VRTU - Earnings call transcript Q1 2020

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Operator

Good afternoon, and welcome to the Virtusa Corporation First Quarter Fiscal 2020 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to William Maina, Investor Relations. Please go ahead.

William Maina

Thank you, and welcome to Virtusa’s First Quarter Fiscal Year 2020 Earnings Conference Call where we will be discussing our financial results for Virtusa’s first quarter ended June 30, 2019.

me Ranjan Canekeratne, and Kalia, Officer. with Executive and Chief call and Officer; Executive the are Chairman Kris Chief Financial On Vice President

statements Litigation pursuant to not safe harbor that are Certain the statements, of the this Private XXXX. of historical Securities forward-looking made on Act information are are which provisions on made Reform based call

and the or expectations During this subject of which Virtusa’s growth in control, management’s things neither relating Virtusa’s and are to are a results to statements which ability clients concerning statements could variety Virtusa’s of are beyond financial call, of we from cause and and to differ contemplated plans, of those strategies. of performance; IT actual imply may materially of the from These many business; this realize among forward-looking services; and make, promises nor the forecast assumptions express to statements. Virtusa’s guarantees management’s Virtusa’s risks other use forward-looking objectives benefits uncertainties,

statements. information the information, whether these no in forward-looking revise and of or to circumstances the events undertakes future information forward-looking a revise only to to investors result or speak undue disclosed hereof. which statements, disclosed reliance on as these update Existing cautioned obligation the undertakes place no call are this new Virtusa during obligation Virtusa as of date the or not prospective otherwise.

in found into performance foreign information page net earnings be We earnings of non-GAAP website. press provide and included further non-GAAP performed, operating currency our Other sheet, our Reconciliations revenue to for adjusted data on release defined statements effect are GAAP how the revenue we framework Relations on fluctuations. the a believe provide income, business. financial the and can per which non-GAAP the of which as income provide assessing SEC. during rate adjusted this certain include present today’s operational non-GAAP of to also by measures for share, non-GAAP We insight constant Investor call currency our

of that equivalents, reconciliation overall a cash provides present investments position cash, also insights and long-term short-term believe cash liquidity. We into our and total we

Please our been website. presentation data Relations fiscal has to supplemental posted that to first quarter Investor also results note a our

additional and by contained our in press the with in other these disclosures and For please Commission the release. regarding see faced public and Virtusa, risks Virtusa’s Exchange disclosures Securities filings earnings

that, I’d turn With call to over like Kris. to the Krishan

Kris Canekeratne

you, $XXX expectations. you and were first Thank our Good was million, us was fiscal growth. for results Will. today. Non-GAAP X.X% Total thank quarter revenue sequential representing our $X.XX. EPS and with line evening, Overall, year-over-year decline everyone, joining in X.X%

EPS quarter line and reflects with first top tracked line margin and services our our transformation our QX entire perspective, with digital non-GAAP solutions momentum operating business. continued guidance. our From Our and profitability a performance engineering in across results

their banking before learnt Now spend like the updated our accomplishments, offshore. with their of and accelerating our European discussing one we our July, that of reducing environment us fiscal would I and to programs guidance. demand In some XXXX clients half recent some second of is address to

and in robust this calendar them with growth XXXX. starting anticipation business of lines of spending our client in diversified of strong new and partnership with Our business remains is across resumed pipeline multiple QX

profitability. impact guidance, which revenue due dollar Additionally, offset has and denominated is have factors, Brexit the on the uncertainty. our reduced already partially two are our of some these largely roughly we continued of to as XXXX of you versus our we cost revenue to fiscal accelerating many to XX% containment slip know, Considering in our pound, the programs UK

is our industry expected has with demand where is for client groups growing portfolio. this strong leader. across all we as to momentum to continue is see majority includes and we momentum client, core our Notwithstanding digital discussed. industries Underpinning our long-term quarter our good largest strong sequential of competencies client, business and which business this proven This in is in all one line areas second and services our expectations, across Virtusa two previously a the and growth resume cloud transformation the

integrated a engine our The our continuous deployment teams sets, industry digital transformation adapters is we’re success our driving deep client-specific through platform, and continuous expertise, gamified integration, processes, digital and proprietary accelerators. studio, which delivers unique engineering scrum tool and agile

sets ability digital studio to better transformation effective, more our digital transformation deliver us faster, Our in initiatives and cloud apart and cost-effectively.

