: Noncontrolling interests, net of tax of $0 for all periods		—		—		—		—
Comprehensive income (loss) on cash flow hedges, net of tax of $350, $(625), $1,741 and $(1,437)		762		(2,817)		4,970		(5,031)
Closing balance	$	(6,848)	$	(4,992)	$	(6,848)	$	(4,992)
Benefit plans
Beginning balance	$	(2,071)	$	(2,776)	$	(2,242)	$	(2,084)
OCI before reclassifications net of tax of $0 for all periods		—		—		11		(911)
Reclassifications from OCI for prior service credit (cost) to:
Other income (expense), net of tax of $0 for all periods		10		6		30		19
Reclassifications from net actuarial gain (loss) amortization to:
Other income (expense), net of tax of $0 for all periods		95		70		286		210
Other adjustments, net of tax of $0 for all periods		9		3		(42)		76
(Less): Noncontrolling interests, net of tax $0 for all periods		—		(3)		—		(10)
Comprehensive income (loss) on benefit plans, net of tax of $0 for all periods		114		76		285		(616)
Closing balance		(1,957)	$	(2,700)		(1,957)	$	(2,700)
Accumulated other comprehensive loss	$	(66,382)	$	(67,529)	$	(66,382)	$	(67,529)

Table of Contents

(17) Commitments, Contingencies and Guarantees.

The Company indemnifies its officers and directors for certain events or occurrences under its charter or by-laws and under indemnification agreements while the officer or director is, or was, serving at its request in a defined capacity. The term of the indemnification period is with respect to the period that such person was an officer or director of the Company. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited. The costs incurred to defend lawsuits or settle claims related to these indemnification obligations have not been material. As a result, the Company believes that its estimated exposure on these obligations is minimal. Accordingly, the Company had 0 liabilities recorded for these obligations as of December 31, 2020.

The Company is insured against any actual or alleged act, error, omission, neglect, misstatement or misleading statement or breach of duty by any current or former officer, director or employee while rendering information technology services. The Company believes that its financial exposure from such actual or alleged actions, should they arise, is minimal and 0 liability was recorded at December 31, 2020.

From time to time the Company is involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. Although the Company cannot predict the outcome of such matters, the Company has no reason to believe the disposition of any current matter, other than the specific matters described below, could reasonably be expected to have a material adverse impact on the Company’s balance sheets, income of operations and cash flows or the ability to carry on any of its business activities. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.

One of the Company’s larger clients made a demand for damages related to a project in which the Company was performing services. The client alleged breach of certain representations and warranties regarding the Company’s performance and sought indemnification for damages from those alleged breaches. During the three ~~and nine~~ months ended December 31, ~~2017~~2020, the parties agreed to a commercial settlement whereby each party provided a full release of all claims provided that Virtusa make certain cash payments (which were subject to reimbursement under the terms of Virtusa’s insurance policies) and ~~2016:~~

Three Months Ended
December 31,

Nine Months Ended
December 31,

Accumulated Other Comprehensive Income (Loss)

2017

2016

2017

2016

Investment securities

Beginning balance

$
220

$
(122
)
$
57

$
23

Other comprehensive income (loss) (OCI) before reclassifications net of tax of $38, $83, $138 and $48

29

47

229

(125
)
Reclassifications from OCI to other income, net of tax of $(18), $0, $(33) and $3

(21
)
1

(17
)
10

Less : Noncontrolling interests, net of tax $(5), $(19), $(27) and $(10)

(10
)
(36
)
(51
)
(18
)
Comprehensive income (loss) on investment securities, net of tax of $15, $64, $78 and $41

(2
)
12

161

(133
)
Closing Balance

218

$
(110
)
218

$
(110
)
Currency Translation Adjustments

Beginning balance

$
(46,135
)
$
(48,220
)
$
(50,415
)
$
(45,211
)
OCI before reclassifications

4,641

(8,876
)
9,068

(12,079
)
Less: Noncontrolling interests, net of tax

(1,943
)
1,964

(2,090
)
2,158

Comprehensive income (loss) on currency translation adjustment

2,698

(6,912
)
6,978

(9,921
)
Closing Balance

(43,437
)
$
(55,132
)
(43,437
)
$
(55,132
)
Cash Flow Hedges

Beginning balance

$
4,274

$
8,811

$
11,789

$
3,934

OCI before reclassifications net of tax of $1,263, $1,176, $1,671, and $3,577

3,467

2,598

3,421

9,956

Reclassifications from OCI to

- Revenue, net of tax of $(808), $(322), $(2,714) and $(834)

(1,526
)
(609
)
(5,132
)
(1,575
)
- Costs of revenue, net of tax of $(129), $(340), $(1,289) and $(620)

(1,303
)
(1,165
)
(4,195
)
(2,257
)
- Selling, general and administrative expenses, net of tax of $(53), $(198), $(719) and $(382)

(697
)
(679
)
(2,341
)
(1,390
)
- Interest expenses, net of tax of $(12), $0, $(26) and $0

(47
)
—

(67
)
—

Less: Noncontrolling interests, net of tax $83, $23, $450 and $175

157

43

850

331

Comprehensive income (loss) on cash flow hedges, net of tax of $344 , $339, $(2,627) and $1,916

51

188

(7,464
)
5,065

Closing Balance

4,325

$
8,999

4,325

$
8,999

Benefit plans

Beginning balance

$
(1,088
)
$
(621
)
$
(1,180
)
$
(885
)
OCI before reclassifications net of tax of $0 for all periods

$
—

$
—

$
—

$
247

Reclassifications from OCI for prior service credit (cost) to:

- Costs of revenue, net of tax of $0 for all periods

2

2

6

6

- Selling, general and administrative expenses, net of tax of $0 for all periods

—

—

1

1

Reclassifications from OCI for net actuarial gain (loss) amortization to:

- Costs of revenue, net of tax of $0 for all periods

26

25

82

77

- Selling, general and administrative expenses, net of tax of $0 for all periods

12

15

36

45

Other adjustments

(9
)
—

(2
)
(18
)
Less: Noncontrolling interests, net of tax

—

(9
)
—

(61
)
Comprehensive income (loss) on benefit plans, net of tax of $0 for all periods

31

33

123

297

Closing Balance

(1,057
)
$
(588
)
(1,057
)
$
(588
)
Accumulated other comprehensive loss at December 31, 2017

(39,951
)
$
(46,831
)
(39,951
)
$
(46,831
)

~~(16) Subsequent Events~~

On January 19, 2018, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the U.K. pound sterling (“GBP”) against the U.S. dollar, the Swedish Krona (“SEK”) against the U.S. dollar and the Euro against the U.S. dollar, each of which will expire on various dates during the period ending March 29, 2018. The GBP contracts have an aggregate notional amount of approximately £2,346 (approximately $3,252), the SEK contracts have an aggregate notional amount of approximately SEK 1,658 (approximately $210) and the Euro contracts have an aggregate notional amount of approximately EUR 1,130 (approximately $1,385). The weighted average U.S. dollar settlement rate associatedprovide certain service credits with the GBP contracts is $1.39, the weighted average U.S dollar settlement rate associated with the SEK contracts is approximately $0.13, and the weighted average U.S. dollar settlement rate associated with the Euro contracts is approximately $1.23.

~~On October 26, 2017, the Company announced its intention to commence through its Indian subsidiary, Virtusa India, a process that could lead~~respect to the ~~delisting~~execution of its Indian subsidiary, Polaris, from all stock exchanges on which Polaris’ common shares are listed. In January 2018, the Company funded the minimum escrow requirements of approximately $96,285 for the delisting offer towards the purchase of up to 26,416,725 shares, comprised of a combination of cash and bank guarantee.future work.

On February 5, 2018, Virtusa India closed its delisting offer to all public shareholders of Polaris in accordance with the provisions of the SEBI Delisting Regulations, which resulted in a discovered price of INR 480 per share. On February 8, 2018, Virtusa India accepted the discovered price of INR 480 per share (the “Exit Price”) which will be offered to all Polaris public shareholders. Upon settlement by Virtusa India of an amount of approximately $145,000, exclusive of transaction and closing costs, for the Polaris shares tendered during the delisting process at the Exit Price, the shareholding of Virtusa India shall increase from approximately 74% to at least 93% of the share capital of Polaris. Upon closing of the transaction and receipt of final approvals from the stock exchanges on which Polaris is traded, the common shares of Polaris will be delisted from all public exchanges on which the Polaris shares are traded. The public shareholders of Polaris who have yet to tender their shares to Virtusa India may offer their shares for sale to Virtusa India at the Exit Price for a period of one year following the date of the delisting from all stock exchanges on which Polaris common shares are listed.

On February ~~6, 2018,~~28, 2019, the Supreme Court of India issued a ruling interpreting certain statutory defined contribution obligations of employees and employers, which altered historical understandings of such obligations, extending them to cover additional portions of employee income. As a result, contributions by our employees and the Company ~~entered into an amended~~will increase in future periods. There is uncertainty as to whether the Indian government will apply the Supreme Court's ruling on a retroactive basis and ~~restated $450,000 credit agreement (the “Credit Agreement”) dated~~if so, how this liability should be calculated as it is impacted by multiple variables, including the period of ~~February 6, 2018, among~~assessment, the ~~Company,~~application with respect to certain current and former employees and whether interest and penalties may be assessed. As such, the ~~lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”),~~ultimate amount of our obligation is difficult to quantify. If the Indian government were to apply the Supreme Court ruling retroactively, without assessing interest and ~~JPMorgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint bookrunners and lead arrangers. The Credit Agreement amends and restates~~penalties, the impact would be a charge of approximately $7,500 to the Company’s ~~existing $300,000 credit agreement (the “Existing Credit Agreement”) dated as of February 25, 2016, among the Company, the lenders party thereto~~income from operations and the Administrative Agent and provides for a $200,000 revolving credit facility, a $180,000 term loan facility and a $70,000 delayed-draw term loan (together, the “Credit Facility”). Proceeds of borrowings under the Credit Facility will be used (i) to refinance loans and other outstanding obligations under the Existing Credit Agreement and pay fees, costs and expenses incurred incash flows.

In connection with ~~such refinancing and related transactions, (ii)~~the proposed acquisition financing, (iii) to finance consummation of the public tender offer for the outstanding equity interests of Polaris Consulting & Services Limited and (iv) for working capital and other general corporate purposes of the Company ~~and its subsidiaries (including acquisitions,~~by certain investments ~~capital expenditures and restricted payments). Interest on~~funds affiliated with Baring Private Equity Asia, pursuant to the loans under the Credit Facility accrues at a rate per annum of LIBOR plus 3.00%, subject to step-downs based on the Company’s ratio of debt to adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense (“EBITDA”). The Company intends to enter into an interest rate swap agreement to minimize interest rate exposure. The CreditMerger Agreement, includes customary maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years from the Closing Date (as defined below), ending February 6, 2023.

period commencing on December 31, 2019 and ending prior to September 30, 2020, of not more than 3.25 to 1.00, and during the period commencing on September 30, 2020 and ending on the maturity date of the Credit Facility, of not more than 3.00 to 1.00, in each case as determined for the four consecutive fiscal quarter period ending on the last day of each fiscal quarter ending during the applicable period (the “Reference Period”). The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio during the term of the Credit Agreement of not less than 1.25 to 1.00, determined as of the last day of each Reference Period. For purposes of these covenants, “Total Net Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of Net Funded Debt to Adjusted EBITDA for the reference period ended on such date. “Net Funded Debt” refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees, net of up to $50,000 of unrestricted cash and cash equivalentsseveral lawsuits were filed by stockholders of the Company against the Company. The Company believes that the claims asserted against them are without merit and ~~“Adjusted EBITDA”~~intend to vigorously defend against these lawsuits.

If the Merger is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection withnot completed within the Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring lossesexpected time frame or ~~expenses, and (vii)~~at all, other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period,we may be subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

The Credit Agreement contains customary affirmative covenants for transactions of this type and other affirmative covenants agreed to by the parties, including, among others, the provision of annual and quarterly financial statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental matters. The Credit Agreement contains customary negative covenants, including, among others, restrictions on the incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends, repurchases of equity interests in the Company, entering into affiliate transactions and asset sales. The Credit Agreement also provides for a number of ~~customary events~~material risks. The price of ~~default, including, among others, payment, bankruptcy, covenant, representation and warranty, change~~our common stock may decline to the extent that current market prices reflect a market assumption that the Merger will be completed. We could be required to reimburse certain expenses of ~~control and judgment defaults.~~Parent or pay Parent a termination fee of $54,330 if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of ~~the~~our financial condition and results of our operations ~~of Virtusa Corporation~~ should be read ~~in conjunction~~together with ~~the~~our consolidated financial statements and ~~the~~ related notes ~~thereto~~to consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017~~2020 (the “Annual Report”), which has been filed with the Securities and Exchange Commission, or SEC.

~~Forward looking~~Forward-looking statements

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as ~~amended)~~amended, or the Exchange Act) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seek,” “intends,” “plans,” “estimates,” “projects,” “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements, such as statements regarding anticipated future revenue, the strength of our market position, the impact of the COVID-19 pandemic, our ability to accurately forecast sales, revenue or pipeline, progress against our goals, market opportunity in the high-tech and healthcare industries, costs of attracting and retaining IT professionals, contract percentage completions, capital expenditures, plans for repatriation of cash to the United States, the effect of new accounting pronouncements, management’s plans and objectives, the proposed Merger and expectations regarding the satisfaction of conditions under the Merger Agreement and the timing and completion of the Merger, and other statements regarding matters that are not historical facts, involve ~~predictions.~~ predictions. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. There are ~~a number of~~several important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including those factors set forth in Item 1A. “Risk Factors” in the Annual Report ~~on Form 10-K for the fiscal year ended March 31, 2017~~ and those factors referred to or discussed in or incorporated by reference into the section titled “Risk Factors” included in Item 1A of Part II of this Quarterly Report on Form 10-Q. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Business overview

Virtusa Corporation (the “Company”, “Virtusa”, “we”, “us” or “our”) is a global provider of digital business strategy, digital engineering and information technology (“IT”) ~~consulting~~services and ~~outsourcing services~~solutions that ~~accelerate business outcomes for our clients.~~help clients change, disrupt, and unlock new value through innovation engineering. We support ~~Forbes~~ Global 2000 clients across ~~large, consumer facing~~key industries ~~like~~including banking, ~~and~~ financial services, insurance, healthcare, communications, technology, and media and ~~entertainment, as they look to~~entertainment. We help improve ~~their~~ business performance through accelerating revenue growth, delivering compelling consumer experiences, improving operational efficiencies, and lowering overall IT costs. We provide services across the entire spectrum of the IT services lifecycle, from ~~strategy and~~ consulting, to technology and user experience (“UX”) design, development of IT applications, systems integration, digital engineering, testing and business assurance, and maintenance and support services, including cloud, infrastructure and managed services. ~~Our services leverage~~We help our clients solve critical business problems by leveraging a combination of our distinctive consulting approach, ~~and~~end-to-end digital engineering capabilities, unique platforming methodology, ~~to transform our clients’ businesses through~~and deep domain and technology expertise.

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industry standard technique designed to accelerate application development. We ~~also~~ use our ~~consulting methodology, which we refer~~Digital Transformation Studio (“DTS”) engineering tools to ~~as accelerated solution design (“ASD”), which is a collaborative decision-making~~drive software development lifecycle automation to improve quality, enabling speed and ~~design process performed with the client, to ensure our solutions meet the client’s specifications~~increasing productivity. Our proprietary DTS was built by Virtusa’s engineering teams that have decades of industry knowledge and ~~requirements. Our~~experience. These teams are certified and leverage Virtusa’s industry leading ~~business transformational solutions combine deep domain expertise with our strengths in software engineering~~tools and ~~business consulting to support our clients’ business imperative initiatives across business growth~~assets, providing increased speed and ~~IT operations.~~ transparency.

Headquartered in Massachusetts, we have offices throughout the Americas, Europe, Middle East and Asia, with significant global delivery centers in the United States, ~~Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, Austria, the United Arab Emirates, Hong Kong, Japan, Australia and New Zealand, with global delivery centers in~~ India, Sri Lanka, Hungary, Singapore and ~~Malaysia, as well as near shore delivery centers in the United States.~~Malaysia. We also have many employees who work with our clients either onsite or virtually, which offers flexibility for both clients and employees. At December 31, ~~2017,~~2020, we had ~~19,062~~23,837 employees, or team ~~members, inclusive~~members.

In fiscal year 2020, we initiated a multi-year strategy to increase our revenue growth, operating margin accretion, and earnings per share growth. Our strategy focuses on three fundamental pillars: increasing profitable revenue growth by targeting large digital and cloud transformation engagements, achieving greater revenue diversification, categorized by geography, industry and client, and increasing gross and operating margins through pyramid efficiencies, project profitability and general and administrative expense leverage.

The significant negative impact of COVID-19 on the global economy has created near-term challenges for us and the entire IT services industry. Simultaneously, the global pandemic has revealed unique opportunities for us to strengthen and advance our three-pillar plan. As a result, in late fiscal year 2020 and early fiscal year 2021, we launched several new initiatives under our three-pillar strategy designed to enable us to navigate the pandemic’s near-term economic impacts, and strengthen our overall market, financial and operational positioning going forward.

Our fiscal year 2021 plan built on and strengthened our three-pillar strategy of increased profitable revenue growth, revenue and client diversification, and margin expansion. On the first pillar, we are increasing our efforts to capture new opportunities created by a change in Global 2000 enterprises’ buying behaviors during the COVID-19 pandemic. For example, in late fiscal year 2020, we launched several go-to-market campaigns targeting remote workforce enablement, cost reduction and efficiency programs, and end-to-end deep digital transformation. In addition to our COVID-19 specific actions, we have sharpened our sales and marketing efforts in fiscal year 2021 to target an increasing number of large, recurring, high-margin, and faster growing digital and cloud transformation engagements.

On the second pillar of revenue and client diversification, we continue to make headway against our long-term goals of a more diversified portfolio of geographies, industries and accounts. Our efforts to increase our geographic diversification, including the realignment of our ~~Polaris team members.~~regional supervision and key local leadership hires made in Europe and the Middle East, continued to drive closer relationships with our clients in Europe, Middle East and Asia. With respect to industry group diversification, our third quarter fiscal 2021 results reflect continued steady progress. Our Communications and Technology (C&T) industry group revenue decreased 6.9% year-over-year in the third quarter of fiscal 2021, and C&T as a percentage of total revenue decreased 200 basis points from 24% to 22% over the same time period in fiscal 2020. Our Media, Information and Other revenue increased 13.5% year-over-year in the third quarter of fiscal 2021. We broke out our Healthcare industry group revenue for the first time in the first quarter of fiscal 2021 to provide our investors with increased transparency into this high-potential industry vertical. In the third quarter of fiscal 2021, Healthcare revenue was 15.0% of our total revenue. Lastly, our Banking, Financial Services and Insurance (“BFSI”) revenue mix continued to grow in the third quarter of fiscal 2021 to 55.0% of our total revenue from 54.0% in the third quarter of fiscal 2020. Given the significant opportunity we had and continue to have expanding our presence in high-growth sectors such as High-Tech and Healthcare, in fiscal year 2021 we have increased our investments in our domain expertise, skills, and sales and marketing programs in these sectors.

