Luxoft Holding, Inc Reports Results for Three and Six Months Ended September 30, 2015

Company Release - 11/10/2015 5:33 PM ET

LONDON--(BUSINESS WIRE)-- Luxoft Holding, Inc (NYSE:LXFT), a leading provider of software development services and innovative IT solutions to a global client base, today announced results for the three and six months ended September 30, 2015.

Highlights – Three Months Ended September 30, 2015

  • US GAAP revenue amounted to $161.5 million, an increase of 29.1% year over year and 9.1% sequentially on the reporting currency basis and 39.5% increase on the constant currency basis
  • Earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted for stock based compensation, acquisition related costs and change in fair value of contingent consideration was $37.0 million; adjusted EBITDA margin was 22.9%, compared to $24.4 million and 19.5% in the year-ago quarter and $27.2 million and 18.4% in the previous quarter
  • Operating income increased 25.5% year over year and 69.1% sequentially, generating 16.0% margin on a US GAAP basis, as compared to 16.5% in the year-ago quarter and 10.3% in the previous quarter
  • Diluted earnings per share (EPS) on a US GAAP basis was $0.67, compared to $0.54 in the year-ago quarter and $0.43 in the previous quarter
  • Diluted EPS on a non-GAAP basis was $0.84, compared to $0.58 in the year-ago quarter, and $0.61 in the previous quarter

Highlights – Six Months Ended September 30, 2015

  • US GAAP revenue amounted to $309.6 million, an increase of 30.4% year over year on the reporting currency basis and 42.1% increase on the constant currency basis
  • Adjusted EBITDA increased 47.7% year over year to $64.2 million and adjusted EBITDA margin was 20.7%, as compared to $43.4 million and 18.3% in a year ago period
  • US GAAP operating income increased to $41.2 million or 18.7% year over year
  • Diluted EPS on a US GAAP basis was $1.11, compared to $0.92 in the first half of last year, representing 20.7% increase over the same period last year
  • Diluted EPS on a non-GAAP basis was $1.45, compared to $1.03 in the first half of last year, representing 40.8% increase over the same period last year

Revenue for the three months ended September 30, 2015 increased to $161.5 million, up 29.1% from $125.1 million for the same period a year ago and 9.1% sequentially. Adjusted EBITDA was $37.0 million and corresponding margins of 22.9%, as compared to $24.4 million and 19.5% respectively in the year-ago quarter and $27.2 million and 18.4% sequentially. US GAAP net income was $23.0 million, or $0.67 per diluted share, compared to $17.6 million and $0.54 per diluted share for the same period a year ago and $14.6 million and $0.43 sequentially. Non-GAAP net income was $28.6 million, or $0.84 per diluted share, compared to $19.0 million and $0.58 per diluted share for the same period a year ago and $20.6 million and $0.61 sequentially. Reconciliations between non-GAAP financial measures and US GAAP operating results and diluted EPS are included at the end of this release.

Revenue for the six months ended September 30, 2015 increased to $309.6 million, up 30.4% from $237.4 million for the same period a year ago. Adjusted EBITDA increased 47.7% year over year to $64.2 million; adjusted EBITDA margin was 20.7%, as compared to $43.4 million and 18.3% in a year ago period. Operating income was $41.2 million, an increase of 18.7% year over year from $34.7 million in the first half of last year. US GAAP net income was $37.6 million, or $1.11 per diluted share, compared to $30.2 million and $0.92 per diluted share for the same period a year ago. Non-GAAP net income was $49.2 million, or $1.45 per diluted share, compared to $33.7 million and $1.03 per diluted share for the same period a year ago.

“I am pleased to announce another strong set of earnings for the quarter and the first half of our financial year built upon a continuously high level of demand for complex software development services, end-to-end solutions, and technology consulting,” stated Dmitry Loschinin, CEO and President of Luxoft Holding, Inc. “Our end-to-end offerings created organically and complemented by acquisitions over the past year helped us win several landmark contracts with High Potential Accounts (HPAs) and maintain healthy pipeline of opportunities ahead. We have secured four new HPAs in the past quarter: two in automotive, one in telecom and one in financial services. Credit Suisse, which made it into a Top 5 accounts in the second quarter, and another client, a major online travel conglomerate, are now part of our Top 10 account list. Finally, we realized some important cross-selling opportunities between Luxoft and Excelian, leading to six deals with North American, Western European and Asian clients. We continue building our premium consulting services capabilities, moving upwards in the value chain, and rapidly expanding relationships with packaged solution providers, such as OpenLink and Calypso, in addition to our existing Murex-based practice. Thus, an annual increase in revenues generated by our core verticals during the first half of the year ranged between 26% and 57%, which leads us to believe that our strategy of focusing on select niche domain expertise and becoming a business IT solutions specialist provider is paying off.”