the is I into and the demand would Virtusa types dig current environment to engagements little winning. deeper like of a now

transformation, effectively, technology reducing major cost. usual business that becoming understand more to or transformation, discussed and budget get we while essential of industries technologies and cloud these are to as leveraging continue utilize as strategic Virtually and to across cloud economics digital As plans compete previously, CT, or more today seek continued business DP, digital-first viability. business to attention efficiencies and every pathways

data include digital and of architectures and integrated monolithic that and transformation that grow DP believe more CT will into in demand we cloud are the application this More the services DevOps migrations to and perfectly the API for architectures, growth. we we specifically, increasing benefit IT cloud. seeing decomposition modernization, micro only nimble that to and ahead on engagements spend from Accordingly, years positioned and and are client

growing application native in Services infrastructure. and driven in our is driver cost-reduction to sector, application usual In of including and the of significant development, Financial behind and IT a of initiatives migration business clients many cloud spend are technologies data for levels directly requirements investment Banking automation also compliance clients, and transformation cloud intelligent by contribute efforts. transformation is as Digital as that demand regulatory interest our

financial engagement. company Virtusa selected a U.S. a cloud services by has been example, leading multinational For transformation for large-scale

further client’s and cloud initiatives application projects, applications We the for for migration migration have potential engagement been This opportunities. our test also including planning. X,XXX with application suitability multiple evaluating our portfolio cloud entire restructuring, and of has application downstream sunsetting

benefit banking a large pursuit, first and example, phase selected commences studio. a very of another cloud the and after our digital transformation European cost strategic to were multi-year engagement. and implement We transformation. our CT a of industry-leading the second our competitive because In in represents of a program unparalleled by selected quarter client Virtusa was This speed offering

requirements by regulatory directive compliant deadline. that than usage our all become mentioned driving including I digital their regulatory their models monetize have increased global for We the also spend C-based that demand before API transformation. gateways with and for are compliance them example, are forthcoming on compliant and enable global to services, banks increasing are already for that investments with PSDX banks, us and PSDX less to customers that compliant X/X to compliance with initiatives European of the become date. looking And banks partners. believe developing early European

selected banking their providing by their by them enables venture to cutting-edge launching recently were the open PSDX of a them banks an Europe large an digital their and monetize in Middle East customers. compliance investments We platform, joint to help services example to accelerate as which by to journey

business and we adoption, companies. verticals with core digital results business Financial Services and and communications transformations extend the our strong industry applications well shared, including is increasingly to demand our in is among Increased Healthcare As cloud as C&T industry, becoming critical helping operations beyond cloud for our and clients. cloudification technology drive of as the Banking and universal

application and are Virtusa cloud industry, the public networks engineering of and XG and increasingly and like platforms digital have and a to communications for partners the addressable driving emerging Healthcare proven infrastructure cloud wireless of the emergence open-source maintenance that cloud strategies, expertise network clients demand their virtualized including telecom technologies. markets are In in adopting mix expenses. lower expand

Life ranging applications focusing architectures. are from sciences on to transformation digital native plans initiatives cloud to rationalizing migrating

devices specializing renal entire care disorders a renal to For transform business. global dialysis example, engaged Virtusa and in recently was care by health company their

to platform, first excited We are for clients support us. our our remotely. with the providing we I’m cloud, quarter guidance. In building manage will developing remain our HIPAA-compliant long-term of are results opportunity a road ahead versus capabilities And the a connectivity, growth conclusion, for plan and about we map to devices pleased which currently device with

potential. with have weathered their we strategically clearly credibility significantly and objectives, our expanded to are and position banking a similar closely ourselves we for, build position where few our are during and in share. execution work and the downturn, great strengthened one for the future change is in on This we at it strategically clients, direction cost-savings that disappointed we excellence continue nature strong and in known account-specific While examples them is important to our revenue European prior of support wallet times those future a

for profitability of offset fiscal place a the reduction impacts client our short-term the clear factors, this on XXXX as in We effects expected and partially unfavorable year. to spend on and impact we our have results plan view this

to client strong remains ever Deep is client’s our all of a Our robust, industries, it as agenda demand competency. transformation with our long-term and as core strategy squarely on our continues significant in is be has part fits track, which been. portfolio digital