Regarding client level diversification, we recognize the importance over the long-term to reduce client revenue concentration by accelerating growth of high potential accounts and adding targeted new clients. To do so, in fiscal year 2021, we have directed more of our sales and marketing efforts toward smaller accounts that have the ability to expand significantly with us. We have had success with this strategy at our strategic clients. We will apply these same techniques to grow high potential accounts faster than our total company in order to accelerate account diversification.

Finally, with respect to Virtusa’s third pillar, margin expansion, our fiscal year 2021 plan included several strategies underway aimed to improve our gross and operating margins by reducing our costs and creating operating efficiencies. Specifically, our fiscal year 2021 plan includes actions underway to improve pyramid efficiencies, reduce the use of sub-contractors, increase utilization, and reduce general and administrative expenses as a percentage of revenue. In

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the third quarter of fiscal year 2021, our gross margin and non-GAAP operating margin expanded by 644 basis points and 637 basis points, respectively, over the second quarter of fiscal 2021 driven in part by sequential revenue growth, higher utilization and execution of our cost containment initiatives such as reduced use of subcontractors.

Recent developments

Proposed Merger with Austin HoldCo Inc., an entity wholly-owned by funds affiliated with Baring Private Equity Asia

On ~~May 3, 2017,~~September 9, 2020, we entered into an ~~investment agreement~~Agreement and Plan of Merger (the “Merger Agreement”), with ~~The Orogen Group~~Austin HoldCo Inc., an entity wholly-owned by funds affiliated with Baring Private Equity Asia (“~~Orogen”~~Parent”) ~~pursuant~~, and Austin BidCo Inc., a wholly-owned subsidiary of Parent (“Sub”), with respect to ~~which Orogen purchased 108,000 shares~~the acquisition of the Company by Parent for $51.35 in cash for each share of Virtusa common stock (“Baring Transaction”).

Pursuant to the Merger Agreement, Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Consummation of the Merger is subject to various conditions, including, among others, customary conditions relating to the approval of the Merger Agreement by the requisite vote of the Company’s ~~newly issued Series A Convertible Preferred Stock, initially convertible into 3,000,000 shares~~stockholders, the receipt of ~~common stock, for an aggregate purchase price~~certain foreign regulatory approvals and the approval or other clearance of ~~$108 million~~the Committee on Foreign Investments in the United States (“CFIUS”). The applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), with ~~an initial conversion price of $36.00 (the “Orogen Preferred Stock Financing”). In connection with~~respect to the investment, Vikram S. Pandit, the former CEO of Citigroup, was appointed to Virtusa’s Board of Directors. Orogen is a new operating company that was created by Vikram Pandit and Atairos Group, Inc., an independent private company focused on supporting growth-oriented businesses, to leverage the opportunities createdtransactions contemplated by the ~~evolution~~Merger Agreement expired on October 23, 2020 without any review. Consummation of the ~~financial services landscape~~Merger is not subject to any financing condition and is expected to ~~identify and invest~~occur in ~~financial services companies and related businesses with proven business models.~~

~~Under~~ the ~~terms~~first half of calendar year 2021. On December 21, 2020, the Company received written notice from the Committee on Foreign Investment in the United States (“CFIUS”) that it had concluded its review under Section 721 of the ~~investment,~~Defense Production Act of 1950, as amended, of the Series A Convertible Preferred Stock has a 3.875% dividend per annum, payable quarterly in additional shares of common stock and/or cash at our option. If any shares of Series A Convertible Preferred Stock have not been converted into common stock prior to May 3, 2024, the Company will be required to repurchase such shares at a repurchase price equalMerger. CFIUS determined that there are no unresolved national security concerns with respect to the ~~liquidation preference~~Merger. Receipt of the ~~repurchased shares plus the amount of accumulated and unpaid dividends thereon. If we fail~~CFIUS clearance satisfies a certain condition to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of May 3, 2024 during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum.

~~In connection with the investment, we repaid $81 million of our outstanding senior term loan, and our board of directors approved the repurchase of approximately $30 million of our common stock.~~

On March 3, 2016, pursuant to a share purchase agreement dated as of November 5, 2015, by and among Virtusa Consulting Services Private Limited (“Virtusa India”), a subsidiary of the Company, Polaris Consulting & Services Limited (“Polaris”) and the promoter sellers named therein, as amended on February 25, 2016 (the “SPA”), the Company completed the purchase of 53,133,127 shares, or approximately 51.7% of the fully-diluted capitalization of Polaris from certain Polaris shareholders for approximately $168.3 million in cash (the “Polaris SPA Transaction”). The primary strategic purpose and goal of Virtusa’s acquisition of Polaris was, and is, as follows:

· ~~The combination of Virtusa and Polaris creates a unique, fully integrated provider of comprehensive solutions and services across the banking and financial services industry,~~

· ~~The combination meaningfully expands our addressable market, and~~

· ~~The transaction enhances our ability to pursue larger consulting and outsourcing contracts.~~

In addition, on April 6, 2016, as part of the Polaris acquisition, Virtusa India completed an unconditional mandatory open offer (the “Mandatory Tender Offer”) with successful tender to purchase an additional 26% of the fully diluted outstanding shares of Polaris from Polaris’ public shareholders. The Mandatory Tender Offer was conducted in accordance with requirements of the Securities and Exchange Board of India (“SEBI”) and the applicable Indian rules on takeovers. Virtusa India purchased 26,719,942 shares of Polaris common stock for approximately $3.32 per share for an aggregate purchase price of approximately $89.1 million (Indian rupees 5,935 million). Upon the closing of the ~~Mandatory Tender Offer, Virtusa India’s ownership interest in Polaris increased from approximately 51.7% to 77.7%~~Merger. On November 20, 2020, via a special meeting of Polaris’ fully diluted shares outstanding, and from approximately 52.9% to 78.8% of Polaris’ basic shares outstanding. Under applicable Indian rules on takeovers, Virtusa India was required to sell within one yearstockholders, the stockholders of the ~~settlement~~Company approved and adopted the Merger Agreement. On January 11, 2021, the Competition Commission of India (“CCI”) approved the unconditional mandatory offer its shares of common stock in Polaris in excess of 75% of the basic outstanding shares of common stock of Polaris. In order to comply with the applicable Indian rules on takeovers, during the three months ended December 31, 2016, the Company sold 3.7% of its shares of Polaris common stock through a public offering.Merger. The sale offer closed on December 14, 2016, and the Company received approximately $7.6 million in proceeds, net of $0.2 million in brokerage fees and taxes. In addition to these costs, the Company incurred additional costs of $0.4 million towards professional and legal fees and expense. The Company’s ownership interest in Polaris prior to the sale offer was 78.6% of the outstanding shares of common stock, and upon the closing of the ~~sale offer,~~Merger remains subject to the ~~Company’s ownership interest decreased from 78.6% to 74.9% of Polaris’ basic shares of common stock outstanding.~~

We expect to ~~adjusted earnings before interest, taxes, depreciation, amortization,~~incur significant costs, expenses and ~~stock compensation expense (“EBITDA”). We were required under the terms of the Existing Credit Agreement to make quarterly principal payments on the term loan. On May 3, 2017,~~fees for professional services and other transaction costs in connection with the ~~Orogen Preferred Stock Financing,~~Merger. If the Merger Agreement is terminated under specified circumstances, we ~~amended~~may be required to pay a termination fee of $54.3 million to Austin HoldCo Inc.

For more information regarding the Merger and Merger Agreement, please see the Form 8-K filed with the SEC by the Company on September 11, 2020.

COVID-19 and factors impacting our ~~Existing Credit Agreement primarily~~business and operating results

During our fiscal 2021, the global pandemic related to ~~issue~~COVID-19 presented significant challenges and adversely impacted our business and operating results. We are unable at this time to predict the ~~Series A Convertible Preferred Stock~~full impact of COVID-19 on our operations, liquidity and ~~pay certain dividends with respect~~financial results, and, depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends. Refer to “Risk Factors” in the Annual Report for further discussion of the impact of the COVID-19 pandemic on our business.

In response to the ~~Series A Convertible Preferred Stock~~COVID-19 pandemic, Virtusa quickly initiated a rigorous plan to protect the health and safety of its global team members, while continuing to serve clients in a safe and sustainable manner. As the world faces unprecedented challenges caused by COVID-19, Virtusa is committed to doing everything possible to help our team members and clients manage through these turbulent times. Actions include:

●

Enacted a Work-From-Home policy starting March 9, 2020. Today, over 98% of Virtusa’s global billable team members are enabled to work from home.

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Conduct regular weekly meetings by Virtusa’s COVID-19 Task Force to coordinate the Company’s ongoing response to the pandemic and develop initiatives focused on safety protocols for personnel and facilities, team member support, technology enablement, productivity, and communications with clients to manage the crisis.

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Proactively launched a series of new services and solutions tailored to help clients address the challenges created by COVID-19, including Hyper Distributed Agile Services, Agile Squads, and Release Assurance.

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Implemented a comprehensive cost reduction and efficiency plan across delivery, shared services and professional services.

Human Capital

At December 31, 2020, we ~~repaid $81.0 million~~had 23,837 employees, or team members. Our human capital development framework is aligned to our ability to hire, retain and grow which allows us to invest in the development of our ~~term loan under~~team members in a focused manner, while keeping our team members culturally anchored to our core values. We are able to accomplish this by focusing our people management strategy on six key components: recruiting, performance management, training and development, employee engagement and communication, as well as compensation and retention. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the ~~Existing Credit Facility. As a result~~granting of this pre-payment, the Company has no additional obligated principal payments until the amount due at maturity. Interest payments will continue per the terms of the Existing Credit Agreement. The Existing Credit Agreement includes customary minimum cash, maximum debtstock-based and cash-based compensation awards, in order to ~~EBITDA and minimum fixed charge coverage covenants. The term of the Existing Credit Agreement is five years, ending February 24, 2021.~~

In connection with, and as part of the Polaris acquisition, on November 5, 2015, the Company entered into an amendment with Citigroup Technology, Inc. (“Citi”) and Polaris, which became effective upon the closing of the Polaris SPA Transaction, pursuant to which, (i) Citi agreed to appoint the Company and Polaris as a preferred vendor for Global Technology Resource Strategy (“GTRS”) for the provision of IT services to Citi on an enterprise wide basis (“GTRS Preferred Vendor”), (ii) the Company agreed to certain productivity savings and associated reduced spend commitments for a period of two years, which, if not achieved, would require the Company to provide certain minimum discounts to Citi, (iii) the parties amended Polaris’ master services agreement with

~~Citi such that the Company would also be deemed a contracting party~~increase stockholder value and the ~~Company would assume, and agree~~success of our company by motivating such individuals to perform or cause Polaris to perform, all applicable obligations under the master services agreement, as amended by the amendment (the “Citi/Virtusa MSA”), and (iv) Virtusa agreed to terminate Virtusa’s existing master services agreement with Citi, and have the Citi/Virtusa MSA be the sole surviving agreement.

~~On October 26, 2017, the Company announced its intention to commence through its Indian subsidiary, Virtusa India, a process that could lead~~ to the ~~delisting~~best of ~~its Indian subsidiary, Polaris, from all stock exchanges~~their abilities and achieve our objectives. We measure our team members performance by certain key performance areas, their self-development, their teamwork and their impact on which Polaris’ common shares are listed. In December 2017, the Company drew down $25.0 million from its existing revolving credit facility to prepare to meet the minimum escrow requirements in accordance with the applicable SEBI delisting regulations. In addition, in January 2018, the Company funded the minimum escrow requirements of approximately $96.3 million for the delisting offer towards the purchase of up to 26,416,725 shares, comprised of a combination of cash and bank guarantee.our overall organization.

On February 5, 2018, Virtusa India closed its delisting offer to all public shareholders of Polaris in accordance with the provisions of the SEBI Delisting Regulations, which resulted in a discovered price of INR 480 per share. On February 8, 2018, Virtusa India accepted the discovered price of INR 480 per share (the “Exit Price”) which will be offered to all Polaris public shareholders. Upon settlement by Virtusa India of an amount of approximately $145.0 million, exclusive of transaction and closing costs, for the Polaris shares tendered during the delisting process at the Exit Price, the shareholding of Virtusa India shall increase from approximately 74% to at least 93% of the share capital of Polaris. Upon closing of the transaction and receipt of final approvals from the stock exchanges on which Polaris is traded, the common shares of Polaris will be delisted from all public exchanges on which the Polaris shares are traded. The public shareholders of Polaris who have yet to tender their shares to Virtusa India may offer their shares for sale to Virtusa India at the Exit Price for a period of one year following the date of the delisting from all stock exchanges on which Polaris common shares are listed. In accordance with ASC 810-10, changes in a parent’s ownership, while retaining its financial controlling interest are accounted for as equity transactions. Therefore, should the Company decide to purchase additional shares through its Indian subsidiary, it would result in a reduction of minority interest and an increase to the Company’s equity.

In support of the transaction, on February 6, 2018, we entered into a $450.0 million credit agreement with a syndicated bank group jointly lead by JP Morgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, which amends and restates our existing $300.0 million credit agreement and provides for a $200.0 million revolving credit facility, a $180.0 million term loan facility, and a $70.0 million delayed-draw term loan. Virtusa drew down $180.0 million on the new term loan and $55.0 million on the new revolving credit facility to repay in full the prior credit facility and fund the Polaris delisting transaction. Interest under this new credit facility accrues at a rate per annum of LIBOR plus 3.0%, subject to step-downs based on the Company’s ratio of debt to EBITDA. We intend to enter into an interest rate swap agreement to minimize interest rate exposure. The Credit Agreement includes maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years, ending February 6, 2023.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Acts (the “Tax Act”). The Tax Act contains several key tax provisions that will impact the Company, including the reduction of the corporate income tax rate to 21% effective January 1, 2018. The Tax Act also includes a variety of other changes, such as a one-time repatriation tax on accumulated foreign earnings, a limitation on the tax deductibility of interest expense, acceleration of business asset expensing, and reduction in the amount of executive pay that could qualify as a tax deduction, among others. (See Note 10 to the Consolidated Financial Statements for further discussion)

Financial overview

In the three months ended December 31, ~~2017,~~2020, our revenue increased by ~~21.5%~~3.3% to $~~263.8~~$346.1 million, compared to ~~$217.2~~$335.1 million in the three months ended December 31, ~~2016.~~ 2019. In the nine months ended December 31, ~~2017,~~2020, our revenue ~~increased~~decreased by ~~16.8%~~1.9% to ~~$739.3~~$964.4 million, compared to ~~$632.8~~$982.6 million in the nine months ended December 31, ~~2016.~~2019.

In the three months ended December 31, ~~2017, net~~2020, our income ~~available~~from operations increased by 36.3% to ~~Virtusa common stockholders decreased by~~ ~~351.2% to a net loss of $(11.1)~~$41.5 million, as compared to ~~a net income of $4.4~~$30.4 million in the three months ended December 31, ~~2016. Net~~2019. In the nine months ended December 31, 2020, our income ~~available to Virtusa common stockholders~~from operations decreased by ~~423.3%~~2.8% to ~~a net loss of $(4.5)~~$61.3 million, compared to $63.1 million in the nine months ended December 31, ~~2017,~~2019.

In the three months ended December 31, 2020, net income available to Virtusa common stockholders increased by 109.4% to $24.4 million, as compared to $11.6 million in the three months ended December 31, 2019. Net income available to Virtusa common stockholders increased by 42.2% to a net income ~~of $1.4~~$31.8 million in the nine months ended December 31, ~~2016.~~2020, compared to a net income of $22.4 million in the nine months ended December 31, 2019.

The increase in revenue for the three months ended December 31, 2020, as compared to the three months ended December 31, 2019, primarily resulted from:

●

Increase in revenue from several banking clients, including our largest banking client, and revenue from several tuck-in asset and business acquisitions closed in the fiscal year ended March 31, 2020

●

Increase in revenue from Europe, primarily driven by one of our large European banking clients

partially offset by:

●

Impact from COVID-19 pandemic, primarily due to business interruptions and project delays, as well as elongated client decision making cycles

●

Decrease in growth of revenue from several of our top ten clients, primarily in our healthcare industry group

●

Decrease in revenue from our C&T industry group

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The decrease in revenue for the nine months ended December 31, ~~2017,~~2020, as compared to the ~~three and~~ nine months ended December 31, ~~2016,~~2019, primarily resulted from:

●

Impact from COVID-19 pandemic, primarily due to business interruptions and project delays, as well as elongated client decision making cycles

●

Decrease in revenue from Europe, primarily driven by one of our large European banking clients

●

Decrease in revenue from our BFSI industry group, primarily from financial services and a decrease in revenue from our healthcare industry group

●

Decrease in growth of revenue from several of our top ten clients, primarily in our healthcare industry group

· ~~Broad based growth, particularly in our top ten clients~~partially offset by:

●

Increase in revenue from our largest banking and telecommunication clients and revenue from several tuck-in asset and business acquisitions closed in the fiscal year ended March 31, 2020

· ~~Broad revenue growth in our industry groups, particularly banking and telecommunications~~

· ~~Revenue growth in all our geographies, led by Europe~~

The key drivers of the ~~decrease~~increase in our net income for the three months ended December 31, 2020, as compared to the three months ended December 31, 2019, were as follows:

●

Increase in revenue, primarily related to revenue from several banking clients, including our largest banking client

●

Substantial decrease in foreign currency transaction losses, primarily related to the revaluation of Indian rupee denominated intercompany note, primarily due to substantial appreciation of the Indian rupee against the U.S. dollar

●

Decrease in costs of revenue reflecting cost reduction initiatives in response to weakening of demand across our clients due to the COVID-19 pandemic as well as reduced travel

partially offset by:

●

Substantial legal, banking and advisory professional service fees incurred in connection with the proxy solicitation contest initiated by New Mountain Vantage Advisers LLC as well as the Baring Transaction

The key drivers of the increase in our net income for the nine months ended December 31, ~~2017,~~2020, as compared to the ~~three and~~ nine months ended December 31, ~~2016,~~2019, were as follows:

●

· ~~Substantial increase in income tax expense from the provisional impact of the Tax Act principally related to the repatriation tax and re-measurement of deferred tax assets;~~

●

Decrease in income tax expense, including tax benefit related to our merger of our India operations

●

Decrease in costs of revenue and operating expense, reflecting cost reduction initiatives in response to weakening of demand across our clients due to the COVID-19 pandemic as well as reduced travel

· ~~Increase in net income attributable to noncontrolling interest;~~

partially offset by:

●

Decrease in revenue, primarily related to the COVID-19 pandemic

· ~~Higher revenue, particularly in our top ten clients, including accelerated growth in banking and telecommunications:~~34

· ~~Increase in gross profit due to higher revenue, and higher gross margin driven by significantly higher utilization; partially offset by the impact~~Table of ~~lower margins from higher onsite effort and subcontractor costs;~~Contents

●

Periodic restoration of previously reduced compensation programs

· ~~Decrease in operating expense as a percentage of revenue, reflecting a larger revenue base.~~

●

Increase in interest expense related to an increase in our outstanding debt under our credit facility

High repeat business and client concentration are common in our industry. During the three months ended December 31, ~~2017~~2020 and ~~2016,~~2019, 97% and 96% ~~and 80%~~, respectively, of our revenue was derived from clients who had been using our services for more than one year. During the nine months ended December 31, ~~2017~~2020 and ~~2016,~~2019, 96% and 97% ~~and 82%~~, respectively, of our revenue was derived from clients who had been using our services for more than one year. Accordingly, our global account management and service delivery teams focus on expanding client relationships and converting new engagements to long-term relationships to generate repeat revenue and expand revenue streams from existing clients. We also have a dedicated business development team focused on generating engagements with new clients to continue to expand our client base and, over time, reduce client concentration.