For the six months ending September 30, 2015, technology, financial services, automotive and transport, and telecom were the strongest performers, delivering 57.5%, 34.6%, 29.8% and 26.1% of revenue growth respectively, compared to the first six months of last year. The main growth drivers in the financial services are: digital transformation, new disruptive banking models; pressure to comply with the regulations; need for standardization, cost control and transparency; demand for advanced business solutions and associated consulting. Main growth drivers in automotive are: strong demand in Human Machine Interface (HMI) development, substantial interest in autonomous driving from OEMs; opportunities brought by Internet of Things (IoT) to further developments in the connected car space.

Key revenue generating geographies continued to grow: revenues generated in the U.S. increased 2.9%, in the U.K. increased 55.4% and in Germany increased 24.0%, compared to the first six months of last year. Growth of revenues continued to outpace growth in delivery headcount. The company generated approximately 7.1% increase in revenue per delivery employee. During the last quarter the total headcount crossed 10,000 employees to reach 10,058 as of September 30, 2015, while maintaining low attrition.

“We are happy to report to our shareholders another period of solid performance, “- said Roman Yakushkin, Chief Financial Officer. “Luxoft is thriving as a global company. Several key strategic changes we implemented over the past 18 months have aided our growth and made us more competitive, scalable and capable of handling larger multi-year relationships. Our productivity continues to grow, reaching quarterly historical highs: we ended the past quarter with over $78,000 per delivery engineer. We continue to add to overall and delivery personnel at a lower pace than our revenue growth, maintaining healthy low attrition and stable utilization rates. We are monitoring the integration process of both of our acquisitions during the last year, and I am pleased to report that the process is on track and there are multiple synergies being realized in the form of cross selling opportunities. At the same time annual organic growth remains above 20% in constant currency and above 15% in reporting currency.”

Outlook for the Year Ending March 31, 2016:

The Company is increasing its original revenue and EPS guidance for the financial year ending March 31, 2016:

  • Revenue is expected to reach at least $645.5 million, an increase of at least 24.0% year over year, compared to at least $640.3 million, an increase of at least 23.0% year over year. In constant currency terms the management increase guidance to 28% year over year increase, up from previous 26%
  • EBITDA margin adjusted for stock-based compensation is expected to be in the range of 17.0% - 19.0%
  • Fully diluted EPS is expected to reach at least $2.05 on a US GAAP basis, compared to $2.02 previously; fully diluted EPS is expected to reach at least $2.60 on a non-GAAP basis, compared to at least $2.55 previously
  • EPS is based on an estimated weighted average of 34,159,416 diluted shares

Conference Call Information:

Luxoft Holding, Inc will host a conference call on November 11, 2015 at 8:00 a.m. EST to discuss its financial results for the three and six months ended September 30, 2015. To participate in the conference call please dial 877-407-8293 (for domestic U.S. callers) or 201-689-8349 (for international callers). A live webcast will also be available during the call and can be accessed at http://services.choruscall.com/links/lxft151111. Participants, please access the website at least 10 minutes prior to the call to register and follow the instructions provided on the website to download and install the necessary applications. An archived recording of the conference call will be available for a limited time by dialing one of the following numbers: 877-660-6853 (for domestic U.S. callers) or 201-612-7415 (for international callers) and entering the conference ID# 13622841. The replay will be available from two hours as of the end of the call and up to 11:59 p.m. EST on November 25, 2015. The replay details will also be available at Luxoft’s Investor Relations section during the same time period.