CT engage Through significant our customers, establish our through help benefits reduction and realize solutions, digital their studio. executed currently we cost better can industry-leading and with and digital improvement able competitive clients and cloud our end DT to significant transformation of advantages transformation efficiency the

and the future. that of lines Excluding with business underlying and the annual in the digital strategy our growth. is in above strong the us aspiration of strong our confidence our momentum in this will industry impact is and one results activity our pipeline line in client, deliver gives of business velocity working The

second Ranjan, to call our results our as more Now year Ranjan? details quarter I’d as guidance. to the who XXXX well and fiscal over on turn provide like will

Ranjan Kalia

to good evening Thanks, and Kris, everyone.

XXXX, ending results for fiscal above X.X% second I X.X% questions. increased for me quarter in fiscal Revenue reported representing opening provide our quarter in decline Year-over-year, will guidance both $XXX Let XX, first first revenue currency our before quarter year the million, the our in of reported first in start fiscal and and and currency. X.X% then constant currency March guidance quarter constant the summarizing fiscal X.X% for midpoint was sequential by our XXXX. and currency. decline call of current

communication Our industry year-over-year group. growth revenue in growth strong was driven our technology by and

in the our the ago the $XX primarily income large on-site Gross GAAP midpoint above SG&A stronger announced quarter first care with operating the million we and first prior leverage. and last year compared was results earnings call. the of higher million expectation income $XX.X million $XX.X was deal top our XX.X%, health in reflecting reflecting on operating GAAP was in line effort the period. margin for transformation from quarter our quarter

expense other expense, and $X.X and other million of other This $X income. includes expense of quarter and includes the interest million First interest first $X.X expense. in other was $X.XX gain net exchange GAAP and interest share was of $X.X earnings of Net foreign interest $X.X million and million million. net per quarter.

prior quarter $X.XX per the in year the $X.XX in and a ago to period. loss compares This of share

ago our $XX.X prior to results. in Non-GAAP to compared non-GAAP in $XX first quarter quarter income $XX.X operating million turning the and year Now period. the was million the in million

quarter X.X%, prior performance midpoint was share quarter First operating period. non-GAAP $X.XX margin ago Non-GAAP $X.XX in leverage. the slightly primarily is This the the quarter, and of our of due per the expectation, compared our and midpoint to guidance. in first to SG&A our $X.XX above the earnings year revenue was $X.XX prior above in

$XXX.X Turning to cash June XX, was and cash and sheet. long-term million short-term investments. cash the equivalents, at inclusive balance of Ending XXXX,

million operating was $X.X in provided quarter. by activities the first Cash

ago Our period. one day and four XX of improvement was DSO quarter first year from days, days the sequentially an the for

discussion by XX% group was points I turn XX BFSI Revenue a representing our performance of sequentially our decreased revenue industry across first X.X% follows. Now basis year-over-year detailed more increase group. as will quarter revenue. to industry and of revenue

reflects last a in QX decline primarily largest on client, discussed our Our our call. which from in sequential revenue we change BFSI, earnings

from our our largest grew client, X% portfolio approximately Excluding revenue sequential. banking

revenue. above revenue. Technology X% with and performance information were other, X% M&I sequentially slightly XX.X% expectations than growth strong expectations. was XX.X% our our remaining Healthcare year-over-year of revenue and representing representing and of reflecting Communication XX% the and and Media clients. increased our declined year-over-year X.X% Technology better revenue results C&T quarter-over-quarter

for our performance, X.X%, the offset North geographical guidance growth XX, world X.X% current With reported and our be of is million ending expected the year quarter America, up led X.X% and X.X% up by respect Revenue XXXX our to currency to second in March in in of and range which provide now will Europe, rest quarter was of $XXX constant I million. year-over-year second fiscal to in $XXX declined XXXX. by partially currency.

second Non-GAAP earnings quarter to diluted the to in the range per be of is XXXX share of in expected $X.XX. $X.XX