We derive our revenue from two types of service offerings: application outsourcing, which is recurring in nature; and consulting, including technology implementation, which is non-recurring in nature. For the three months ended December 31, ~~2017,~~2020, our application outsourcing and consulting revenue represented 57% and 43%, respectively, of our total revenue as compared to 55% and 45%, respectively, for the three months ended December 31, 2019. For the nine months ended December 31, 2020, our application outsourcing and consulting revenue represented 56% and 44%, respectively, of our total revenue as compared to ~~58%~~56% and 42%, respectively, for the three months ended December 31, 2016. For the nine months ended December 31, 2017, our application outsourcing and consulting revenue represented 57% and 43%, respectively, of our total revenue as compared to 58% and 42%44%, respectively, for the nine months ended December 31, ~~2016.~~2019.

In the three months ended December 31, ~~2017,~~2020, our North America revenue increased by ~~22.4%~~2.1%, or ~~$31.5~~$5.3 million, to ~~$172.1~~$256.5 million, or ~~65.2%~~74.1% of total revenue, from $~~140.6~~$251.2 million, or ~~64.7%~~75.0% of total revenue, in the three months ended
December 31, 2019. In the nine months ended December 31, 2020, our North America revenue decreased by 1.4%, or $10.1 million, to $713.9 million, or 74.0% of total revenue, from $724.0 million, or 73.7% of total revenue in the nine months ended December 31, 2019. The increase in North America revenue for the three months ended December 31, 2020 was primarily due to revenue from several tuck-in asset and business acquisitions closed in the fiscal year ended March 31, 2020 partially offset by decrease in revenue from clients in our healthcare industry group. The decrease in North America revenue for the nine months ended December 31, 2020 was primarily due to the decrease in revenue from clients in our healthcare industry group, partially offset by revenue from several tuck-in asset and business acquisitions closed in the fiscal year ended March 31, 2020.

In the three months ended December 31, 2020, our European revenue increased by 7.3%, or $4.0 million, to $59.2 million, or 17.1% of total revenue, from $55.2 million, or 16.5% of total revenue in the three months ended December 31, ~~2016.~~ 2019. In the nine months ended December 31, ~~2017,~~2020, our ~~North America~~European revenue ~~increased~~decreased by ~~17.1%~~6.6%, or ~~$70.1~~$11.5 million, to ~~$480.8~~$163.7 million, or ~~65.0%~~17.0% of total revenue, from ~~$410.7~~$175.3 million, or ~~65.0%~~17.8% of total revenue in the nine months ended December 31, ~~2016.~~ 2019. The increase in European revenue for ~~the three and nine months ended December 31, 2017 is primarily due to revenue growth in our banking and telecommunications clients.~~

In the three months ended December 31, ~~2017, our European revenue increased by~~ 30.0%, or $14.6 million, to $63.3 million, or 24.0% of total revenue, from $48.7 million, or 22.4% of total revenue in the three months ended December 31, 2016. In the nine months ended December 31, 2017, our European revenue increased by 22.2%, or $31.6 million, to $173.9 million, or 23.5% of total revenue, from $142.2 million, or 22.5% of total revenue in the nine months ended December 31, 2016. The increase in revenue for the three and nine months ended December 31, 2017 is2020 was primarily due to an increase in revenue from ~~European~~one of our large banking clients. The decrease in European revenue for the nine months ended December 31, 2020 was primarily due to a decline in revenue from one of our large banking clients, partially offset by an increase in our largest telecommunication client.

Our gross profit increased by ~~$18.0~~$15.3 million to ~~$80.4~~$114.0 million for the three months ended December 31, ~~2017,~~2020, as compared to ~~$62.4~~$98.7 million for the three months ended December 31, 2019. As a percentage of revenue, gross margin increased from 29.4% in the three months ended December 31, ~~2016.~~ 2019 to 32.9% in the three months ended December 31, 2020. During the nine months ended December 31, 2020 and 2019, gross margin, as a percentage of revenue, was 27.6% and 27.8%, respectively. Our gross profit ~~increased~~decreased by ~~$39.2~~$6.3 million to ~~$211.2~~$266.6 million for the nine months ended December 31, ~~2017~~2020 as compared to ~~$172.0~~$272.9 million in the nine months ended December 31, ~~2016.~~ 2019. The increase in gross profit during the three ~~and nine~~ months ended December 31, ~~2017,~~2020, as compared to the three and nine months ended December 31, 2016, was primarily due to higher revenue and higher utilization, partially offset by appreciation of the Indian Rupee. As a percentage of revenue, gross margin was 30.5% and 28.7% in the three months ended December 31, ~~2017~~2019, was primarily due to lower onsite effort, decrease in travel and ~~2016, respectively. During~~related expense, as well as cost optimization programs with respect to our subcontractors implemented in the nine months ended December 31, ~~2017~~2020, partially offset by restoration of

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previously reduced compensation programs during the three months ended December 31, 2020. The decrease in gross profit during the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019, was primarily due to the lower utilization and ~~2016, gross margin,~~restoration of previously reduced compensation programs during the three months ended December 31, 2020, partially offset by lower onsite effort, decrease in travel and related expense as ~~a percentage of revenue, was 28.6% and 27.2%, respectively.~~well as cost optimization programs with respect to our subcontractors implemented in the nine months ended December 31, 2020.

We perform our services under both time-and-materials and fixed-price contracts. Revenue from fixed-price contracts represented ~~42%~~50% and 43% of total revenue, and revenue from time-and-materials contracts represented ~~58%~~50% and 57% of total revenue for the three months ended December 31, ~~2017~~2020 and ~~2016, respectively~~. 2019, respectively. Revenue from fixed-price contracts represented ~~39%~~45% and ~~43%~~41% of total revenue and revenue from time-and-materials contracts represented ~~61%~~55% and ~~57%~~59% for the nine months ended December 31, ~~2017~~2020 and ~~2016,~~2019, respectively. The revenue earned from fixed-price contracts in the three and nine months ended December 31, ~~2017~~2020 primarily reflects our client preferences.

~~As an IT services company, our revenue growth is highly dependent on our ability to attract, develop, motivate and retain skilled IT professionals.~~

We monitor our overall attrition rates and patterns to align our people management strategy with our growth objectives. At December 31, ~~2017,~~2020, our attrition rate for the trailing 12 months, which reflects voluntary and involuntary attrition as part of our cost reduction initiatives, was approximately ~~19.4%, of which 1.1% relates to implementation of certain cost saving and restructuring initiatives.~~19.9%. Our attrition rate at December 31, ~~2017~~2020 reflects a ~~lower~~higher rate of attrition as compared to the corresponding prior year period. The majority of our attrition occurs in India and Sri Lanka, and is weighted towards the more junior members of our staff. In response to higher attrition and as part of our retention strategies, we have experienced increases in compensation and benefit costs, which may continue in the future. However, we try to absorb such cost increases through price increases or cost management strategies such as managing discretionary costs, the mix of professional staff and utilization levels and achieving other operating efficiencies. If our attrition rate increases or is sustained at higher levels, our growth may slow and our cost of attracting and retaining IT professionals could increase.

We engage in a foreign currency hedging strategy using foreign currency forward contracts designed to hedge fluctuations in the Indian rupee against the U.S. dollar and ~~U.K. pound sterling,~~the GBP, as well as the euro, ~~Swedish krona~~the Canadian dollar, the Australian dollar and the ~~U.K. pound sterling~~GBP against the U.S. dollar, when consolidated into U.S. dollars and intercompany balances. In addition, as part of the Polaris acquisition, the Company has assumed a cash flow program designed to mitigate the impact of the volatility of the translation of Polaris U.S. dollar denominated revenue into Indian rupees to reduce the effect of change in these foreign currency exchange rates on our foreign operations.dollars. There is no assurance that these hedging programs or hedging contracts will be effective. Because these foreign currency forward contracts are designed to reduce volatility in the Indian rupee, ~~U.K. pound sterling,~~GBP and euro ~~and Swedish krona~~ exchange rates, they not only reduce the negative impact of a stronger Indian rupee, weaker ~~U.K. pound sterling, weaker~~GBP, euro, Canadian dollar and ~~weaker Swedish krona,~~Australian dollar but also could reduce the positive impact of a weaker Indian rupee on our Indian rupee expenses or reduce the impact of a stronger ~~U.K. pound sterling, stronger~~GBP, euro, ~~or stronger Swedish krona~~Canadian dollar and Australian dollar on our ~~U.K. pound sterling,~~GBP, euro, Canadian dollar and ~~Swedish krona~~Australian dollar denominated revenues. In addition, to the extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on the aggregate amount of hedges placed earlier and in larger amounts than expected.

Application of critical accounting estimates and risks

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, in particular those related to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities, ~~contingent consideration both upon and subsequent to acquisitions~~intangible assets and valuation of financial instruments including derivative contracts and investments. Actual amounts could differ significantly from these estimates. Our management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenue and expenses that are not readily apparent from other sources. Additional information about these critical accounting policies may be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in the Annual Report.

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Results of operations

Three months ended December 31, ~~2017~~2020 compared to the three months ended December 31, ~~2016~~2019

The following table presents an overview of our results of operations for the three months ended December 31, ~~2017~~2020 and ~~2016:~~2019:

Three Months Ended
December 31,

$

%

(dollars in thousands)

2017

2016

Change

Change

Revenue

$
263,809

$
217,209

$
46,600

21.5
%
Costs of revenue

183,420

154,847

28,573

18.5
%
Gross profit

80,389

62,362

18,027

28.9
%
Operating expenses

66,726

55,904

10,822

19.4
%
Income from operations

13,663

6,458

7,205

111.6
%
Other income (expense)

2,843

(2,331
)
5,174

222.0
%
Income before income tax expense

16,506

4,127

12,379

300.0
%
Income tax expense (benefit)

24,427

(1,414
)
25,841

1827.5
%
Net income (loss)

(7,921
)
5,541

(13,462
)
(243.0
)%
Less: net income attributable to noncontrolling interests, net of tax

2,134

1,106

1,028

92.9
%
Net income (loss) available to Virtusa stockholders

(10,055
)
4,435

(14,490
)
(326.7
)%
Less: Series A Convertible Preferred Stock dividends and accretion

1,087

—

1,087

—

Net income (loss) available to Virtusa common stockholders

$
(11,142
)
$
4,435

$
(15,577
)
(351.2
)%


		Three Months Ended
		December 31,
		2020		2019		$ Change		% Change

	(Dollars in thousands)
Revenue		$	346,100	$	335,107	$	10,993	3.3	%
Costs of revenue			232,142		236,427		(4,285)	(1.8)	%
Gross profit			113,958		98,680		15,278	15.5	%
Operating expenses			72,507		68,270		4,237	6.2	%
Income from operations			41,451		30,410		11,041	36.3	%
Other expense			(4,228)		(7,209)		2,981	(41.4)	%
Income before income tax expense			37,223		23,201		14,022	60.4	%
Income tax expense			11,776		10,363		1,413	13.6	%
Net income			25,447		12,838		12,609	98.2	%
Less: net income attributable to noncontrolling interests, net of tax			—		118		(118)	(100.0)	%
Net income available to Virtusa stockholders			25,447		12,720		12,727	100.1	%
Less: Series A Convertible Preferred Stock dividends and accretion			1,087		1,087		—	—	%
Net income attributable to Virtusa common stockholders		$	24,360	$	11,633	$	12,727	109.4	%

~~Revenue~~

Revenue

Revenue increased by ~~21.5%~~3.3%, or ~~$46.6~~$11.0 million, from ~~$217.2~~$335.1 million during the three months ended December 31, ~~2016~~2019 to ~~$263.8~~$346.1 million in the three months ended December 31, ~~2017.~~2020. The increase in revenue was primarily due to an increase in revenue from several banking clients, including our largest banking client, revenue from several tuck-in asset and business acquisitions closed in the fiscal year ended March 31, 2020, and an increase in revenue from Europe, primarily driven by one of our large European banking clients, partially offset by a decrease in growth of revenue ~~growth~~from several of our top ten clients, primarily in our ~~banking~~healthcare industry group and ~~telecommunications clients.~~decrease in revenue from our C&T industry group. Revenue from North American clients in the three months ended December 31, ~~2017~~2020 increased by ~~$31.5~~$5.3 million, or ~~22.4%~~2.1%, as compared to the three months ended December 31, ~~2016,~~2019, particularly due to revenue ~~growth~~from several tuck-in asset and business acquisitions closed in the fiscal year ended March 31, 2020 partially offset by decrease in revenue from clients in our ~~banking clients.~~healthcare industry group. Revenue from European clients increased by ~~$14.6~~$4.0 million, or ~~30.0%~~7.3%, as compared to the three months ended December 31, ~~2016,~~2019, primarily due to an increase in revenue from ~~European~~one of our large banking ~~and telecommunications~~ clients. We had ~~200~~230 active clients at December 31, ~~2017,~~2020, as compared to ~~189~~216 active clients at December 31, ~~2016.~~2019.

Cost of ~~Revenue~~revenue

Costs of revenue ~~increased~~decreased from ~~$154.8~~$236.4 million in the three months ended December 31, ~~2016~~2019 to ~~$183.4~~$232.1 million in the three months ended December 31, ~~2017, an increase~~2020, a decrease of ~~$28.6~~$4.3 million, or ~~18.5%, which reflects a higher cost of $1.6 million due to the appreciation of the Indian rupee.~~1.8%. The ~~increase~~decrease in cost of revenue was primarily due to a decrease in subcontractor costs of $12.0 million, which also reflect certain cost reduction actions initiated during the nine months ended December 31, 2020, a decrease in travel and related expenses of $4.7 million, partially offset by an increase in the number of IT professionals and related compensation and benefit costs of ~~$23.9 million. The increased costs~~$11.9 million, reflecting the restoration of ~~revenue are also due to an increase in subcontractor costs of $4.1 million~~certain compensation programs during the three months ended December 31, 2020 and an increase in ~~travel expenses~~facilities costs of ~~$0.8~~$0.4 million. At December 31, ~~2017,~~2020, we had ~~17,355~~21,779 IT professionals as compared to ~~15,805~~20,075 at December 31, ~~2016.~~

2019. As a percentage of revenue, cost of revenue decreased from 71~~.3%~~70.6% for the three months ended December 31, ~~2016~~2019 to ~~69.5%~~67.1% for three months ended December 31, ~~2017.~~2020.

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Gross profit

~~Gross Profit~~

Our gross profit increased by ~~$18.0~~$15.3 million, or ~~28.9%~~15.5%, to ~~$80.4~~$114.0 million for the three months ended December 31, ~~2017,~~2020, as compared to $~~62.4~~$98.7 million for the three months ended December 31, ~~2016, primarily due to an increase in revenue and higher utilization, partially offset by appreciation of the Indian Rupee.~~2019. As a percentage of revenue, ~~our~~ gross ~~profit~~margin was ~~30.5% and 28.7%~~29.4% in the three months ended December 31, ~~2017~~2019 and ~~2016, respectively.~~32.9% in the three months ended December 31, 2020. The increase in the gross profit was primarily due to lower onsite effort, decrease in travel and related expense as well as cost optimization programs with respect to our subcontractors implemented in the nine months ended December 31, 2020, partially offset by restoration of previously reduced compensation programs during the three months ended December 31, 2020.

Operating expenses

Operating expenses increased from ~~$55~~.9$68.3 million in the three months ended December 31, ~~2016~~2019 to ~~$66.7~~$72.5 million in the three months ended December 31, ~~2017,~~2020, an increase of ~~$10.8~~$4.2 million, or ~~19.4%, which reflects a higher cost of $0.7 million due to the appreciation of the Indian rupee.~~6.2%. The increase in operating expenses was primarily due to substantial legal, banking and advisory combined professional service fees of $4.4 million incurred in connection with the proxy solicitation contest as well as with the Baring Transaction, an increase ~~of $12.1 million~~ in compensation ~~related expenses~~expense, including stock and variable compensation expense of $3.6 million and an increase in ~~facilities costs~~ amortization of ~~$1.2~~intangible assets of $1.4 million, partially offset by a decrease in ~~professional services~~travel and related expenses of $3.1 million, and a decrease in other operating expense of ~~$1.8 million and travel costs of $0.8~~$1.2 million. As a percentage of revenue, our operating expenses ~~decreased~~increased from ~~25.7%~~20.4% in the three months ended December 31, ~~2016~~2019 to ~~25.3%~~20.9% in the three months ended December 31, ~~2017.~~2020.

Income from operations

Income from operations increased by ~~111.6%~~36.3%, from ~~$6.5~~$30.4 million in the three months ended December 31, ~~2016~~2019 to ~~$13.7~~$41.5 million ~~income~~ in the three months ended December 31, ~~2017.~~2020. As a percentage of revenue, income from operations increased from ~~3.0%~~9.1% in the three months ended December 31, ~~2016~~2019 to ~~5.2%~~12.0% in the three months ended December 31, ~~2017.~~2020, primarily due to an increase in revenue, lower onsite effort, as well as cost optimization programs with respect to our subcontractors implemented in the nine months ended December 31, 2020, partially offset by an increase in operating expense.

Other ~~income (expense)~~expense

Other ~~income (expense) increased~~expense decreased by ~~$5.2~~$3.0 million, from ~~an expense of $(2.3)~~$7.2 million in the three months ended December 31, ~~2016~~2019 to ~~an income of $2.8~~$4.2 million in the three months ended December 31, ~~2017, primarily~~2020, primary due to a decrease in net foreign currency transaction ~~gains due~~losses related to the ~~appreciation~~revaluation of ~~our~~ Indian rupee denominated intercompany note, ~~when converted into~~primarily due to a substantial appreciation of the Indian rupee against the U.S. ~~dollars.~~dollar, partially offset by loss on sale of land acquired in the Polaris Transaction that was classified as asset held for sale and an increase in interest expense related to our credit facility, primarily related to increase in the borrowings and interest rate.

Income tax expense ~~(benefit)~~

Income tax expense increased by ~~$25.8~~$1.4 million, from ~~a benefit of $(1.4)~~$10.4 million in the three months ended December 31, ~~2016~~2019 to ~~an expense of $24.4~~$11.8 million in the three months ended December 31, ~~2017.~~2020. Our effective tax rate ~~increased~~decreased from ~~(34.3)%~~44.7% for the three months ended December 31, ~~2016~~2019 to ~~148.0%~~31.6% for the three months ended December 31, ~~2017.~~2020. The increase in ~~the~~ tax expense ~~and~~is primarily due to increase in income from operations during the three months ended December 31, 2020. The decrease in effective tax rate for the three months ended December 31, ~~2017~~2020, was primarily due to a reduction in Base Erosion and Anti-Abuse Tax (“BEAT) impact, the ~~provisional net charges~~election of ~~$19.8 million recorded due~~foreign tax credits, lower statutory rates in India and the merger of our Indian operations. The merger of our Indian operations permits previous nondeductible items to ~~the recently enacted Tax Act~~, ~~an increase~~be deducted in ~~income from operations, geographical mix of profits offset by certain foreign currency translation gains with no corresponding tax expense.~~computing local taxable income.