About Luxoft:

Luxoft Holding, Inc (NYSE:LXFT US) is a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large multinational corporations. Luxoft’s software development services consist of core and mission critical custom software development and support, product engineering and testing, and technology consulting. Luxoft’s solutions are based on its proprietary products and platforms that directly impact its clients’ business outcomes and efficiently deliver continuous innovation. The Company develops its solutions and delivers its services from 24 dedicated delivery centers worldwide. It has over 10,000 employees across 27 offices in 15 countries in North America, Mexico, Western and Eastern Europe, Asia Pacific, and South Africa. Luxoft is incorporated in Tortola, British Virgin Islands, has its operating headquarters office in Zug, Switzerland and is listed on the New York Stock Exchange. For more information, please visit http://www.luxoft.com.

Non-GAAP Financial Measures:

To supplement our financial results presented in accordance with US GAAP, this press release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: earnings before interest, tax, depreciation and amortization (EBITDA); adjusted EBITDA; non-GAAP net income; and non-GAAP diluted Earnings per share (EPS). Non-GAAP net income and non-GAAP EPS exclude stock-based compensation expense, amortization of fair value adjustments to intangible assets and impairment thereof and other acquisitions related costs, that may include changes in the fair value of contingent consideration liabilities. Non-GAAP diluted EPS are calculated as non-GAAP net income divided by weighted average number of diluted shares. We provide these non-GAAP financial measures because we believe that they present a better measure of our core business and management uses them internally to evaluate our ongoing performance. Accordingly, we believe that these non-GAAP measures are useful to investors in enhancing their understanding of our operating performance. These non-GAAP measures should be considered in addition to, and not as a substitute for, comparable US GAAP measures. The non-GAAP results and a full reconciliation between US GAAP and non-GAAP results are provided in the accompanying tables at the end of this press release.

Forward-Looking Statements:

In addition to historical information, this release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include information about possible or assumed future results of our business and financial condition, as well as the results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions. These statements include, but are not limited to, statements regarding: the persistence and intensification of competition in the IT industry; the future growth of spending in IT services outsourcing generally and in each of our industry verticals, application outsourcing and custom application development and offshore research and development services; the level of growth of demand for our services from our clients; the level of increase in revenues from our new clients; seasonal trends and the budget and work cycles of our clients; general economic and business conditions in our locations, including geopolitical instability and social, economic or political uncertainties, particularly in Russia and Ukraine, and any potential sanctions, restrictions or responses to such conditions imposed by some of the locations in which we operate; the levels of our concentration of revenues by vertical, geography, by client and by type of contract in the future; the expected timing of the increase in our corporate tax rate, or actual increases to our effective tax rate which we may experience from time to time; our expectations with respect to the proportion of our fixed price contracts; our expectation that we will be able to integrate and manage the companies we acquire and that our acquisitions will yield the benefits we envision; the demands we expect our rapid growth to place on our management and infrastructure; the sufficiency of our current cash, cash flow from operations, and lines of credit to meet our anticipated cash needs; the high proportion of our cost of services comprised of personnel salaries; our plans to introduce new products for commercial resale and licensing in addition to providing services; our anticipated joint venture with one of our clients; and our continued financial relationship with IBS Group Holding limited and its subsidiaries including expectations for the provision and purchase of services and purchase and lease of equipment; and other factors discussed under the heading “Risk Factors” in the Annual Report on Form 20-F for the year ended March 31, 2014 and other documents filed with or furnished to the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update any forward-looking statements for any reason after the date of this press release whether as a result of new information, future events or otherwise.

http://www.sec.gov/Archives/edgar/data/1538375/000110465915037866/a15-11587_1ex99d1.htm

       
 
LUXOFT HOLDING , INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of US dollars)

 

For the three months
ended September 30,

For the six months ended
September 30,

2015     2014     2015     2014
(unaudited)     (unaudited)
       
Sales of services 161,542 125,140 309,597 237,442
Operating expenses
Cost of services (exclusive of depreciation and amortization) 90,446 69,527 178,423 135,176
Selling, general and administrative expenses 39,611 30,897 78,276 59,502
Depreciation and amortization 5,550 3,796 10,910 7,445
Loss from revaluation of contingent liability 41     281     784     607
Operating income 25,894     20,639     41,204     34,712
 