$XX an non-GAAP QX Our of million. fiscal share approximately count XXXX guidance EPS anticipates average

revenue expected expect range to XX, the the For in ending XXXX, Non-GAAP be diluted is year for the to $X.XXX year $X.XX. $X.XX of EPS XXXX to be March of $X.XX to fiscal fiscal billion in we range billion.

excludes anticipates Full and of guidance expense share XXXX $XX.X charges. $XX year compensation an acquisition-related stock Our fiscal average count million million. million $XX.X of of approximately non-GAAP EPS

and Our current in non-GAAP XXXX found that located on is consistent our qualified that assumptions mentioned you our better with slightly section based Investor we May, the year be in was Relations fiscal and guidance When can prior our on we with GAAP with revenue pipeline. set data of of spoke visibility sheet backlog website.

Kris revenue our us banking will account. with this of year’s European which as early impact informed However, discussed spend of clients one renewal in July, this reductions,

adjust Keeping our pipeline mind, to this conversions also FY decided trend for XXXX in we client. risk this have

an offshore revenue our to account. impact have with Additionally, this which this also more from their work client drive will XXXX on us, FY is accelerating

these approximately $XX client with of are year factors current by impacting this million. All revenue

since guidance, has XXXX addition, has $X or continued provided last growth. slide we XX revenue to dollar, UK pound million an headwind created the the versus incremental In our FY basis to points which

clients. guidance offset by our European FX XX FY $XX XXXX revenue growth at is revenue being are banking Our million, by incremental change which our account partially approximately and impacting top

As a midpoint result and million. revenue guidance adjusted $XX of of these XXXX factors, have we by the fiscal

health consummated transformational we during call our As care fiscal first was quarter. expected, QX large mentioned the the in deal XXXX

better verticals than all addition, to expectations line European the on basis. in one slightly currency adjusted impact our for prior of or In industry constant client our banking discussed grow when a earlier, continue

revenue the guidance, At expected to is fiscal X.X% sequentially. our midpoint increase QX of approximately

revenue expected to accretion with growth outlook. in prior discussed, previously margin, expected non-GAAP As client sequential from operating our QX is resume largest in QX. resume to is in our fiscal Sequential line

and we in X.X% at now currency. of FY constant in midpoint X.X% revenue growth guidance the currency our range, For XXXX, of expect reported

basis now FY XXXX in In expect versus points points non-GAAP of addition, we basis XXX XX accretion margin operating previously.

points XX partially headwinds, revenue, FX margin start the impact basis reflects incremental offset accelerating this This lower by containment client we at from points margin basis of impact of cost programs of XX the initiated year. from

tax effective XX.X% expected for be fiscal previously. XX% versus XXXX is non-GAAP rate to Our

BEAT As this any Indian we tax a reminder, does our contemplating entities. as impact legal not of reorganization include a are

Our current guidance non-GAAP expense. anticipates interest $XX.X of million

FY healthy expecting XXXX. growth EPS XX% non-GAAP Lastly, of we in are

authorized while our you Before existing We earnings repurchase closing, program. noticed of to million a share our our Board as ample our $XX growth probably new as as opportunistically plan on repurchase in our release, press using liquidity to hand, well Directors support maintaining has strategies. stock credit facility cash

first the results our of midpoint conclusion, In our guidance. prior exceeded quarter

largely Aside of from continues the in our line client, impact to grow expectations. our business one revenue with

revenue of EPS well and Q&A year-over-year in growth FY begin plans calibrate and and drivers to may program enable accelerated deliver XXXX have growth margin remains new our share business expansion you Operator, our expansion to to session. our we now structure deliver contribute cost purchase will incremental the We are to positioned beyond. and The us solid, underlying accretion. margin

Operator

question Foresi of Instructions] our first Joseph And Please Cantor comes Fitzgerald. go ahead. [Operator from

Joseph Foresi

And of first. Maybe those budgets financial some the being middle just To the we could the year. confidence about made. cuts why I European will of to guess, made? what It’s those fairly portion opened as what during that few being just you us cuts talk the Maybe unusual, color more are you give resume? spending were could client business gives

Kris Canekeratne

this Joe, Kris. is

their an and ratio of in A leader on we clients desire the in driven have that we their July Europe of becoming of this large one sector. learnt reduce early to is Services in as So a in our objective – cost by Banking part IT. income earlier, banking spend Financial decided said July,

our some to Now and to CY record QX half result our they and certain as position to programs year excellent second with Notwithstanding, client said to Having a objectives, this critically some and this, pushed growth. renewing delay XXXX. calendar dates decided pipeline that and start of of their – that have offshore. goals we to ourselves start continues important QX calendar been cost of have objectives future although accelerating it for XXXX, have XXXX an the programs track grow, strategically supports calendar not is this programs

Ranjan Kalia

Joe.