Noncontrolling interests

In connection with the Polaris Consulting and Software Limited (“Polaris”) acquisition, for the three months ended December 31, ~~2017,~~2019, we recorded a noncontrolling interest of $~~2.1~~$0.1 million, representing a ~~25.64%~~1.71%, share of profits of Polaris held by parties other than Virtusa. During the fiscal year ended March 31, 2020, Polaris merged with and into

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Virtusa Consulting Services Private Limited (“Virtusa India”), with Virtusa India being the surviving entity. As of March 31, 2020, we own 100% of Polaris shares.

Net income ~~(loss)~~ available to Virtusa stockholders

Net income available to Virtusa stockholders ~~decreased~~increased by ~~326.7%~~$12.7 million or 100.1%, from ~~an income of $4.4~~$12.7 million in the three months ended December 31, ~~2016~~2019 to ~~a net loss of $(10.1)~~$25.4 million in the three months ended December 31, ~~2017.~~ 2020. The ~~decrease~~increase in net income in the three months ended December 31, ~~2017~~2020 was primarily due to an increase in revenue, an increase in income from operations and a ~~substantial~~decrease in foreign currency transaction losses, partially offset by an increase in income tax ~~expense from the provisional impact of the Tax Act principally related to the repatriation tax of $14.6 million and re-measurement of deferred tax assets of $5.2 million.~~expense.

Series A Convertible Preferred Stock dividends and accretion

In connection with the preferred stock financing transaction with the Orogen ~~Preferred Stock Financing,~~Group, we accrued dividends and accreted issuance costs of $1.1 million at a rate of 3.875% per annum during the three months ended December 31, ~~2017.~~2020 and 2019.

Net income ~~(loss)~~ available to Virtusa common stockholders

Net income available to Virtusa common stockholders ~~decreased~~increased by ~~351.2%~~$12.8 million or 109.4%, from ~~an income of $4.4~~$11.6 million in the three months ended December 31, ~~2016~~2019 to ~~a net loss of $(11.1)~~$24.4 million in the three months ended December 31, ~~2017.~~2020. The ~~decrease~~increase in net income in the three months ended December 31, ~~2017~~2020 was primarily due to an increase in revenue, an increase in income from operations and a ~~substantial~~decrease in foreign currency transaction losses, partially offset by an increase in income tax ~~expense from the provisional impact of the Tax Act principally related to the repatriation tax of $14.6 million and re-measurement of deferred tax assets of $5.2 million.~~expense.

Nine months ended December 31, ~~2017~~2020 compared to the nine months ended December 31, ~~2016~~2019

The following table presents an overview of our results of operations for the nine months ended December 31, ~~2017~~2020 and ~~2016:~~2019:

Nine Months Ended
December 31,

$

%

(dollars in thousands)

2017

2016

Change

Change

Revenue

$
739,328

$
632,769

$
106,559

16.8
%
Costs of revenue

528,103

460,776

67,327

14.6
%
Gross profit

211,225

171,993

39,232

22.8
%
Operating expenses

181,213

163,846

17,367

10.6
%
Income from operations

30,012

8,147

21,865

268.4
%
Other (income) expense

1,031

(5,038
)
6,069

120.5
%
Income before income tax expense

31,043

3,109

27,934

898.5
%
Income tax expense (benefit)

26,725

(1,378
)
28,103

2039.4
%
Net income

4,318

4,487

(169
)
(3.8
)%
Less: net income attributable to noncontrolling interests, net of tax

5,947

3,094

2,853

92.2
%
Net income (loss) available to Virtusa stockholders

(1,629
)
1,393

(3,022
)
(216.9
)%
Less: Series A Convertible Preferred Stock dividends and accretion

2,875

—

2,875

—

Net income (loss) available to Virtusa common stockholders

$
(4,504
)
$
1,393

$
(5,897
)
(423.3
)%


	Nine Months Ended
	December 31,
	2020		2019		$ Change		% Change

	(Dollars in thousands)
Revenue	$	964,352	$	982,632	$	(18,280)	(1.9)	%
Costs of revenue		697,772		709,746		(11,974)	(1.7)	%
Gross profit		266,580		272,886		(6,306)	(2.3)	%
Operating expenses		205,248		209,813		(4,565)	(2.2)	%
Income from operations		61,332		63,073		(1,741)	(2.8)	%
Other expense		(10,396)		(17,035)		6,639	(39.0)	%
Income before income tax expense		50,936		46,038		4,898	10.6	%
Income tax expense		15,826		19,932		(4,106)	(20.6)	%
Net income		35,110		26,106		9,004	34.5	%
Less: net income attributable to noncontrolling interests		—		450		(450)	(100.0)	%
Net income available to Virtusa stockholders		35,110		25,656		9,454	36.8	%
Less: Series A Convertible Preferred Stock dividends and accretion		3,262		3,262		—	—	%
Net income attributable to Virtusa common stockholders	$	31,848	$	22,394	$	9,454	42.2	%

~~Revenue~~

Revenue

Revenue ~~increased~~decreased by ~~16.8%~~1.9%, or ~~$106.6~~$18.3 million, from ~~$632.8~~$982.6 million during the nine months ended December 31, ~~2016~~2019 to ~~$739.3~~$964.4 million in the nine months ended December 31, ~~2017.~~2020. The ~~increase~~decrease in revenue was primarily ~~driven~~due to an impact from COVID-19 pandemic, primarily due to business interruptions and project delays, as well as elongated client decision making cycles, a decline in revenue from one of our largest European banking clients, a decrease in revenue from

Table of Contents

our BFSI industry group, primarily financial services, a decrease in revenue from our healthcare industry group and a decrease in growth of revenue from several of our top ten clients, primarily in our healthcare industry group, partially offset by an increase in revenue ~~growth in~~from our largest banking and telecommunication ~~clients.~~clients and revenue from several tuck-in asset and business acquisitions closed in the fiscal year ended March 31, 2020. Revenue from North American clients in the nine months ended December 31, ~~2017 increased~~2020 decreased by ~~$70.1~~$10.1 million, or ~~17.1%~~1.4%, as compared to the nine months ended December 31, ~~2016, primarily~~2019, particularly due to the decrease in revenue ~~growth~~from clients in ~~our banking clients.~~the healthcare industry group, partially offset by revenue from several tuck-in asset and business acquisitions closed in the fiscal year ended March 31, 2020. Revenue from European clients ~~increased~~decreased by ~~$31.6~~$11.5 million, or ~~22.2%~~6.6%, as compared to the nine months ended December 31, ~~2016,~~2019, primarily due to andecline in revenue from one of our large banking clients, partially offset by increase in revenue from ~~European banking and~~our largest telecommunication ~~clients.~~ client. We had ~~200~~230 active clients at December 31, ~~2017,~~2020, as compared to ~~189~~216 active clients at December 31, ~~2016.~~2019.

Cost of ~~Revenue~~revenue

Costs of revenue ~~increased~~decreased from ~~$460.8~~$709.7 million in the nine months ended December 31, ~~2016~~2019 to ~~$528.1~~$697.8 million in the nine months ended December 31, ~~2017, an increase~~2020, a decrease of ~~$67.3~~$11.9 million, or ~~14.6%, which reflects a higher cost of $1.9 million due to the appreciation of the Indian rupee.~~1.7%. The ~~increase~~decrease in cost of revenue was primarily due to a decrease in travel and related expenses of $17.2 million, a decrease in subcontractor costs of $16.2 million, which also reflect certain cost reduction actions initiated during the nine months ended December 31, 2020, partially offset by an increase in the number of IT professionals and related compensation and benefit costs of ~~$52.0 million. The increased costs of revenue are~~$20.1 million,. We also ~~due to~~incurred an increase in ~~subcontractor~~facilities and other costs of ~~$13.0~~$0.9 million ~~and an increase~~ in ~~travel expenses of $3.1 million.~~the nine months ended December 31, 2020. At December 31, ~~2017,~~2020, we had ~~17,355~~21,779 IT professionals as compared to ~~15,805~~20,075 at December 31, ~~2016.~~

2019. As a percentage of revenue, cost of revenue ~~decreased~~increased from 72~~.8%~~72.2% for the nine months ended December 31, ~~2016~~2019 to ~~71.4%~~72.4% for nine months ended December 31, ~~2017.~~2020.

Gross ~~Profit~~profit

Our gross profit ~~increased~~decreased by ~~$39.2~~$6.3 million, or ~~22.8%~~2.3%, to ~~$211.2~~$266.6 million for the nine months ended December 31, ~~2017,~~2020, as compared to $~~172.0~~$272.9 million for the nine months ended December 31, ~~2016, primarily due to an increase in revenue and higher utilization, partially offset by appreciation of the Indian rupee.~~2019. As a percentage of revenue, ~~our~~ gross ~~profit~~margin was ~~28.6% and 27.2%~~27.8% in the nine months ended December 31, ~~2017~~2019 and ~~2016, respectively.~~27.6% in the nine months ended December 31, 2020. The decrease in gross margin during the nine months ended December 31, 2020, was primarily due to lower utilization and restoration of previously reduced compensation programs during the three months ended December 31, 2020, partially offset by lower onsite effort, a decrease in travel and related expense as well as cost optimization programs with respect to our subcontractors implemented in the nine months ended December 31, 2020.

Operating expenses

Operating expenses ~~increased~~decreased from ~~$163~~.8$209.8 million in the nine months ended December 31, ~~2016~~2019 to ~~$181.2~~$205.2 million in the nine months ended December 31, ~~2017, an increase~~2020, a decrease of ~~$17.4~~$4.6 million, or ~~10.6%, which reflects a higher cost of $0.9 million due to the appreciation of the Indian rupee.~~2.2%. The ~~increase~~decrease in operating expenses was primarily due to ~~an increase of $17.8 million~~a decrease in compensation expense, including stock and variable compensation expense as well as cost reduction initiatives of $4.4 million, a decrease in travel and related expenses of $9.3 million and ~~an increase~~a decrease in ~~facilities~~other operating expense of ~~$1.4~~$2.5 million, partially offset by ~~a decrease~~substantial legal, banking and advisory combined professional service fees of $12.7 million incurred in ~~travel costs of $1.3 million and decrease in professional services related cost by $1.2 million.~~connection with the proxy solicitation contest as well as with the Baring Transaction. As a percentage of revenue, our operating expenses decreased from ~~25.9%~~21.4% in the nine months ended December 31, ~~2016~~2019 to ~~24.5%~~21.3% in the nine months ended December 31, ~~2017, primarily due to certain acquisition and integration related expenses incurred during the nine months ended December 31, 2016.~~2020.

Income from operations

Income from operations ~~increased~~decreased by ~~268.4%~~2.8%, from ~~a $8.1~~$63.1 million in the nine months ended December 31, ~~2016~~2019 to ~~$30.0~~$61.3 million ~~income~~ in the nine months ended December 31, ~~2017.~~2020. As a percentage of revenue, income from operations ~~increased~~was unchanged from ~~1.3%~~6.4% in the nine months ended December 31, ~~2016~~2019 to ~~4.1%~~the nine months ended December 31, 2020. The decrease in income from operations primarily due to a decrease in revenue, lower utilization, partially offset by decrease in subcontractors cost and operating expense, primarily due to cost optimization programs implemented in the nine months ended December 31, ~~2017.~~2020.

Table of Contents

Other expense

Other ~~income (expense)~~

~~Other income (expense) increased~~expense decreased by ~~$6.1~~$6.6 million, from ~~an expense of $5.0~~$17.0 million in the nine months ended December 31, ~~2016~~2019 to ~~an income of $1.0~~$10.4 million in the nine months ended December 31, ~~2017,~~2020, primarily due to a decrease in net foreign currency transaction ~~gains due~~losses related to the ~~appreciation~~revaluation of ~~our~~ Indian rupee denominated intercompany note, ~~when converted into~~primarily due to a substantial appreciation of the Indian rupee against the U.S. ~~dollars.~~dollar and a gain on redemption of equity method investment, partially offset by loss on sale of land acquired in the Polaris Transaction that was classified as asset held for sale and an increase in interest expense related to our credit facility, primarily related to increase in the borrowings and interest rate.

Income tax expense ~~(benefit)~~

Income tax expense ~~(benefit) increased~~decreased by ~~$28.1~~$4.1 million, from ~~a benefit of $(1.4)~~$19.9 million in the nine months ended December 31, ~~2016~~2019 to ~~an expense of $26.7~~$15.8 million in the nine months ended December 31, ~~2017.~~2020. Our effective tax rate ~~increased~~decreased from ~~a tax benefit of (44.3)%~~43.3% for the nine months ended December 31, ~~2016~~2019 to ~~a tax expense of 86.1%~~31.1% for the nine months ended December 31, ~~2017.~~2020. The ~~increase~~decrease in ~~the~~ tax expense and effective tax rate for the nine months ended December 31, ~~2017~~2020, was primarily due to a reduction in BEAT impact, the ~~provisional net charges~~election of ~~$19.8 million recorded due to recently enacted Tax Act, an increase~~foreign tax credits, reduction of global intangible low-taxed income, lower statutory rates in India and the merger of our Indian operations, partially offset by tax expense on increased income from operations. The merger of our Indian operations ~~and a change~~permits previous nondeductible items to be deducted in ~~geographical mix of profits, offset by certain foreign currency translation gains with no corresponding tax expense and stock compensation deductions.~~computing local taxable income.

Noncontrolling interests

In connection with the Polaris acquisition, for the nine months ended December 31, ~~2017,~~2019, we recorded a noncontrolling interest of $~~5.9~~$0.5 million, representing a ~~25.58%~~2.3%, share of profits of Polaris held by parties other than Virtusa. During the fiscal year ended March 31, 2020, Polaris merged with and into Virtusa India, with Virtusa India being the surviving entity. As of March 31, 2020, we own 100% of Polaris shares.

Net income ~~(loss)~~ available to Virtusa stockholders

Net income available to Virtusa stockholders ~~decreased~~increased by ~~216.9%~~$9.5 million or 36.8%, from ~~a net income of $1.4~~$25.7 million in the nine months ended December 31, ~~2016~~2019 to ~~a net loss of $(1.6)~~$35.1 million in the nine months ended December 31, ~~2017~~.2020. The ~~decrease~~increase in net income in the nine months ended December 31, ~~2017~~2020 was primarily due to a ~~substantial increase~~decrease in foreign currency transaction losses, a decrease in income tax expense, ~~from the provisional impact~~a decrease in costs of ~~the Tax Act principally~~revenue and operating expense, partially offset by a decrease in revenue and an increase in interest expense related to ~~the repatriation tax of $14.6 million and re-measurement of deferred tax assets of $5.2 million.~~our credit facility.

Series A Convertible Preferred Stock dividends and accretion

In connection with the preferred stock financing transaction with the Orogen ~~Preferred Stock Financing,~~Group, we accrued dividends and accreted issuance costs of ~~$2.9~~$3.3 million at a rate of 3.875% per annum during the nine months ended December 31, ~~2017.~~2020 and 2019.

Net income ~~(loss)~~ available to Virtusa common stockholders

Net income available to Virtusa common stockholders ~~decreased~~increased by ~~423.3%~~$9.5 million, or 42.2%, from ~~a net income of $1.4~~$22.4 million in the nine months ended December 31, ~~2016~~2019 to ~~a net loss of $(4.5)~~$31.9 million in the nine months ended December 31, ~~2017.~~2020. The ~~decrease~~increase in net income in the nine months ended December 31, ~~2017~~2020 was primarily due to ~~substantial increase~~a decrease in foreign currency transaction losses, a decrease in income tax expense, ~~from the provisional impact~~a decrease in costs of ~~the Tax Act principally~~revenue and operating expense, partially offset by a decrease in revenue and an increase in interest expense related to ~~the repatriation tax of $14.6 million and re-measurement of deferred tax assets of $5.2 million.~~our credit facility.

Non-GAAP Measures

We include certain non-GAAP financial measures as defined by Regulation G by the Securities and Exchange Commission. These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures should be read in conjunction with our financial statements prepared in accordance with GAAP.

Table of Contents

We consider the total measure of cash, cash equivalents, short-term and long-term investments to be an important indicator of our overall liquidity. All of our investments are classified as time deposits, available-for-sale debt securities and equity securities, including our long-term investments ~~which consist of fixed income securities, including government agency bonds and municipal and corporate bonds,~~ which meet the credit rating and diversification requirements of our investment policy as approved by our audit committee and board of directors.

The following table provides the reconciliation from cash and cash equivalents to total cash and cash equivalents, short-term investments and long-term investments:



	December 31, 2020		March 31, 2020
Cash and cash equivalents	$	347,173	$	290,837
Short-term investments		2,633		9,785
Long-term investments		22		4
Total cash and cash equivalents, short-term and long-term investments	$	349,828	$	300,626

We believe the following financial measures will provide additional insights to measure the operational performance of our business.

·
● We present ~~the following~~ consolidated statements of income measures that exclude, when applicable, stock-based compensation expense, acquisition-related charges, restructuring charges, foreign currency transaction gains and losses, impairment of investments, impairment of long-lived assets, non-recurring third party financing cost, gain on redemption of equity method investment, non-recurring fees for potential proxy deliberation, the initial impact of our election to treat certain subsidiaries as disregarded entities for U.S. tax purposes, and other non-recurring tax items to provide further insights into the comparison of our operating results among periods.

Table of income (loss) measures that exclude, when applicable, acquisition-related charges, restructuring charges, stock-based compensation expense, foreign currency transaction gains and losses, the tax impact of dividends received from foreign subsidiaries and the impact from the U.S. government enacted comprehensive tax legislation (“Tax Act”) to provide further insights into the comparison of our operating results among the periods:Contents

· Non-GAAP income from operations: income from operations, as reported on our consolidated statements of income (loss), excluding stock-based compensation expense, and acquisition-related charges and restructuring charges

· ~~Non-GAAP operating margin: non-GAAP income from operations as a percentage of reported revenues~~

· Non-GAAP net income available to Virtusa common stockholders: net income (loss) available to Virtusa common stockholders, as reported on our consolidated statements of income (loss), excluding stock-based compensation, acquisition-related charges, restructuring charges, foreign currency transaction gains and losses, the tax impact of the above items, the tax impact of dividends received from foreign subsidiaries and the impact from the Tax Act.

· Non-GAAP diluted earnings per share: diluted earnings (loss) per share, as reported on our consolidated statements of income (loss) available to Virtusa common stockholders, excluding stock-based compensation, acquisition-related charges, restructuring charges, foreign currency transaction gains and losses, the tax impact of the above items, the per share tax impact of dividends received from foreign subsidiaries and the impact from the Tax Act. Non-GAAP diluted earnings per share is also subject to dilutive and anti-dilutive requirements of the if-converted method related to our Series A Convertible Preferred Stock that could result in a difference between GAAP to non-GAAP diluted weighted average shares outstanding.