Other income and expenses
Interest expense, net (61) (131) (89) (390)
Other gain, net 283 388 576 821
Gain from foreign currency exchange contracts 517 1,085 685 1,250
Net foreign exchange gain (loss) 421     (2,220)     1,569     (2,614)
Income before income taxes 27,054 19,761 43,945 33,779
Income tax expense (4,046)     (2,163)     (6,325)     (3,604)
Net income 23,008     17,598     37,620     30,175
Net income attributable to the non-controlling interest                    
Net income attributable to the Group 23,008     17,598     37,620     30,175
 
Other comprehensive income, net of tax
Foreign currency translation adjustment (138)     46     189     58
Comprehensive income 22,870 17,644 37,809 30,233
 

Comprehensive income (loss) attributable to the non-controlling
  interest

                   
Comprehensive income attributable to the Group 22,870     17,644     37,809     30,233
 
Basic EPS per Class A and Class B ordinary share
Net income attributable to the Group per ordinary share 0.70     0.54     1.14     0.92
Weighted average ordinary shares outstanding 32,892,577     32,822,757     32,882,423     32,758,839
 
Diluted EPS per Class A and Class B ordinary share

Diluted net income attributable to the Group per ordinary
  share

0.67     0.54     1.11     0.92
Diluted weighted average ordinary shares outstanding 34,104,000     32,822,757     33,977,927     32,796,262
 
 
     
 
LUXOFT HOLDING , INC
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars except share amounts)

 

As of September 30,
2015
(unaudited)

  As of March 31, 2015
Assets
Current assets          
Cash and cash equivalents $ 67,114 $ 45,593
Short-term investments 15,000

Trade accounts receivable, net of allowance for doubtful accounts of $2,221 at September
  30, 2015 and $1,299 at March 31, 2015

114,445 102,269
Unbilled revenue 19,617 34,269
Work-in-progress 3,283 1,449
Due from related parties 1,550 1,121
VAT and other taxes receivable 2,021 2,403
Deferred tax assets 2,345 1,864
Advances issued 3,033 3,467
Other current assets   4,001       2,685  
Total current assets   232,409       195,120  
 
Non-current assets
Deferred tax assets 1,579 1,518
Property and equipment, net 37,768 34,727
Intangible assets, net 39,980 41,787
Goodwill 29,269 29,249
Other non-current assets   2,515       2,638  
Total non-current assets   111,111       109,919  
Total assets $ 343,520     $ 305,039  
 
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings $ 761 $ 1,333
Accounts payable 7,039 9,700
Advances received 320 678
Accrued liabilities 22,124 19,860
Deferred revenue 6,068 9,165
Due to related parties 359 508
Taxes payable 14,368 17,382
Contingent payable for business acquisition, current 9,784 8,460
Contingent payable for software acquisition, current 670 698
Other current liabilities   660       920  
Total current liabilities   62,153       68,704  
 
Deferred tax liability, non-current 3,359 3,863
Contingent payable for business acquisition, non-current 12,525 12,605
Contingent payable for software acquisition, non-current 608 1,359
Other non-current liabilities   843       384  
Total liabilities   79,488       86,915  
 
Shareholders’ equity

Share capital (80,000,000 shares authorized; 32,892,577 issued and outstanding with no
  par value as at September 30, 2015, and 80,000,000 shares authorized; 32,851,345 issued
  and outstanding with no par value as at March 31, 2015)

Additional paid-in capital 97,599 89,173
Retained earnings 168,239 130,619
Accumulated other comprehensive loss   (1,838 )     (1,700 )
Total shareholders’ equity attributable to the Group   264,000       218,092  
Non-controlling interest   32       32  
Total equity   264,032       218,124  
Total liabilities and equity $ 343,520     $ 305,039  
 
 
   
 
LUXOFT HOLDING , INC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

(In thousands of US dollars except share amounts)

 
For the six months ended September 30,
2015     2014  
(unaudited)
Operating activities  
Income from operations $ 37,620 $ 30,175
 

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

Depreciation and amortization 10,910 7,445
Deferred tax benefit (1,031 ) (133 )
Foreign currency exchange contracts income (685 ) (1,250 )
Loss/(gain) on foreign exchange (1,569 ) 2,614
Provision for doubtful accounts 341 435
Loss from revaluation of contingent liability 784 607
Share-based compensation 8,426 1,113
Other (62 )
 