Just us mix believe, a on of there bit internal little spending a show checks, that we is issue.

half. mix I a think the budgets second year spending half full versus on – basis, are accelerating their full was it their first probably a locked, year are but year-over-year, budgets issue,

So their half they’re rebalance impacting in really versus second our half revenue half spending and to the them. back trying with that’s first second

Joseph Foresi

them I the many are far and guess, and so From high resources them then, that redeploy comes this I’ll as ways, where a a large to taking business use since two and those heard kind Okay. back? And of secondly, visibility. resources impact we visibility, hold And you months just about perspective, but resources margins fairly as being the to ago, then – talked point and we there as secondly, a we call then or basis resources beginning couple the the – client. try about that’s year you’re ask held to of efficiently why the going until

about that, client. European clearly, now hearing And that right But we’re client come about back. large has you’re

you’re update we stand maybe an where visibility and from those do get can So going with on what resources? you just to standpoint Thanks.

Ranjan Kalia

Sure.

combination of in terms be of it’ll two. the So a resources, Joe

margins. redeployed further actions what Some look that we will impacting will at really is and that’s be the some within have and to

In relate type the fact, expenditures will into impact. the in absorbed we of them that being already margin severance are margins believe some also of

back business, not absorbed be on be So be in absorbed, the of the this believe absorbed. some will all don’t may partially in case, it some will we growth

it to remarks. in the prepared revenue visibility, terms In we our of address tried

beginning that backlog, always client. which visibility the the at piece with Because the with past practice, piece really we what pretty this the historical has impacted our is is our only this The to and rate. offshoring hold daily really as have renewal, have we a impacted stays that high really look we continues except all account the backlog The at is element. year, When the of for is that’s getting revenue much very The the been pipeline, if really. by that renewal we of true the it big that is base, as is client percentage client. for backlog

for have renewal client. readjusted still we Because we significantly readjusted the revenue to have renewal prudent So pipeline…. this adjust really get we the revenue, the actually

Kris Canekeratne

And is Kris. Joe, this

outside year-over-year, So growth X% client, one this and the of of business approximately in our of long-term sequentially rest is line with our aspirations. industry growth above growing

Joseph Foresi

you. Thank

Ranjan Kalia

Joe. Even the in still this seen client injection pipeline we new actually have continues.

So that just back. spending now second half is We’ll like little spending. – pattern of held the readjustment hasn’t first we feel been bit half a right of versus

prudent that in be not used for might us account. historical use pipeline for to conversion it So ratios we this that the

So of is when resume that’s really adjusted they XXXX. into pipeline it. will which talked We spending, now revenue translate calendar is about the believe being lot back

Joseph Foresi

you. Thank

Operator

Maggie next from And of will William our Instructions] question Nolan [Operator go come Blair. Please ahead.

Maggie Nolan

conversation, of accelerated work like it follow-up much offshore? an on sounds the of rate. that to large the some A being moved client. related is that’s large to banking client How the impact And

offshore? how just that at next something this I’m to trying recurring is time, was happening much this you once? is it long still work was kind how just them of get expect and So an previous hitting the expectation? year, understanding all do of it’s to now with but from would that in of it And over

Kris Canekeratne

it’s Maggie, Kris.

our that’s Those of programs accelerating of they again, elected calendar back in essentially not their some and three been once of offshore, basically things second fairly all to transformation, shift programs on of three about to aggressive are cut from costs. offshore. programs to certain half these QX They’re the renewing sort delaying doing program, accelerating and are half had and the year, simultaneously. they On on pattern, offshoring XX% spend start clearly the approximately because some onshore a drivers. XXXX, So they and in of the first of basically their to have around

Now with the Ranjan client fairly in significantly. confident, are very large they earlier, said and is as pipeline our Europe growing

conversion expect QX calendar we only that starting in will contribute much that However, of XXXX.