The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP ~~measure for the three and nine months ended December 31, 2017 and 2016:~~measure:

Three Months Ended

Nine Months Ended

December 31,

December 31,

2017

2016

2017

2016

(in thousands, except

(in thousands, except

per share amounts)

per share amounts)

GAAP income from operations

$
13,663

$
6,458

$
30,012

$
8,147

Add: Stock-based compensation expense

9,118

4,748

20,048

17,023

Add: Acquisition-related charges and restructuring charges (1)

3,227

5,116

9,087

11,787

Non-GAAP income from operations

$
26,008

$
16,322

$
59,147

$
36,957

GAAP operating margin

5.2
%
3.0
%
4.1
%
1.3
%
Effect of above adjustments to income from operations

4.7
%
4.5
%
3.9
%
4.6
%
Non-GAAP operating margin

9.9
%
7.5
%
8.0
%
5.9
%
GAAP net income (loss) available to Virtusa common stockholders

$
(11,142
)
$
4,435

$
(4,504
)
$
1,393

Add: Stock-based compensation expense

9,118

4,748

20,048

17,023

Add: Acquisition-related charges and restructuring charges (1)

3,227

5,116

9,087

11,787

Add: Foreign currency transaction (gains) losses (2)

(2,576
)
1,252

(1,019
)
2,802

Add: Impact from the Tax Act (8)

19,815

—

19,815

—

Tax adjustments (3)

(3,210
)
(4,198
)
(9,798
)
(7,397
)
Less: Noncontrolling interest, net of tax (4)

(647
)
(319
)
(1,326
)
(875
)
Non-GAAP net income available to Virtusa common stockholders

$
14,585

$
11,034

$
32,303

$
24,733

GAAP diluted earnings (loss) per share (6)

$
(0.38
)
$
0.15

$
(0.15
)
$
0.05

Effect of stock-based compensation expense (7)

0.28

0.16

0.63

0.56

Effect of acquisition-related charges and restructuring charges (1) (7)

0.10

0.17

0.28

0.39

Effect of foreign currency transaction (gains) losses (2) (7)

(0.08
)
0.04

(0.03
)
0.09

Effect of impact from the Tax Act (7) (8)

0.60

—

0.62

—

Tax adjustments (3) (7)

(0.10
)
(0.14
)
(0.31
)
(0.24
)
Effect of noncontrolling interest (4) (7)

(0.02
)
(0.01
)
(0.04
)
(0.03
)
Effect of dividend on Series A Convertible Preferred Stock (6) (7)

0.03

—

0.07

—

Effect of change in dilutive shares for non-GAAP (6)

0.04

—

0.01

—

Non-GAAP diluted earnings per share (5) (7)

0.47

0.37

1.08

0.82


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2020			2019			2020			2019

	in thousands, except per share amounts)

GAAP income from operations	$	41,451		$	30,410		$	61,332		$	63,073
Add: Stock-based compensation expense		4,027			5,775			11,697			18,285
Add: Acquisition-related charges and restructuring charges (a)		6,512			4,345			19,869			12,741
Add: Non-recurring professional fees (b)		2,998			—			6,337			—
Non-GAAP income from operations	$	54,988		$	40,530		$	99,235		$	94,099
GAAP operating margin		12.0	%		9.1	%		6.4	%		6.4	%
Effect of above adjustments to income from operations		3.9	%		3.0	%		3.9	%		3.2	%
Non‑GAAP operating margin		15.9	%		12.1	%		10.3	%		9.6	%
GAAP net income available to Virtusa common stockholders	$	24,360		$	11,633		$	31,848		$	22,394
Add: Stock-based compensation expense		4,027			5,775			11,697			18,285
Add: Acquisition-related charges and restructuring charges (a)		6,512			4,345			19,869			13,008
Add: Non-recurring professional fees (b)		2,998			—			6,337			—
Add: Impairment of investment (c)		—			184			—			184
Less : Gain on redemption of equity method investment		—			—			(1,179)			—
Add : Loss on sale of asset held for sale (d)		619						619
Add: Foreign currency transaction (gains) losses (e)		(1,126)			3,065			(3,983)			5,300
Tax adjustments (f)		(3,625)			161			(8,491)			(4,153)
Less: Noncontrolling interest, net of taxes (g)		—			(16)			—			(44)
Non-GAAP net income available to Virtusa common stockholders	$	33,765		$	25,147		$	56,717		$	54,974
GAAP diluted earnings per share (h)	$	0.75		$	0.38		$	1.04		$	0.73
Effect of stock-based compensation expense (i)		0.12			0.17			0.35			0.54
Effect of acquisition-related charges and restructuring charges (a) (i)		0.19			0.13			0.61			0.38
Effect of non-recurring professional fees (b) (i)		0.09			—			0.19			—
Effect of impairment of investment (c) (i)		—			0.01			—			—
Effect of gain on redemption of equity method investment (i)		—			—			(0.04)			—
Effect of loss on sale of asset held for sale (d) (i)		0.02						0.02
Effect of foreign currency transaction (gains) losses (e) (i)		(0.03)			0.09			(0.12)			0.16
Tax adjustments (f) (i)		(0.11)			—			(0.26)			(0.12)
Effect of noncontrolling interest (g) (i)		—			—			—			—
Effect of dividend on Series A Convertible Preferred Stock (h) (i)		—			—			0.07			0.10
Effect of change in dilutive shares for non-GAAP (h)		—			—			(0.06)			(0.06)
Non-GAAP diluted earnings per share (i) (j)	$	1.03		$	0.78		$	1.80		$	1.73

~~(1)~~

(a)

Acquisition-related charges include, when applicable, amortization of purchased intangibles, external deal costs, transaction-related professional fees, acquisition-related retention bonuses, changes in the fair value of contingent consideration liabilities, accreted interest related to deferred acquisition payments, charges for impairment of acquired

Table of purchased intangibles, external deal costs, acquisition-related retention bonuses, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs including integration expenses consisting of outside professional and consulting services and direct and incremental travel costs. Restructuring charges, when applicable, include termination benefits, as well as certain professional fees related to the restructuring. The following table provides the details of the acquisition-related charges and restructuring charges:Contents

intangible assets and other acquisition-related costs including integration expenses consisting of outside professional and consulting services and direct and incremental travel costs. Restructuring charges, when applicable, include termination benefits, as well as certain professional fees related to restructuring. The following table provides the details of the acquisition-related charges and restructuring charges:

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Amortization of intangibles

$
2,568

$
2,403

$
7,671

$
7,146

Acquisition and integration costs

431

827

431

2,755

Restructuring charges

228

1,886

985

1,886

Total

$
3,227

$
5,116

$
9,087

$
11,787


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Amortization of intangible assets	$	4,858	$	3,496	$	13,983	$	10,157
Acquisition and integration costs		—		849		—		2,584
Transaction costs related to Barings Transaction		1,370		—		6,367		—
Changes in fair value of contingent consideration		284		—		(481)		—
Acquisition-related charges included in costs of revenue and operating expense		6,512		4,345		19,869		12,741
Accreted interest related to deferred acquisition payments		—		—		—		267
Total acquisition-related charges and restructuring charges	$	6,512	$	4,345	$	19,869	$	13,008

(b)

Non-recurring fees for advisory, legal, consulting and proxy solicitation services in connection with a contested proxy solicitation with respect to our annual shareholder meeting and the election of directors. Also included is the reimbursement of fees and expenses incurred in connection with the settlement of the contested proxy solicitation.

~~(2)~~ ~~Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes.~~

~~(3)~~ ~~Tax adjustments reflect the estimated tax effect of the non-GAAP adjustments using the tax rates at which these adjustments are expected to be realized for the respective periods.~~

(c)	Other-than-temporary impairment of available-for-sale securities recognized in earnings.

~~(4)~~ ~~Noncontrolling interest represents~~

(d)	Loss on sale of land acquired in the ~~minority shareholders interest of~~ Polaris Transaction that was classified as asset held for sale

(e)	Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes.

(f)

Tax adjustments reflect the tax effect of the non-GAAP adjustments using the tax rates at which these adjustments are expected to be realized for the respective periods. For fiscal year 2020, tax adjustments exclude BEAT tax impact in contemplation of a reorganization of our Indian legal entities and assume application of foreign tax credit benefits in the United States.

(g)	Noncontrolling interest represents the minority shareholders interest of Polaris.

(h)

During the three months ended December 31, 2020 and 2019 all of the 3,000,000 shares of Series A Convertible Preferred Stock were included in the calculations of both GAAP and non-GAAP diluted earnings per share as their effect would have been dilutive using the if-converted method. During the nine months ended December 31, 2020 and 2019, all of the 3,000,000 shares of Series A Convertible Preferred Stock were excluded from the calculations of GAAP diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

~~(5)~~ ~~Non-GAAP diluted earnings per share is subject to rounding~~

~~(6)~~ During the three and nine months ended December 31, 2017, the weighted average shares outstanding of Series A Convertible Preferred Stock of 3,000,000 and 2,637,363 respectively, were excluded from the calculations of GAAP diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

The following table provides the non-GAAP net income available to Virtusa common stockholders and non-GAAP dilutive weighted average shares outstanding using the if-converted method to calculate the non-GAAP diluted earnings per share for the three and nine months ended December 31, ~~2017~~2020 and ~~2016:~~2019:

Three Months Ended
December 31,

Nine Months Ended
December 31,

2017

2016

2017

2016

Non-GAAP net income available to Virtusa common stockholders

$
14,585

$
11,304

$
32,303

$
24,733

Add: Dividends and accretion on Series A Convertible Preferred Stock

1,087

—

2,175

—

Non-GAAP net income available to Virtusa common stockholders and assumed conversion

$
15,672

$
11,304

$
34,478

$
24,733

GAAP dilutive weighted average shares outstanding

29,295,730

30,151,590

29,387,977

30,129,378

Add: Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units

709,961

—

637,830

—

Add: Series A Convertible Preferred Stock as converted

3,000,000

—

2,000,000

—

Non-GAAP dilutive weighted average shares outstanding

33,005,691

30,151,590

32,025,807

30,129,378

~~(7)~~ To the extent the Series A Convertible Preferred Stock is dilutive using the if-converted method, the Series A Convertible Preferred Stock is included in the weighted average shares outstanding to determine non-GAAP diluted earnings per share.

~~(8)~~ ~~The U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017. This resulted in a tax expense~~Table of $19.8 million for the three months ended December 31, 2017, comprised of a provisional repatriation tax expense of $14.6 million and a provisional net deferred tax expense of $5.2 million. The adjustment to GAAP net income (loss) available to Virtusa common stockholders only includes these impacts. It does not include the ongoing impacts of the lower U.S. statutory rate on current year earnings.Contents


	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Non-GAAP net income available to Virtusa common stockholders	$	33,765	$	25,147	$	56,717	$	54,974
Add: Dividends and accretion on Series A Convertible Preferred Stock		1,087		1,087		2,175		3,262
Non-GAAP net income available to Virtusa common stockholders and assumed conversion	$	34,852	$	26,234	$	58,892	$	58,236
GAAP dilutive weighted average shares outstanding		33,897,596		33,458,231		30,665,142		30,700,269
Add: Incremental effect of Series A Convertible Preferred Stock as converted		—		—		2,000,000		3,000,000
Non-GAAP dilutive weighted average shares outstanding		33,897,596		33,458,231		32,665,142		33,700,269

(i)	To the extent the Series A Convertible Preferred Stock is dilutive using the if-converted method, the Series A Convertible Preferred Stock is included in the weighted average shares outstanding to determine non-GAAP diluted earnings per share.

(j)	Non-GAAP diluted earnings per share is subject to rounding.

Liquidity and capital resources

We have financed our operations primarily from sales of shares of common stock, cash from operations, debt financing and from sales of shares of Series A Convertible Preferred Stock. Our ability to expand and grow our business to execute our strategic objectives will depend on many factors, including our willingness to make opportunistic acquisitions, strategic investments and partnerships.

On September 9, 2020, we entered into the Merger Agreement, with Parent, and Sub, with respect to the acquisition of the Company by Parent for $51.35 in cash for each share of Virtusa common stock. We expect to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the merger contemplated by the Merger Agreement. During the nine months ended December 31, 2020, we incurred approximately $6.4 million as transaction costs in connection with the Merger. If the Merger Agreement is terminated under specified circumstances, we may be required to pay a termination fee of $54.3 million to Austin HoldCo Inc. For more information regarding the merger contemplated by the Merger Agreement and Merger Agreement, please see the Form 8-K filed with the SEC by the Company on September 11, 2020.

In response to the COVID-19 outbreak, which had and is having a negative business impact on our operations, in March 2020, we drew down approximately $84.0 million dollars from our revolving credit facility to supplement our liquidity and working capital in light of the impact of the COVID-19 pandemic on our clients and our results of operations. For additional liquidity, on May 27, 2020, we entered intoAmendment No. 3 to Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. (the “ Administrative Agent” ) and the lenders party thereto (the “ Third Credit Agreement Amendment” ), which amends the Company’s Amended and Restated Credit Agreement, dated as of February 6, 2018, with such parties (as amended, “Credit Agreement” ) to, among other things, (i) provide for $62.5 million in incremental 364-day delayed draw term loans (the “New Delayed Draw Term Loans” ), which can be drawn down up to three times on or before September 27, 2020 and (ii) extend out the debt to EBITDA ratio covenant step down by two quarters such that the leverage covenant remains at 3.25:1.00 through December 31, 2020. The Company can use the proceeds of the New Delayed Draw Term Loans to fund general working capital and refinance existing indebtedness under the credit facility. On May 27, 2020, the Company prepaid $55.0 million on its existing revolving facility as a condition to closing the Third Credit Agreement Amendment. The Third Credit Agreement Amendment contains customary terms for amendments of this type, such as representations, warranties and covenants, including pro forma compliance with the Credit Agreement debt to EBITDA covenant as a condition to borrowing. Interest under the New Delayed Draw Term Loans accrues at a rate per annum of LIBOR plus 3.50%. The Company did not elect to draw down on the New Delayed Draw Term Loans.

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On October 15, 2019, we entered into Amendment No. 2 to Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and the lenders party thereto (the “Second Credit Agreement Amendment”), which amends the Credit Agreement to, among other things, increase the revolving commitments available to us under the Credit Agreement from $200.0 million to $275.0 million, reduce the interest rate margins applicable to term loans and revolving loans outstanding under the Credit Agreement from time to time and reduce the commitment fee payable by us to the lenders in respect of unused revolving commitments under the Credit Agreement. We executed the Second Credit Agreement Amendment to provide additional lending capacity which we used to fund the completion of the Polaris delisting transaction, as well as to provide excess lending capacity in the event of future opportunistic, strategic, investment opportunities. The Second Credit Agreement Amendment contains customary terms for amendments of this type, including representations, warranties and covenants. Interest under the credit facility accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to EBITDA. During the fiscal year ended March 31, 2020, the Company drew down $145.0 million from the credit facility, inclusive of $84.0 million drawn in the three months ended March 31, 2020 as a proactive measure in light of the uncertainty resulting from the COVID-19 pandemic. Earlier draws in the fiscal year March 31, 2020 were used to fund the eTouch 18-month anniversary payment of $17.5 million and to fund opportunistic, strategic, investment opportunities.

For the fiscal year ending March 31, 2021, we are required to make principal payments of $4.3 million per quarter. The term of the Credit Agreement is five years ending February 6, 2023. During the nine months ended December 31, 2020, the Company paid $13.0 million and $105.0 million towards the term loan and the revolver facility, respectively. At December 31, 2020, the total outstanding amount under the Credit Agreement to $382.0 million and the weighted average interest rate on the term loan and revolving line of credit was 3.50%.

The credit facility is secured by substantially all of the Company’s assets, including all intellectual property and all securities in domestic subsidiaries (other than certain domestic subsidiaries where the material assets of such subsidiaries are equity in foreign subsidiaries), subject to customary exceptions and exclusions from the collateral. All obligations under the Credit Agreement are unconditionally guaranteed by substantially all of the Company’s material direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.

At December 31, 2020, we were in compliance with all covenants set forth in our Credit Agreement. Based upon our current plans, we expect our operating cash flows, together with our cash and short-term investment balances, to be sufficient to meet our operating requirements and service our debt for the foreseeable future. However, given the dynamic nature of the COVID-19 pandemic, there can be no assurances that its future impact will not have a material adverse effect on our ongoing business, results of operations, liquidity needs, debt covenant compliance or overall financial performance.

At December 31, 2020, we had approximately $349.8 million of cash, cash equivalents, short term investments and long term investments, of which we hold approximately $126.6 million of cash, cash equivalents, short term investments and long-term investments in non-U.S. locations, particularly in India, Sri Lanka and the United Kingdom.We intend to use accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and, accordingly, undistributed income is considered indefinitely reinvested. If our intent were to change and we elected to repatriate this cash back to the United States, or this cash was deemed no longer permanently invested, this cash could be subject to additional taxes and the change in such intent could have an adverse effect on our cash balances as well as our overall statement of income. Due to various methods by which cash could be repatriated to the United States in the future, the amount of taxes attributable to the cash is dependent on circumstances existing if and when remittance occurs. In addition, some countries could have restrictions on the movement and exchange of foreign currencies which could further limit our ability to use such funds for global operations or capital or other strategic investments. Due to the various methods by which such earnings could be repatriated in the future, it is not practicable to determine the amount of applicable taxes that would result from such repatriation.

We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements including capital expenditures, working capital requirements, potential acquisitions, strategic investments and other liquidity requirements through at least the next 12 months.

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To the extent that existing cash from operations is insufficient to fund our working capital needs and other cash obligations, we may raise additional funds through debt or equity financing. We cannot give any assurance that additional financing, if required, will be available on favorable terms or at all.

We do not believe the deemed repatriation tax on accumulated foreign earnings related to the Tax Act will have a significant impact on our cash flows in any individual fiscal year.

During the fiscal year ended March 31, 2020, we completed multiple tuck-in asset and business acquisitions for an aggregate purchase price consideration of $49.6 million, with an additional earn-out consideration of $38.7 million, which, if earned, would be payable over the next two fiscal years. During the nine months ended December 31, ~~2017,~~2020, we ~~implemented certain cost saving~~paid $10.3 million and ~~restructuring initiatives. During the nine months ended~~$7.6 million in deferred consideration and earn-out consideration respectively related to these tuck-in acquisitions. As of December 31, ~~2017,~~2020, the balance of undiscounted contingent consideration is $17.1 million, of which $12.5 million is expected to be paid within the next 12 months.

On December 31, 2019, in connection with a request for proposal (“RFP”) and vendor consolidation process conducted by Citigroup Technology, Inc. (“Citi”), and as part of the Company ~~incurred costs~~being one of ~~$1.0 million primarily related~~the vendors selected to ~~termination benefits, out~~continue preferred vendor status at Citi and have the opportunity to compete for additional vendor consolidation work, the Company and Citi entered into Amendment No. 5 to the Master Professional Services Agreement, by and between the Company and Citi, dated as of ~~which we paid $0.7 million during~~July 1, 2015, as amended (the “Amendment”). Pursuant to the ~~nine months ended~~Amendment, (i) Citi agreed to maintain the Company as a preferred vendor under the Resource Management Organization for the provision of IT services to Citi on an enterprise wide basis, (ii) the Company agreed to provide certain savings to Citi for the period from April 1, 2020 to December 31, ~~2017. In addition,~~2020 (“Savings Period”), which savings can be achieved through productivity and efficiency measures and associated reduced spend; provided that if these productivity and efficiency measures do not achieve the projected savings amounts, the Company ~~expects~~is required to ~~incur~~provide certain discounts to Citi for the Savings Period to achieve the savings commitments; and (iii) to the extent that Citi awards the Company additional ~~restructuring costs~~or new work in addition to the services covered by the RFP, the Company agreed to provide Citi with a certain percentage of ~~approximately $0.3 million in remainder of fiscal year 2018.~~

savings (whether achieved through productivity measures, efficiencies, discounts or otherwise) as a condition to performing such services.