Maggie Nolan

kind potentially I’m is Okay. then outside the of client? large a of of rest there financial could the the more be business. continuing? decrease within wondering banking Thank is client color that And if And good get how this is for of color you. the be? And growth exposure the expectation to decrease whatever and granular. great. there effort to an traction there the services Any diversify on little you What concentration may or efforts then financial would services some

Ranjan Kalia

the would in expectations really than have QX. with expectations business bit our Maggie, fact, there then this for Kris we to a business at we that when So in they’re and And you the sequential look and we as largest starting in see QX, rate to that client look provided, that actuals that client like our resume growth that our the regards really alluded, earlier were and QX better impact can we actual data start and that at will we QX – had that, sheet then client, show client in largest the the to for be little called spending.

other we client. this European have And then

I Now of client the the ex shows or company, – in events, the as growth at this business. look these European if I really the it company combining a two Virtusa bucket really low growth for double-digit look those we’re the If client, company, two, of almost growth. a for growth the ex talking at two double-digit one those both if really rest mid-teens cases large a I then

segment business grown are the inside the at look when Healthcare you all of business, has when and especially, we across that C&T have rapidly. that talking, our we look the So business, strong growth very that we at

Maggie Nolan

you. Thank

Operator

Puneet from Our comes Please question next of Jain JPMorgan. ahead. go

Puneet Jain

taking Thanks my Yes. question. for

this that was impact related to European the that Brexit. like seems it client So not

guidance for various the about your tested So you Brexit have stress can talk scenarios? you extent

Kris Canekeratne

great question. is a This Kris. that’s Puneet,

is better banking was that preparing and there Brexit-related or may fairly focused not in we looking spending be in are What that operate some and in clients uncertainty determine sure I’m Banking for and certain UK Financial just We and general not. seeing Europe Brexit their to And the certain of whether be the right? themselves large clients are programs at Services are transformational until a post-Brexit are this uncertainty are waiting the dust conversely, may Brexit more settles world. that in there course, that to direction ahead

So in Brexit we seeing when it Europe, board to the are across a tale of comes two cities impact.

As European we specifically a basically essentially who another we very recently separation a both engagement large won matter fact, post-Brexit very in are a of investing competitive environment, sides this. to of is systems right? bank, and seeing So for operate in cloudification

Puneet Jain

Got beyond we margin was this you last Got also about year. surprised potential it. had did by expansion the I And margin think it. guidance from how given year. restructuring just should you benefits

this margins change So hurting that’s operations delivery any in underlying was year? there

Ranjan Kalia

No.

mean, in revenue basis the the like if happening. one I in million in prepared margin of this half provided really because the impact XX you of client earlier have. the happening I revenue $XX of that’s impact just from back at remarks, worth we impact that think, that’s the points I look it, impact is

basis points XX Another is FX.

preparing back you’ll run, probably adding being half and – to about always XX really those the you and is that program maybe cost-containment run cost-containment really netted really programs programs ourselves are in for basis that Now are math, continue the see adding points we the year. following the cost-containment by about

this. all that. the the What will we impact XX we of seen we on in out why we for and really not have us is about that we basis XXX time. points, whole points we the significant able that comment XX The cost-containment are working are the you the and did significantly do reason QX XX accelerated So because talk the of revenue, to announcing in We case, the following are out basis this of we FX, come programs or Virtusa. always the year. were always could usually points. do of which that be programs Yes, but deliver cover continue really play lot And to basis basis impact because that and have above are for of reduce company us XXX is could all a growth an be we continue for believe nothing only to partially at to the we to able do we play revenue long-term XX these objectives, had rate, it, Virtusa from to by changes margins points and in we industry in XXX those continue the

Puneet Jain

it. Got you. Thank

Operator

question-and-answer conference Kris concludes to our any Canekeratne like remarks. for This to closing session. turn I over the back would

Kris Canekeratne

take our Thank opportunity look Thank members this global their on this to to you. on us hard for our to like Thank would team updating you call. you I I thank joining QX earnings for and forward dedication work. And call. you.

Operator

The concluded. conference has presentation. now Thank you today’s for attending

disconnect. may now You

Virtusa (VRTU) 9 Aug 192020 Q1 Earnings call transcript