On May 3, 2017, we entered into an investment agreement with The Orogen Group (“Orogen”) pursuant to which Orogen purchased 108,000 shares of the Company’s newly issued Series A Convertible Preferred Stock, initially convertible into 3,000,000 shares of common stock, for an aggregate purchase price of ~~$108~~$108.0 million with an initial conversion price of $36.00 (the “Orogen Preferred Stock Financing”). In connection with the investment, Vikram S. Pandit, the former CEO of Citigroup, was appointed to ~~Virtusa’s Board~~our board of ~~Directors.~~directors. Orogen is ~~a new~~an operating company that was created by Vikram Pandit and Atairos Group, Inc., an independent private company focused on supporting growth-oriented businesses, to leverage the opportunities created by the evolution of the financial services landscape and to identify and invest in financial services companies and related businesses with proven business models.

Under the terms of the investment, the Series A Convertible Preferred Stock has a 3.875% dividend per annum, payable quarterly in additional shares of common stock and/or cash at our option. If any shares of Series A Convertible Preferred Stock have not been converted into common stock prior to May 3, 2024, the Company will be required to repurchase such shares at a repurchase price equal to the liquidation preference of the repurchased shares plus the amount of accumulated and unpaid dividends thereon. If we fail to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of May 3, 2024 during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum. The shares purchased consist of voting Series A Preferred Stock and a separate class of non-voting Series A-1 Preferred Stock, the latter of which automatically converted into shares of voting Series A Preferred Stock on a one-to-one basis upon the expiration or termination of the applicable waiting period (which occurred in May 2017) under the Hart-Scott-Rodino Antitrust Improvements Act. In connection with the investment, we repaid $81 million of our outstanding senior term loan, and our board of directors approved the repurchase of approximately $30 million of our common stock. During the nine months ended December 31, ~~2017, we repurchased $30 million of our common stock.~~

On March 3, 2016, Virtusa Consulting Services Private Limited (“Virtusa India”), a subsidiary of Virtusa Corporation (“Virtusa” or the “Company”), purchased 53,133,127 shares, or approximately 51.7%, of the fully-diluted capitalization of Polaris Consulting & Services Limited (“Polaris”) from certain Polaris shareholders for approximately $168.3 million in cash (the “Polaris SPA Transaction”) pursuant to a definitive share purchase agreement (“SPA”) by and among Virtusa India, the Polaris founding shareholders, promoters, and certain other Polaris minority stockholders, which was entered into on November 5, 2015. On April 6, 2016, Virtusa India completed its purchase of an additional 26% of the fully diluted outstanding shares of Polaris from public shareholders for approximately $89.1 million in cash under a mandatory tender open offer as required under applicable India takeover rules. Pursuant to the mandatory offer, during the fiscal year ended March 31, 2016,2020, the Company ~~transferred $89.2~~paid $3.1 million ~~into an escrow account in accordance with the India takeover rules, which is recorded~~ as ~~restricted~~a cash ~~at March 31, 2016. On April 6, 2016, the restricted cash was released from the escrow account and used for settlement for the mandatory open offer.~~

~~In order to comply with the applicable Indian rules~~dividend on ~~takeovers, during the three months ended December 31, 2016, the Company sold 3.7% of~~ its shares of Polaris common stock through a public sale offer. The sale offer closed on December 14, 2016 and the Company received approximately $7.6 million in proceeds, net of $0.2 million in brokerage fees and taxes. In addition to these costs, the Company incurred additional professional and legal costs of $0.4 million. The Company’s ownership interest in Polaris prior to the sale offer was 78.6% and upon the closing of the sale offer, the Company’s ownership interest decreased from 78.6% to 74.9% of Polaris’ basic shares of common stock outstanding.

To finance the Polaris acquisition, on February 25, 2016, the Company entered into a credit agreement (the “Existing Credit Agreement”) by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Existing Credit Agreement provides for a $100.0 million revolving credit facility and a $200.0 million delayed-draw term loan (together, the “Existing Credit Facility”). In connection with the Polaris acquisition, on February 25, 2016, the Company drew down the full $200.0 million of the term loan. Interest under these facilities accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense (“EBITDA”). We are required under the terms of the Existing Credit Agreement to make quarterly principal payments on the term loan. The Existing Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Existing Credit Agreement is five years, ending February 24, 2021. On May 3, 2017, in connection with the Orogen Preferred Stock Financing, we amended our Existing Credit Agreement primarily to issue the Series A Convertible Preferred Stock and pay certain dividends with respect to the Series A Convertible Preferred Stock and we repaid principal payment of $81.0 million of our term loan. As a result of this pre-payment, the Company has no additional obligated principal payments until the amount due at maturity. Interest payments will continue per the terms of the Existing Credit Agreement.

Stock.

The ~~Existing Credit Agreement has financial covenants that require that the~~ Company maintain a Total Leverage Ratio, commencing on December 31, 2016, of not more than 3.25 to 1.00 for the first year of the Existing Credit Facility, of not more than 3.00 to 1.00 for the second year of the Existing Credit Facility, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter (the “Reference Period”). In addition, for a period, expected to be at least one year from the completion of the Company’s closing of the Polaris SPA Transaction, until the occurrence of certain events described in the Existing Credit Agreement, at any time when the Total Leverage Ratio exceeds 1.50 to 1.00 as of the last day of a quarter, the Company must maintain at least $30.0 million in unrestricted cash, cash equivalents and certain permitted investments under the Existing Credit Facility held in bank deposits in the U.S., and $20.0 million in unrestricted cash and certain permitted investments under the Existing Credit Facility and long-term securities investments held in accordance with the Company’s current investment policy. The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio, commencing on December 31, 2017, of not less than 1.25 to 1.00, as of the last day of any Reference Period. For purposes of these covenants, “Total Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of Funded Debt to Adjusted EBITDA for the reference period ended on such date. “Funded Debt” refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees and

“Adjusted EBITDA” is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection with the Existing Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring losses or expenses, and (vii) all other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period, subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Existing Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

The Existing Credit Facility is secured by substantially all of the Company’s assets, including all intellectual property and all securities in domestic subsidiaries (other than certain domestic subsidiaries where the material assets of such subsidiaries are equity in foreign subsidiaries), subject to customary exceptions and exclusions from the collateral. All obligations under the Existing Credit Agreement are unconditionally guaranteed by substantially all of the Company’s material direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.

As of December 31, 2017, we are in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the existing credit agreement to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the existing revolving credit facility as of December 31, 2017 and through the date of this filing.

On October 26, 2017, the Company announced its intention to commence through its Indian subsidiary, Virtusa India, a process that could lead to the delisting of its Indian subsidiary, Polaris, from all stock exchanges on which Polaris’ common shares are listed. In December 2017, the Company drew down $25.0 million from its existing revolving credit facility to prepare to meet the minimum escrow requirements in accordance with the applicable SEBI delisting regulations. In addition, in January 2018, the Company funded the minimum escrow requirements of approximately $96.3 million for the delisting offer towards the purchase of up to 26,416,725 shares, comprised of a combination of cash and bank guarantee.

On February 5, 2018, Virtusa India closed its delisting offer to all public shareholders of Polaris in accordance with the provisions of the SEBI Delisting Regulations, which resulted in a discovered price of INR 480 per share. On February 8, 2018, Virtusa India accepted the discovered price of INR 480 per share (the “Exit Price”) which will be offered to all Polaris public shareholders. Upon settlement by Virtusa India of an amount of approximately $145.0 million, exclusive of transaction and closing costs, for the Polaris shares tendered during the delisting process at the Exit Price, the shareholding of Virtusa India shall increase from approximately 74% to at least 93% of the share capital of Polaris. Upon closing of the transaction and receipt of final approvals from the stock exchanges on which Polaris is traded, the common shares of Polaris will be delisted from all public exchanges on which the Polaris shares are traded. The public shareholders of Polaris who have yet to tender their shares to Virtusa India may offer their shares for sale to Virtusa India at the Exit Price for a period of one year following the date of the delisting from all stock exchanges on which Polaris common shares are listed. In accordance with ASC 810-10, changes in a parent’s ownership, while retaining its financial controlling interest are accounted for as equity transactions. Therefore, should the Company decide to purchase additional shares through its Indian subsidiary, it would result in a reduction of minority interest and an increase to the Company’s equity.

In support of the transaction, on February 6, 2018, we entered into a $450.0 million credit agreement with a syndicated bank group jointly lead by JP Morgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, which amends and restates our existing $300.0 million credit agreement and provides for a $200.0 million revolving credit facility, a $180.0 million term loan facility, and a $70.0 million delayed-draw term loan. Virtusa drew down $180.0 million on the new term loan and $55.0 million on the new revolving credit facility to repay in full the prior credit facility and fund the Polaris delisting transaction. Interest under this new credit facility accrues at a rate per annum of LIBOR plus 3.0%, subject to step-downs based on the Company’s ratio of debt to EBITDA. We intend to enter into anuses interest rate swap agreement to minimize interest rate exposure. The Credit Agreement includes maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years, ending February 6, 2023. The Credit Facility amortizes at a rate of 5% per annum of the outstanding principal amount for first two years, 7.5% per annum in the third year, 10% in the fourth year and 15% in the fifth year, in each case payable in equal quarterly instalments. To the extent funded, the delayed draw term loan will amortize in equal quarterly instalments on the same amortization schedule described above.

~~In July 2016, we entered into 12-month forward starting interest rate swap transactions~~swaps to mitigate ~~our~~the Company’s interest rate risk on ~~our~~the Company’s variable rate ~~debt (collectively, “The Interest Rate Swap Agreements”). Our~~debt. The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the ~~Existing~~ Credit Agreement (See Note 14 to the consolidated financial statements), by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. ~~We will recognize these transactions~~The Company purchased interest rate swaps in ~~accordance~~July 2016 with ~~ASC 815~~ ~~“Derivatives and Hedging,”~~ ~~and have designated the swaps as cash flow hedges.~~

~~The Interest Rate Swap Agreements have~~ an effective date of July ~~31,~~ 2017 and ~~a maturity date of~~November 2018. The interest rate swaps purchased in July ~~31,~~2016 matured on in July 28, 2020. The November 2018 interest rate swap is at a fixed rate of 2.85% and is designed to maintain a 50% coverage of our LIBOR debt, therefore the notional amount changes over the life of the interest rate swap to retain

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the 50% coverage target. During the three months ended September 30, 2020 and operating as designed, the 2018 interest rate swap increased to cover the notional amount of debt that the expired interest rate swaps had been covering. In addition, the Company conducted a simultaneous de-designation and a re-designation of the hedge for this interest rate swap to align with the May 2020 debt amendment and maintain a highly effective hedge relationship given the increase of the notional amount of the ~~swaps amortizes over the three~~interest rate swap ~~periods. The swaps have an aggregate notional amount of $91.3 million~~ and ~~with the pre-payment of $81 million of principal on our existing debt, hedge approximately 85% of our outstanding debt balance as of December 31, 2017. The notional amount~~in consideration of the ~~swaps amortizes over the remaining swap periods. The Interest Rate Swap Agreements require us to make monthly fixed~~increase in interest rate ~~payments based on the amortized notional amount at a blended weighted average rate of 1.025% and we will receive 1-month LIBOR on the same notional amounts.~~floor to 1%.

The counterparties to the Interest Rate Swap Agreements could demand an early termination of the ~~2016~~November 2018 Interest Rate Swap Agreements if we are in default under the ~~Existing~~ Credit Agreement, or any agreement that amends or replaces the ~~Existing~~ Credit Agreement in which the counterparty is a member, and we are unable to cure the default. An event of default under the ~~Existing~~ Credit Agreement includes customary events of default and failure to comply with financial covenants, including a maximum consolidated leverage ratio commencing on December 31, ~~2016,~~2017, of not more than 3.50 to 1.00 for all periods thereafter ending prior to December 31, 2019, of not more than 3.25 to 1.00 commencing December 31, 2019 and for ~~the first year of the Existing Credit Agreement, of not more than~~periods thereafter through December 2021, and 3.00 to 1.00 ~~for the second year of the Existing Credit Agreement, and 2.75 to 1.00~~ thereafter ~~each as determined for the four consecutive quarter period ending on each fiscal quarter~~ and a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00. As of ~~December~~March 31, ~~2017,~~2020, we were in compliance with these covenants. The net unrealized ~~gain~~loss associated with ~~the 2016~~Interest Rate Swap Agreement was ~~$2.0~~$8.9 million as of December 31, ~~2017,~~2020, which represents the estimated amount that we would ~~receive from~~pay to the counterparties in the event of an early termination.

AtFrom time to time, the Company enters into arrangements to deliver IT services that include upfront payments to our clients. As of December 31, ~~2017,~~2020, the total unamortized upfront payments related to these services were $15.7 million and are expected to be amortized as a reduction to revenue over a benefit period of 3 years.

During the nine months ended December 31, 2020, our accounts receivables and unbilled receivables significantly decreased due to a decrease in days sales of outstanding (“DSO”). As of December 31, 2020, our DSO was 57 days compared to 78 days at March 31, 2020. The significant ~~portion~~increase in deferred revenue during the nine months ended December 31, 2020 was primarily due to a change in timing of our ~~cash, cash equivalents, short-term and long-term investments was held by~~work performed compared to timing of invoicing to our foreign subsidiaries. We continually monitor our cash needs and employ tax planning and financing strategies to ensure cash is available in the appropriate jurisdictions to meet operating needs. The cash held by our foreign subsidiaries is considered indefinitely reinvested in local operations. If required, it could be repatriated to the United States. However, under current law, any repatriation would be subject to United States federal income tax on currency translation and applicable withholding tax.clients.

Beginning in fiscal 2009, our U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse, certain of its Europe-based accounts receivable balances from one client to the financial institution. During the nine months ended December 31, ~~2017,~~2020, we sold $~~17.3~~$42.6 million of receivables under the terms of the financing agreement. Fees paid pursuant to this agreement were not material during the ~~three and~~ nine months ended December 31, ~~2017.~~2020. No amounts were due under the financing agreement at December 31, ~~2017,~~2020, but we may elect to use this program again in future periods. However, we cannot provide any assurances that this or any other financing facilities will be available or utilized in the ~~future~~future.

On February 28, 2019, the Supreme Court of India issued a ruling interpreting certain statutory defined contribution obligations of employees and employers, which altered historical understandings of such obligations, extending them to cover additional portions of employee income. As a result, contributions by our employees and the Company will increase in future periods. There is uncertainty as to whether the Indian government will apply the Supreme Court's ruling on a retroactive basis and if so, how this liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. As such, the ultimate amount of our obligation is difficult to quantify. If the Indian Government were to apply the Supreme Court ruling retroactively, without assessing interest and penalties, the impact would be a charge of approximately $7.5 million to our income from operations and cash flows.

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Cash flows

The following table summarizes our cash flows for the periods presented:

Nine Months Ended
December 31,

(in thousands)

2017

2016

Net cash provided by operating activities

$
54,181

$
24,814

Net cash provided by investing activities

3,671

58,669

Net cash provided by (used in) financing activities

19,838

(93,039
)
Effect of exchange rate changes on cash

4,120

(5,552
)
Net increase (decrease) in cash and cash equivalents

81,810

(15,108
)
Cash and cash equivalents, beginning of period

144,908

148,986

Cash and cash equivalents, end of period

$
226,718

$
133,878


	Nine Months Ended
	December 31,
	2020		2019

	(In thousands)
Net cash provided by operating activities	$	171,416	$	74,454
Net cash provided by (used in) investing activities		2,872		(24,927)
Net cash used in financing activities		(129,096)		(20,275)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		16,269		(131)
Net increase in cash and cash equivalents and restricted cash		61,461		29,121
Cash, cash equivalents and restricted cash, beginning of year		291,601		190,113
Cash, cash equivalents and restricted cash, end of period	$	353,062	$	219,234

Operating activities

Net cash provided by operating activities increased in the nine months ended December 31, ~~2017~~2020 compared to the nine ~~months~~ ended December 31, ~~2016,~~2019, primarily ~~driven by an increase working capital~~due to a decrease in accounts receivable as a result of a decrease in our days sales outstanding during the nine months ended December 31, ~~2017 compared to the nine months ended December 31, 2016.~~2020.

Investing activities

Net cash ~~provided by~~used in investing activities decreased in the nine months ended December 31, ~~2017~~2020 compared to the nine months ended December 31, ~~2016. The decrease in net cash provided by investing activities~~2019 is primarily due to ~~the~~a decrease in ~~restricted~~the payments for acquisitions, proceeds from sale of land acquired in the Polaris Transaction, a decrease in purchase of property and equipment, partially offset by a decrease in net proceeds from sale or maturity of short-term investments.

Financing activities

Net cash used in financing activities increased in the nine ended December 31, 2020 compared to the nine months ended December 31, 2019. The increase in net cash used in financing activities in the nine months ended December 31, 2020 was primarily due to an increase in payment of debt, net of proceeds and payment of contingent consideration related to ~~the Polaris mandatory offering~~acquisitions partially offset by no payments made for repurchase of common stock and noncontrolling interest during the nine months ended December 31, ~~2016.~~2020.

~~Financing activities~~Commitments and Contingencies

~~Net cash provided by (used in) financing activities increased in the nine months ended December 31, 2017 compared~~See Note 17 to ~~nine months ended December 31, 2016. The increase in net cash provided by financing activities is primarily due to the borrowings from~~ our existing revolving credit facility. During the nine months ended December 31, 2017, the proceeds from issuance of Series A Convertible Preferred Stock is offset by the principal payment of our debt and repurchase of our common stock.consolidated financial statements for additional information.

Off-balance sheet arrangements

We do not have investments in special purpose entities or undisclosed borrowings or debt.

We have entered into foreign currency derivative contracts with the objective of limiting our exposure to changes in the Indian rupee, the U.K. pound sterling, the euro, the Canadian dollar and the ~~Swedish Krona~~Australian dollar as described below and in “Quantitative and Qualitative Disclosures about Market Risk.”

We maintain a foreign currency cash flow hedging program designed to further mitigate the risks of volatility in the Indian rupee against the U.S. dollar and U.K. pound sterling as described below in “Quantitative and Qualitative Disclosures about Market Risk.” From time to time, we may also purchase multiple foreign currency forward contracts designed to hedge fluctuation in foreign currencies, such as the U.K. pound sterling, euro, the Canadian dollar and ~~Swedish Krona~~the

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Australian dollar against the U.S. dollar to minimize the impact of foreign currency fluctuations on foreign currency denominated revenue and expenses. Other than these foreign currency derivative contracts, we have not entered into off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of or requirements for capital resources.

Recent accounting pronouncements

~~In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity~~See Note 2 to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2018. Early application is permitted but not before periods beginning on or after January 1, 2017. In March, April and May 2016, the FASB issued updates to the new revenue standard to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross versus net, identifying performance obligations, accounting for licenses of intellectual property, transition, contract modifications, collectability, non-cash consideration and presentation of sales and other similar taxes with the same effective date. The standard permits the use of either the retrospective or cumulative effect transition method. We plan to adopt the standard using the modified retrospective method when it becomes effective in our first quarter of fiscal 2019.

Our project team is finalizing its review of existing customer contracts and current accounting policies to identify and assess the potential differences that would result from applying the requirements of the new standard including costs to obtain and fulfill a contract. We are also in the process of identifying and implementing changes to our processes to meet the reporting and disclosure requirements. We currently record approximately 86% of its annual revenue on a time-and-material (60%) or retainer-billing basis (26%), with the remaining 14% recorded under either a percentage of completion or proportional performance methods of accounting using an inputs methodology for fixed price projects. For our revenue recorded under the time-and-material or retainer billings methods of accounting, we do not expect this new standard to change the timing or the amount of revenue that is currently recorded. We are currently evaluating the revenue recorded under its fixed price percentage of completion and proportional performance projects to determine if the manner or timing of revenue recognition would change for existing projects. We generally expect to continue to recognize revenue over time based on the measured progress of satisfaction of the performance obligations for its fixed price projects, which is consistent with our current method. Overall, we believe that its implementation efforts are progressing as planned to allow a timely implementation.

In January 2016, the FASB issued an update (ASU 2016-01) to the standard on financial instruments. The update significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The update also amends certain disclosure requirements. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Upon adoption, entities will be required to make a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. However, the specific guidance on equity securities without readily determinable fair value will apply prospectively to all equity investments that exist as of the date of adoption. Early adoption of certain sections of this update is permitted. Based on our current investment portfolio, the adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued as update (ASU 2016-02) to the standard on leases to increase transparency and comparability among organizations. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption of this new standard is permitted. Entities will be required to use a modified retrospective transition which provides for certain practical expedients. We are currently evaluating the effect the new standard will have on the consolidated financial statements and related disclosures.

In March 2016, the FASB issued an update (ASU 2016-09) to the standard on Compensation—Stock Compensation, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Upon adoption, entities will be required to apply a modified retrospective, prospective or retrospective transition method depending on the specific section of the guidance being adopted. We adopted this guidance effective April 1, 2017 and the following describe the results of adoption:

· We prospectively recognized tax expenses of $0.0 million and tax benefits of $1.1 million in the income tax expense line item of our consolidated statements of income in the three and nine months ended December 31, 2017, respectively, related to excess tax benefits on stock options;

· We changed our accounting policy from estimated forfeitures to actual forfeitures effective April 1, 2017. The cumulative impact of the change in the accounting policy did not have a material impact on our consolidated financial statements ~~therefore the prior period amounts have not been restated;~~for additional information.

· We elected to adopt cash flow presentation of excess tax benefits retrospectively where these benefits are classified along with other income tax cash flows as operating cash flows. Accordingly, prior period amounts in our consolidated statement of cash flows have been restated;

· We adopted cash flow presentation of taxes paid when an employer withholds shares for tax-withholding purposes retrospectively and classified as a financing activity in the our statement of cash flows. Accordingly, prior period amounts have been restated;

· ~~The remaining amendments to this standard, as noted above, are either not applicable, or do not change our current accounting practices and thus do not impact its consolidated financial statements.~~

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. This standard update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effect of this new standard will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This update is intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows. This standard update addresses eight specific cash flow issues, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires application using a retrospective transition method. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, an update to the standard on income taxes. This new standard requires the recognition of current and deferred income taxes when an intra-entity transfer of assets other than inventory occurs. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2017. Early adoption is permitted in the first interim period. Upon adoption, the entities will be required to use a modified retrospective transition approach. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (Topic 230), which is intended to reduce diversity in practice on how changes in restricted cash are classified and presented in the statement of cash flows. This ASU requires amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The amendments in this update should be applied using a retrospective transition method to each period presented. The adoption of this guidance will impact our presentation of cash and cash equivalents. As of December 31, 2017 and March 31, 2017, our restricted cash was $0.3 million and $0.2 million, respectively.

In January 2017, the FASB issued ASU 2017-01, an update on business combinations, which clarifies the definition of a business. The update requires a business to include at least an input and a substantive process that together significantly contribute to the ability to create outputs. The update also states that the definition of a business is not met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2018. Upon adoption, entities will be required to apply the update prospectively. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, an update on goodwill, which eliminates the need to calculate the implied fair value of goodwill when an impairment is indicated. The update states that goodwill impairment is measured as the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, a guidance on presentation of net periodic pension cost and net periodic postretirement benefit cost. The new standard requires that an employer disaggregate the service costs components of net benefit cost. The employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component, such as in other income and expense. The guidance is effective for fiscal years beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements. The Company’s current presentation of service cost components is consistent with the requirements of the new standard. Upon adoption of the new standard, we expect to present the other components within other (income) expense.

In March 2017, FASB issued ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in this update shorten the amortization period for certain callable debt securities that are held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which would be amortized to maturity. This ASU is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, which for us is the first quarter ending December 31, 2019. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. These amendments are intended to better align a company’s risk management strategies and financial reporting for hedging relationships. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. In addition, the new guidance amends presentation and disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including the interim periods within those years. The guidance requires the use of a modified retrospective approach. The Company is currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks, and the ways we manage them, are summarized in Part II, Item 7A of the Annual Report. There have been no material changes in ~~the~~ nine months ended December 31, ~~2017~~2020 to such risks or to our management of such risks except for the additional factors noted below.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk in the ordinary course of business. We have historically entered into, and in the future we may enter into, foreign currency derivative contracts to minimize the impact of foreign currency fluctuations on both foreign currency denominated assets and forecasted revenue and expenses. The purpose of this foreign exchange policy is to protect us from the risk that the recognition of and eventual cash flows related to Indian rupee denominated expenses might be affected by changes in exchange rates. Some of these contracts meet the criteria for hedge accounting as cash flow hedges (See Note 68 of ~~the notes to~~ our consolidated financial statements included herein for a description of recent hedging activities).

We evaluate our foreign exchange policy on an ongoing basis to assess our ability to address foreign exchange exposures on our balance sheet, statement of income and operating cash flows from all foreign currencies, including most significantly the ~~U.K. pound sterling,~~GBP and the Indian ~~rupee, and the Sri Lankan~~ rupee.

We have ~~two~~an 18 month rolling ~~programs~~hedge program comprised of a series of foreign exchange forward contracts that are designated as cash flow hedges. ~~One~~This program is designed to mitigate the impact of volatility in the U.S. dollar ~~equivalent~~and the GBP equivalents of our Indian rupee denominated expenses. The second program was assumed as part of the Polaris acquisition and is intended to mitigate the volatility of the U.S. dollar denominated revenue that is translated into Indian rupees. While these hedges are achieving the designed objective, upon consolidation they may cause volatility in revenue. The U.S. dollar equivalent notional value of all outstanding foreign currency derivative contracts at December 31, ~~2017~~2020 was ~~$118.2~~$87.7 million. There is no assurance that ~~these~~the hedging ~~programs~~program or hedging contracts will be effective. As these foreign currency hedging programs are designed to reduce volatility in the Indian rupee, they not only reduce the negative impact of a stronger Indian rupee but also reduce the positive impact of a weaker Indian rupee on our Indian rupee expenses. ~~In addition, to~~

The GBP, the ~~extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on~~euro, the ~~aggregate amount of hedges placed earlier than expected.~~

~~The U.K. pound sterling, Swedish krona~~Canadian dollar (“CAD”) and the ~~euro~~Australian dollar (“AUD”) exchange fluctuations can have an unpredictable impact on our ~~U.K. pound sterling, Swedish krona~~GBP, euro, CAD and ~~the euro~~AUD revenues generated and costs incurred. In response to this volatility, we have an economic hedge program under which we have entered into hedging transactions designed to hedge our forecasted revenue and expenses denominated in the ~~U.K. pound sterling,~~GBP, the ~~Swedish krona as well as~~euro, the ~~euro.~~Canadian dollar and the Australian dollar. These derivative contracts have maximum duration of 92 days and do not meet the criteria for hedge accounting. Such hedges may not be effective in mitigating this currency volatility. These hedges are designed to reduce the negative impact of a weaker ~~U.K. pound sterling, Swedish krona or the~~GBP, euro, CAD and AUD, however they also reduce the positive impact of a stronger ~~U.K. pound sterling, Swedish krona~~GBP, euro, CAD or ~~the euro~~AUD on the respective revenues.

Interest Rate Risk

~~In connection with the Polaris acquisition, on February 25, 2016, we drew down the full $200.0 million of the term loan under the Existing Credit Facility.~~ Interest under ~~this~~our credit facility accrues at ~~a rate per annum~~the higher of LIBOR or 1.00%, plus 2.75%, subject to ~~step-downs~~step downs based on ~~the Company’s~~our ratio of debt to EBITDA. In the event that LIBOR is discontinued as expected in 2021, we expect the interest rates for our debt following such event will be based on either alternate base rates or an agreed upon replacement reference rates. While we do not expect a LIBOR discontinuation would affect our ability to borrow or maintain already outstanding borrowings, it could result in higher interest rates. We entered into interest rate swap agreements to minimize interest rate exposure. The ~~Existing~~ Credit Agreement for our credit facility includes ~~customary minimum cash,~~ maximum debt to EBITDA and minimum fixed charge

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coverage ~~covenants—see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.~~covenants. The term of the ~~Existing~~ Credit Agreement ~~ends on~~is five years, ending February 24, 2021. We do not believe we are exposed to material direct risks associated with changes in interest rates other than with respect to our Existing Credit Facility, our cash and cash equivalents, short-term investments and long-term investments. To mitigate the Company’s exposure to movements in the one-month London Inter-Bank Offer Rate (LIBOR) rate on future outstanding debt, the Company entered into the Interest Rate Swap Agreements to convert a portion of the Company’s outstanding debt from a floating to a fixed rate of interest (See Note 12 of the notes to our financial statements included herein for a detail description of our existing credit facility and our amended and restated credit facility dated as of February 8, 2018.).

6, 2023. At December 31, ~~2017,~~2020, the weighted average interest rate on the term loan and line of credit was 3.50%. At December 31, 2020, the outstanding amount under the Credit Agreement was $382.0 million.

At December 31, 2020, we had ~~$303.9~~$349.8 million in cash and cash equivalents, short-term investments and long-term investments, the interest income from which is affected by changes in interest rates. Our invested securities primarily consist of ~~government sponsored entity bonds,~~ money market mutual funds ~~commercial paper, corporate debts, preference shares~~ and ~~municipal bonds.~~time deposits. Our investments ~~in debt securities~~ are classified as ~~“available-for-sale”~~available-for-sale debt securities, time deposits and equity securities. These investments are recorded at fair value. Our ~~“available-for-sale”~~ investments are sensitive to changes in interest rates. Interest rate changes would result in a change in the net fair value of these financial instruments due to the difference between the market interest rate at the period end and the market interest rate at the date of purchase of the financial instrument.

~~Information provided by the sensitivity analysis does not necessarily represent the actual changes that would occur under normal market conditions.~~

Concentration of Credit Risk

Financial instruments which potentially expose us to concentrations of credit risk primarily consist of cash and cash equivalents, short-term investments and long-term investments, accounts receivable, derivative contracts, other financial assets and unbilled accounts receivable. We place our operating cash, investments and derivatives in highly-rated financial institutions. We adhere to a formal investment policy with the primary objective of preservation of principal, which contains ~~minimum~~ credit rating minimums and diversification requirements. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties as we invest with highly-rated financial institutions and, accordingly, do not require collateral. Credit losses and write-offs of accounts receivable balances have historically not been material to our consolidated financial statements and have not exceeded our expectations.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the ~~Securities~~ Exchange Act ~~of 1934, as amended (“the Exchange Act”),~~ is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

At December 31, ~~2017,~~2020, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in (i) enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period and (ii) ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~From time to time, we may become~~We are involved in various claims and legal ~~proceedings~~actions arising in the ordinary course of business. In the opinion of our ~~business. We are~~management, the outcome of such claims and legal actions, if decided adversely, is not ~~presently a party~~currently expected to ~~any legal proceedings, that if determined adversely to us, we believe would individually or in the aggregate~~ have a material adverse effect on our ~~business,~~operating results, cash flows or consolidated financial position, except as disclosed below;

One of ~~operations,~~the Company’s larger clients made a demand for damages related to a project in which the Company was performing services. The client alleged breach of certain representations and warranties regarding the Company’s performance and sought indemnification for damages from those alleged breaches. During the three months ended December 31, 2020, the parties agreed to a commercial settlement whereby each party provided a full release of all claims provided that Virtusa make certain cash payments (which were subject to reimbursement under the terms of Virtusa’s insurance policies) and provide certain service credits with respect to the execution of future work.

On September 9, 2020, we entered into an Agreement and Plan of Merger, or the merger agreement, pursuant to which Austin BidCo Inc., a Delaware corporation and a wholly-owned subsidiary of Austin HoldCo Inc., a Delaware corporation (which we refer to as Parent), and owned by funds affiliated with Baring Private Equity Asia, will be merged with and into us, with Virtusa surviving as a subsidiary of Parent, which we refer to as the merger. In connection with the proposed merger, a purported stockholder of the Company filed a complaint on October 8, 2020 in the United States District Court for the District of Delaware, captioned Stein v. Virtusa Corporation, et al., Case No. 1:20-CV-01363 (referred to as the “Stein complaint”), naming as defendants the Company and each member of our board of directors as of the date of the merger agreement. In addition, on October 15, 2020, a purported stockholder of the Company filed a complaint in the United States District Court for the District of Delaware, captioned Williams v. Virtusa Corporation, et al., Case No. 1:20-CV-01389 (the “Williams complaint” and together with the Stein complaint, the “stockholder complaints”), naming as defendants the Company and each member of our board of directors as of the date of the merger agreement. The stockholder complaints contain substantially similar allegations and generally allege that the proxy statement filed by the Company with the SEC on October 7, 2020 in connection with the merger (referred to as the “preliminary proxy statement”), is materially incomplete and misleading by failing to disclose in violation of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as Rule 14a-9 promulgated thereunder, allegedly material information concerning (i) certain financial ~~condition~~projections prepared by the Company’s management and summarized in the preliminary proxy statement, (ii) certain inputs and assumptions used in the financial analyses conducted by J.P. Morgan in connection with rendering its fairness opinion to our board of directors, and (iii) certain background regarding the Company’s retention of Citi. The relief sought in the stockholder complaints includes equitable relief, including among other things, to enjoin the consummation of the merger unless and until certain additional and allegedly material information is disclosed to the Company’s stockholders, to rescind the merger agreement, to the extent already implemented, or ~~cash flows.~~to recover rescissory damages, to direct the defendants to account to plaintiffs for all alleged damages suffered as a result of their alleged wrongdoing and to award plaintiffs costs and disbursements, including reasonable attorneys’ and expert fees and expenses. It is possible that additional similar cases may also be filed in connection with the merger.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in ~~our~~the Annual Report, ~~on Form 10-K for the fiscal year ended March 31, 2017, as filed with the Securities and Exchange Commission, on May 26, 2017 (the “Annual Report”),~~ which could materially affect our business, financial condition or future results.

~~The following risk factors~~ Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are ~~added~~similar to those faced by other companies in our industry or business in general, may also impair our business operations. There are no material changes to the ~~risk factors previously disclosed~~Risk Factors described in our Annual Report on Form 10-K for the year ended March 31, ~~2017,~~2020, other than as set forth below.

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Risks Related to the Proposed Merger

We may not complete the proposed merger within the time frame we anticipate or at all, which could have an adverse effect on our ~~Form 10-Q~~business, financial results and/or operations.

Completion of the merger is subject to a number of closing conditions, including obtaining approval of our stockholders and receipt of required regulatory approvals or clearances. Each party’s obligation to consummate the merger is also subject to the accuracy of the representations and warranties of the other party (subject to certain materiality qualifications) and the performance in all material respects of the other party’s covenants under the merger agreement, including, with respect to us, covenants regarding operation of our business prior to closing. In addition, the merger agreement may be terminated under certain specified circumstances, including, but not limited to, by Parent in connection with a change in the recommendation of our board of directors or by us to enter into an agreement for a “Superior Proposal,” as defined in the ~~quarter ended June 30, 2017~~merger agreement. As a result, we cannot assure you that the merger will be completed, even if our stockholders approve the merger, or that, if completed, it will be exactly on the terms set forth in the merger agreement or within the expected time frame.

If the merger is not completed within the expected time frame or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices reflect a market assumption that the merger will be completed. We could be required to reimburse certain expenses of Parent or pay Parent a termination fee of $54.3 million if the merger agreement is terminated under specific circumstances described in the merger agreement. The failure to complete the merger may result in negative publicity and ~~our Form 10-Q for the quarter ended September 30, 2017.~~

~~Changes in applicable tax regulations and resolutions of tax disputes could~~ negatively affect our relationship with our stockholders, employees and clients. We may also be required to devote significant time and resources to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against us to perform our obligations under the merger agreement.

The merger agreement provides us with limited remedies in the event of a breach by Parent that results in termination of the merger agreement, including the right to a reverse termination fee payable under certain specified circumstances, as described in the merger agreement. We cannot assure you that a remedy will be available to us in the event of such a breach or that the damages we incur in connection with such breach will not exceed the amount of the reverse termination fee. In addition, Parent requires significant third-party debt financing to complete the merger and in the event that the Parent’s lenders do not provide such debt financing, we may only be entitled to receive the reverse termination fee as provided under the merger agreement.

The announcement and pendency of the merger could adversely affect our business, financial ~~results.~~results and/or operations.

Our efforts to complete the merger could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the merger will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the merger is pending because employees may experience uncertainty about their roles following the merger. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the merger and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and our relationship with clients and potential clients. For example, clients and other counterparties may defer decisions concerning working with us, or seek to change existing business relationships with us. Changes to or termination of existing business relationships could adversely affect our revenue, earnings and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the merger could be exacerbated by any delays in completion of the merger or termination of the merger agreement.

WeWhile the merger agreement is in effect, we are subject to ~~taxation~~restrictions on our business activities.

While the merger agreement is in ~~the U.S. and numerous foreign jurisdictions. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred~~effect, we are subject to as the Tax Cuts and Jobs Act (the “Tax Act”). The changes included in the Tax Act are broad and complex. The final impacts of the Tax Act may differ from the estimates provided elsewhere in this report, possibly materially, due to,restrictions on our business activities, including, among other things, restrictions on our ability to acquire other businesses and assets, dispose of our assets, make investments, enter into certain contracts, repurchase or issue securities, pay dividends, make capital expenditures, take certain actions relating to intellectual property, amend our organizational documents and incur indebtedness. These restrictions could prevent us from pursuing strategic business opportunities, taking actions with respect to our business that we may consider

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advantageous and responding effectively and/or timely to competitive pressures and industry developments, and may as a result materially adversely affect our business, results of operations and financial condition.

In certain instances, the merger agreement requires us to pay a termination fee to Parent, which could affect the decisions of a third party considering making an alternative acquisition proposal.

Under the terms of the merger agreement, we may be required to pay Parent a termination fee of $54.3 million under specified conditions including in the event we terminate the merger agreement to enter into a “Superior Proposal,” as defined in the merger agreement or in the event Parent terminates the merger agreement following a change in the recommendation of our board of directors that our stockholders approve the merger. This payment could affect the structure, pricing and terms proposed by a third party seeking to acquire or merge with us and could discourage a third party from making a competing acquisition proposal, including a proposal that would be more favorable to our stockholders than the merger.

We have incurred, and will continue to incur, direct and indirect costs as a result of the merger.

We have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs, in connection with the merger. We must pay substantially all of these costs and expenses whether or not the merger is completed. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses.

Legal proceedings in connection with the merger, the outcomes of which are uncertain, could delay or prevent the completion of the merger.

Since the announcement of the merger, putative class actions have been filed in the United States District Court for the District of Delaware in connection with the proposed merger against us and the members of our board of directors. The lawsuits allege that the preliminary proxy statement violates Section 14(a) and Section 20(a) of the Exchange Act of 1934 by materially omitting material information related to Company’s projections and the explanation of the analysis of the Company’s financial advisor, among other claims. Among other remedies, the plaintiffs in these lawsuits seek to enjoin the merger. This and other potential legal proceedings could delay or prevent the merger from becoming effective.

Risks Related to U.S. Immigration Laws

Changes in U.S. immigration law may increase our cost of revenue and may substantially restrict or eliminate our ability to obtain visas to use offshore resources onsite, which could have a material adverse impact on our business, revenue, profitability and utilization rates.

The issue of companies outsourcing services to organizations operating in other countries is a topic of political discussion in many countries, including the United States, which is our largest market. The U.S. Congress regularly considers proposals that could make extensive changes to U.S. immigration laws regarding the admission of high-skilled temporary and permanent workers. Further, the current U.S. administration or Congress may seek to limit the admission of high-skilled temporary and permanent workers and has issued and may continue to issue executive orders designed to limit immigration. For instance, on April 22, 2020 the Trump Administration suspended the issuance of most immigrant visas for a sixty-day period, and on October 8, 2020, the Trump Administration issued interim final rules on changes to computation of prevailing wages and to amend and strengthen the H-1B nonimmigrant visa classification program. On May 7, 2020 four U.S. Senators, noting the increase in U.S. unemployment rate, urged the President to expand that order to restrict the admission of nonimmigrant (including H-1B) workers and limit the issuance of employment authorization to various categories of non-immigrants currently in the US, including certain F-1 students and H dependents. They also urged the President to extend that order for either one year, or until national unemployment rates return to normal levels. Any such proposal, if enacted, or policy change, if implemented, may increase our cost of doing business in the United States and may discourage customers from seeking our services. Our international expansion strategy and our business, results of operations and financial condition may be materially adversely affected if changes in ~~interpretations~~immigration and work permit laws and regulations or the administration or enforcement of such laws or regulations impair our ability to staff projects with professionals who are not citizens of the ~~Tax Act,~~country where the work is to be performed.

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The potential risks and impact to our business if changes are made to immigration laws relating to use of H-1(B) and L-1 visas are approved could include:

●

Reduced ability to bring in foreign workers on an L-1 or H-1(B) visa

●

Increased scrutiny and requests for proof of eligibility on the use of L-1 and H-1(B) visas

●

Higher costs, including wages and benefits, for H-1(B) and L-1 visa holders

●

Elimination of our ability to pay the living expenses of an L-1 visa holder on a tax-free basis

●

Increased oversight by the Department of Labor (“DOL”) over issuance, use and administration of L-1 visas, as the DOL currently only oversees H-1(B) visas

Even if we are able to apply for, or obtain, such visas, we could incur substantial delays and costs in processing any ~~legislative action~~such requests and our costs of operations could materially rise, thus materially and negatively impacting our gross margins and our statement of income. Any inability to ~~address questions that arise because of the Tax Act, any changes~~obtain, or extended delays in ~~accounting standards for income taxes or related interpretations in response to the Tax Act,~~obtaining, these visas, or any ~~updates~~delays or inability to hire resources for existing or future client projects could materially delay or prevent our commencement or fulfillment of client projects, which could hamper our growth and cause our revenue to decline.

In the EU, many countries continue to implement new regulations to move into compliance with the EU Directive of 2014 to harmonize immigration rules for intracompany transferees in most EU member states and to facilitate the transfer of managers, specialists and graduate trainees both into and within the region. The changes have had significant impacts on mobility programs and have led to ~~estimates~~new notification and documentation requirements for companies sending professionals to EU countries.

Recent changes or any additional adverse revisions to immigration laws and regulations in the jurisdictions in which we operate may cause us delays, staffing shortages, additional costs or an inability to bid for or fulfill projects for clients, any of which could have ~~utilized~~a material adverse effect on our business, results of operations and financial condition.

Any such delays or inability to ~~calculate the impacts, including impacts from changes to current year earnings estimates~~staff needed resources on client engagements may cause client dissatisfaction, project and ~~foreign exchange rates~~staffing delays in new and existing engagements, project cancellations, higher project costs and loss of ~~foreign subsidiaries. It is very difficult to assess the overall~~revenue, resulting in decreases in profits and a material adverse effect on our business, results of ~~potential tax changes,~~operations, financial condition and ~~how they might impact our future financial results.~~cash flows.

Item 2. Unregistered Sale of Equity Securities and Use of ~~Proceeds; Purchases of Equity Securities By the Issuer and Affiliated Purchasers~~Proceeds

Under the terms of our 2007 Stock Option and Incentive Plan (“2007 Plan”) and 2015 Stock Option and Incentive Plan (“2015 Plan”), we have issued shares of restricted stock to our employees. On the date that these restricted shares vest, we automatically withhold, via a net exercise provision pursuant to our applicable restricted stock agreements and the 2007 Plan and 2015 Plan, as the case may be, the number of vested shares (based on the closing price of our common stock on such vesting date) equal to tax liability owed by such grantee. The shares withheld from the grantees under the 2007 Plan or the 2015 Plan, as the case may be, to settle their tax liability are reallocated to the number of shares available for issuance under the 2015 Plan. For the three months period ended December 31, ~~2017,~~2020, we withheld an aggregate of ~~7,073~~2,201 shares of restricted stock at a weighted average price of ~~$45.58~~$50.05 per share.

~~Item 5. Other information~~

~~On February 6, 2018, the Company entered into an amended and restated $450 million credit agreement (the “Credit Agreement”) dated as~~Table of February 6, 2018, among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and JPMorgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint bookrunners and lead arrangers. The Credit Agreement amends and restates the Company’s existing $300 million credit agreement (the “Existing Credit Agreement”) dated as of February 25, 2016, among the Company, the lenders party thereto and the Administrative Agent and provides for a $200 million revolving credit facility, a $180 million term loan facility and a $70 million delayed-draw term loan (together, the “Credit Facility”). Proceeds of borrowings under the Credit Facility will be used (i) to refinance loans and other outstanding obligations under the Existing Credit Agreement and pay fees, costs and expenses incurred in connection with such refinancing and related transactions, (ii) acquisition financing, (iii) to finance consummation of the public tender offer for the outstanding equity interests of Polaris Consulting & Services Limited and (iv) for working capital and other general corporate purposes of the Company and its subsidiaries (including acquisitions, investments, capital expenditures and restricted payments). Interest on the loans under the Credit Facility accrues at a rate per annum of LIBOR plus 3.00%, subject to step-downs based on the Company’s ratio of debt to adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense (“EBITDA”). The Company intends to enter into an interest rate swap agreement to minimize interest rate exposure. The Credit Agreement includes customary maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years from the Closing Date (as defined below), ending February 6, 2023.Contents

The Credit Agreement has financial covenants that require that the Company maintain a Total Net Leverage Ratio, during the period commencing on December 31, 2017 and ending prior to December 31, 2019, of not more than 3.50 to 1.00, during the period commencing on December 31, 2019 and ending prior to September 30, 2020, of not more than 3.25 to 1.00, and during the period commencing on September 30, 2020 and ending on the maturity date of the Credit Facility, of not more than 3.00 to 1.00, in each case as determined for the four consecutive fiscal quarter period ending on the last day of each fiscal quarter ending during the applicable period (the “Reference Period”). The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio during the term of the Credit Agreement of not less than 1.25 to 1.00, determined as of the last day of each Reference Period. For purposes of these covenants, “Total Net Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of Net Funded Debt to Adjusted EBITDA for the reference period ended on such date. “Net Funded Debt” refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees, net of up to $50 million of unrestricted cash and cash equivalents of the Company, and “Adjusted EBITDA” is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection with the Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring losses or expenses, and (vii) all other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period, subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

The Credit Facility is secured by substantially all of the Company’s assets, including all intellectual property and all securities in domestic subsidiaries (other than certain domestic subsidiaries where the material assets of such subsidiaries are equity in foreign subsidiaries), subject to customary exceptions and exclusions from the collateral. The Credit Facility amortizes at a rate of 5% per annum of the outstanding principal amount for first two years, 7.5% per annum in the third year, 10% in the fourth year and 15% in the fifth year, in each case payable in equal quarterly instalments. To the extent funded, the delayed draw term loan will amortize in equal quarterly instalments on the same amortization schedule described above.

The Credit Agreement contains customary affirmative covenants for transactions of this type and other affirmative covenants agreed to by the parties, including, among others, the provision of annual and quarterly financial statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental matters. The Credit Agreement contains customary negative covenants, including, among others, restrictions on the incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends, repurchases of equity interests in the Company, entering into affiliate transactions and asset sales. The Credit Agreement also provides for a number of customary events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, change of control and judgment defaults, which would entitle the lenders thereunder to accelerate the maturity date of the loans then outstanding.

The foregoing summary is qualified in its entirety by reference to the Credit Agreement, which will be filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ending March 31, 2018.

Item 6. Exhibits.

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:



Exhibit No.			Description
2.1	~~Description~~

~~10.1~~			~~Lease~~Agreement and Plan of Merger, dated September 9, 2020, by and ~~between the Registrant~~among Virtusa Corporation, Austin HoldCo Inc. and ~~132 Turnpike Road LLC dated as of October 23, 2017~~Austin BidCo Inc. (previously filed as Exhibit ~~10.1~~2.1 to the Registrant’s ~~quarterly~~Current Report on Form ~~10-Q~~8-K (File No. 001-33625) filed ~~November 8, 2017~~on September 11, 2020 and incorporated ~~here in reference)~~by reference herein).

10.210.1			~~Lease~~Amendment 7 to Master Services Agreement dated as of January 7, 2021 by and between ~~Orion Development (Private) Limited~~Citigroup Technology, Inc. and ~~Virtusa (Private) Limited. Dated~~the Registrant and amends the Master Professional Services Agreement between the Parties dated July 1, 2015, as ~~of November 17, 2017.~~amended.

~~10.3+~~10.2			~~Fourth Amended and Restated Director Compensation Policy~~Form of Voting Agreement (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33625) filed ~~December 7, 2017~~on September 11, 2020 and incorporated by reference herein).

10.4*10.3			~~Amendment No. 2 to Credit~~Settlement Agreement, dated October 6, 2020, by and among Virtusa Corporation, New Mountain Vantage LO, L.P., New Mountain Vantage Focus, L.P., New Mountain Vantage (California) II, L.P., New Mountain Vantage, L.P., New Mountain Vantage Co-Invest II, L.P., New Mountain Vantage GP, L.L.C. and New Mountain Vantage Advisers, L.L.C. (previously filed as ~~of January 11, 2018 with JPMorgan Chase Bank, N.A.~~Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33625) filed on October 7, 2020 and ~~the lenders party thereto.~~incorporated by reference herein).

10.4		Voting Agreement, dated October 6, 2020, by and among Virtusa Corporation, New Mountain Vantage LO, L.P., New Mountain Vantage Focus, L.P., New Mountain Vantage (California) II, L.P., New Mountain Vantage, L.P., New Mountain Vantage Co-Invest II, L.P., New Mountain Vantage GP, L.L.C., New Mountain Vantage Advisers, L.L.C. (previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33625) filed on October 7, 2020 and incorporated by reference herein).

31.1*			Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*			Certification of principal financial and accounting officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**			Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.

32.2**			Certification of principal financial and accounting officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.

101101.INS			XBRL Instance Document – The ~~following financial statements from Virtusa Corporation’s Quarterly Report on Form 10-Q for~~instance document does not appear in the ~~quarter ended December 31, 2017, as filed with~~Interactive Data Files because its XBRL tags are embedded within the ~~SEC on February 8, 2018, formatted in~~Inline XBRL ~~(eXtensible Business Reporting Language), as follows:~~document.
101.SCH*			Inline XBRL Taxonomy Extension Schema Document
101.CAL*	~~(i)~~		~~Consolidated Balance Sheets at December 31, 2017 (Unaudited) and March 31, 2017~~Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	~~(ii)~~		~~Consolidated Statements of Income (Loss) for the Three and Nine Months Ended December 31, 2017 and December 31, 2016 (Unaudited)~~Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	~~(iii)~~		~~Consolidated Statements of Comprehensive Income (loss) for the Three and Nine Months Ended December 31, 2017 and December 31, 2016 (Unaudited)~~Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	~~(iv)~~		~~Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2017 and December 31, 2016 (Unaudited)~~Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 *	~~(v)~~		~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

+Indicates a management contract or compensation plan, contract or arrangement.

* ~~Filed herewith.~~

** Furnished herewith. This certification shall not be deemed filed for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Virtusa Corporation

Date: February ~~8, 2018~~9, 2021	By:	/s/ Kris Canekeratne

		Kris Canekeratne,
			Chairman and Chief Executive Officer
			(Principal Executive Officer)

Date: February ~~8, 2018~~9, 2021	By:	/s/ Ranjan Kalia

		Ranjan Kalia,
			Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

	Level 3 Liabilities
Balance at April 1, 2017	$	—
Contingent consideration arising from acquisition (See Note 7)	100
Payments made during the period	—
Balance at December 31, 2017	$	100

	Amount of Gain or (Loss) Recognized in AOCI on Derivative (Effective Portion)
Derivatives Designated as Cash Flow Hedging Relationships	Three Months Ended December 31,				Nine Months Ended December 31,
Derivatives Designated as Cash Flow Hedging Relationships	2017		2016		2017		2016
Foreign currency exchange contracts	$	4,211	$	1,947	$	4,811	$	11,807
Interest rate swaps	$	518	$	1,826	$	281	$	1,723

Location of Gain Reclassified from AOCI into Income (Effective Portion)	Amount of Gain Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended December 31,				Nine Months Ended December 31,
	2017		2016		2017		2016
Revenue	$	2,334	$	932	$	7,846	$	2,409
Costs of revenue	$	1,432	$	1,505	$	5,484	$	2,877
Operating expenses	$	750	$	877	$	3,060	$	1,722
Interest expense	$	59	$	—	$	93	$	—

		Amount of Gain or (Loss) Recognized in Income on Derivatives
Derivatives not Designated as Hedging Instrument	Location of Gain or (Loss) Recognized in Income on Derivatives	Three Months Ended December 31,						Nine Months Ended December 31,
Derivatives not Designated as Hedging Instrument		2017			2016			2017			2016
Foreign currency exchange contracts	Foreign currency transaction gains (losses)	$	—		$	—		$	—		$	(180	)
	Revenue	$	216		$	(94	)	$	(120	)	$	(10	)
	Costs of revenue	$	(177	)	$	(11	)	$	55		$	(50	)
	Selling, general and administrative expenses	$	(94	)	$	(42	)	$	(41	)	$	(55	)

	December 31, 2017		March 31, 2017
Long-lived assets, net of accumulated depreciation and amortization:
United States of America	$	88,446	$	91,500
India	272,709		271,346
Rest of World	25,720		25,494
Consolidated long-lived assets, net	$	386,875	$	388,340

	December 31, 2017
Balance at April 1, 2017	$	—
Provisions	985
Cash Payments	(700		)
Balance at December 31, 2017	$	285

	Three Months Ended December 31,						Nine Months Ended December 31,
Accumulated Other Comprehensive Income (Loss)	2017			2016			2017			2016
Investment securities
Beginning balance	$	220		$	(122	)	$	57		$	23
Other comprehensive income (loss) (OCI) before reclassifications net of tax of $38, $83, $138 and $48	29			47			229			(125		)
Reclassifications from OCI to other income, net of tax of $(18), $0, $(33) and $3	(21		)	1			(17		)	10
Less : Noncontrolling interests, net of tax $(5), $(19), $(27) and $(10)	(10		)	(36		)	(51		)	(18		)
Comprehensive income (loss) on investment securities, net of tax of $15, $64, $78 and $41	(2		)	12			161			(133		)
Closing Balance	218			$	(110	)	218			$	(110	)
Currency Translation Adjustments
Beginning balance	$	(46,135	)	$	(48,220	)	$	(50,415	)	$	(45,211	)
OCI before reclassifications	4,641			(8,876		)	9,068			(12,079		)
Less: Noncontrolling interests, net of tax	(1,943		)	1,964			(2,090		)	2,158
Comprehensive income (loss) on currency translation adjustment	2,698			(6,912		)	6,978			(9,921		)
Closing Balance	(43,437		)	$	(55,132	)	(43,437		)	$	(55,132	)
Cash Flow Hedges
Beginning balance	$	4,274		$	8,811		$	11,789		$	3,934
OCI before reclassifications net of tax of $1,263, $1,176, $1,671, and $3,577	3,467			2,598			3,421			9,956
Reclassifications from OCI to
- Revenue, net of tax of $(808), $(322), $(2,714) and $(834)	(1,526		)	(609		)	(5,132		)	(1,575		)
- Costs of revenue, net of tax of $(129), $(340), $(1,289) and $(620)	(1,303		)	(1,165		)	(4,195		)	(2,257		)
- Selling, general and administrative expenses, net of tax of $(53), $(198), $(719) and $(382)	(697		)	(679		)	(2,341		)	(1,390		)
- Interest expenses, net of tax of $(12), $0, $(26) and $0	(47		)	—			(67		)	—
Less: Noncontrolling interests, net of tax $83, $23, $450 and $175	157			43			850			331
Comprehensive income (loss) on cash flow hedges, net of tax of $344 , $339, $(2,627) and $1,916	51			188			(7,464		)	5,065
Closing Balance	4,325			$	8,999		4,325			$	8,999
Benefit plans
Beginning balance	$	(1,088	)	$	(621	)	$	(1,180	)	$	(885	)
OCI before reclassifications net of tax of $0 for all periods	$	—		$	—		$	—		$	247
Reclassifications from OCI for prior service credit (cost) to:
- Costs of revenue, net of tax of $0 for all periods	2			2			6			6
- Selling, general and administrative expenses, net of tax of $0 for all periods	—			—			1			1
Reclassifications from OCI for net actuarial gain (loss) amortization to:
- Costs of revenue, net of tax of $0 for all periods	26			25			82			77
- Selling, general and administrative expenses, net of tax of $0 for all periods	12			15			36			45
Other adjustments	(9		)	—			(2		)	(18		)
Less: Noncontrolling interests, net of tax	—			(9		)	—			(61		)
Comprehensive income (loss) on benefit plans, net of tax of $0 for all periods	31			33			123			297
Closing Balance	(1,057		)	$	(588	)	(1,057		)	$	(588	)
Accumulated other comprehensive loss at December 31, 2017	(39,951		)	$	(46,831	)	(39,951		)	$	(46,831	)