Changes in operating assets and liabilities:
Trade accounts receivable and unbilled revenue 2,835 (18,896 )
Work-in-progress (1,834 ) (449 )
Due to and from related parties (579 ) 105
Accounts payable (133 ) (7,306 )
Advances received (358 ) (596 )
Accrued liabilities 2,582 162
Deferred revenue (2,516 ) 1,570
Changes in other assets and liabilities   (3,746 )     2,390  
Net cash provided by operating activities   50,985       17,986  
 
Investing activities
Purchases of property and equipment (8,368 ) (4,167 )
Purchases of intangible assets (2,676 ) (2,100 )
Proceeds from disposal of property and equipment 40 7
Acquisitions, net of cash acquired (1,000 )
Short-term deposits   (15,000 )      
Net cash used in investing activities   (26,004 )     (7,260 )
 
Financing activities
Proceeds from short-term borrowings 22,350 80,265
Repayment of short-term borrowings (22,956 ) (89,298 )
Acquisition of business, deferred consideration (2,972 )
Repayment of capital lease obligations (50 ) (19 )
Overdraft facilities, net         (598 )
Net cash used in financing activities   (3,628 )     (9,650 )
 
Effect of exchange rate changes on cash and cash equivalents   168       (928 )
Net increase (decrease) in cash and cash equivalents 21,521 148
Cash and cash equivalents at beginning of year   45,593       37,503  
Cash and cash equivalents at end of period $ 67,114     $ 37,651  
 
 
     
 
LUXOFT HOLDING, INC
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(Unaudited)

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

 
Three Months Ended September 30, Six Months Ended September 30,
2015   2015   2015 2015   2015   2015
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Operating income 25,894 6,178 (a) 32,072 41,204 12,914 (a) 54,118
Operating margin 16 % 3.8 % 19.9 % 13.3 % 4.2 % 17.5 %
Net income 23,008 5,598 (b) 28,606 37,620 11,622 (b) 49,242
Diluted earnings per share $ 0.67 $ 0.84 $ 1.11 $ 1.45
 
 
Three Months Ended September 30, Six Months Ended September 30,
2014 2014 2014 2014 2014 2014
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Operating income 20,639 1,710 (a) 22,349 34,712 3,777 (a) 38,489
Operating margin 16.49 % 1.37 % 17.86 % 14.62 % 1.59 % 16.21 %
Net income 17,598 1,423 (b) 19,021 30,175 3,490 (b) 33,665
Diluted earnings per share $ 0.54 $ 0.58 $ 0.92 $ 1.03
 
         

Three Months Ended
September 30,

Six Months Ended
September 30,

(a) 2015         2014 2015       2014
Adjustments to GAAP operating income:
Stock-based compensation expense $ 4,279 $ 297 $ 8,427 $ 1,112
Amortization of purchased Intangible assets 1,858 1,043 3,703 1,969
Loss from revaluation of contingent liability 41 281 784 607
Acquisition related costs   89 89
Total Adjustments to GAAP operating income: $ 6,178   $ 1,710 $ 12,914 $ 3,777
 

Three Months Ended
September 30,

Six Months Ended
September 30,

(b) 2015   2014 2015 2014
Adjustments to GAAP net income
Stock-based compensation expense $ 4,279 $ 297 $ 8,427 $ 1,112
Amortization of purchased Intangible assets 1,417 833 2,826 1,759
Loss from revaluation of contingent liability (98 ) 235 369 561
Acquisition related costs   58 58
Total Adjustments to GAAP net income $ 5,598   $ 1,423 $ 11,622 $ 3,490
 
Three Months Ended
September 30,
Six Months Ended
September 30,
2015   2014 2015 2014
Net income $ 23,008 $ 17,598 $ 37,620 $ 30,175
Adjusted for:
Interest Expense 61 131 89 390
Income tax 4,046 2,163 6,325 3,604
Depreciation and Amortization 5,550   3,796 10,910 7,445
EBITDA $ 32,665   $ 23,688 $ 54,944 $ 41,614
Adjusted for
Stock based compensation 4,279 297 8,427 1,112
Change in fair value of contingent consideration 41 281 784 607
Acquisition related costs   89 0 89
Adjusted EBITDA $ 36,985   $ 24,355 $ 64,155 $ 43,422
 
 
 
 
LUXOFT HOLDING, INC
Schedule of supplemental information (unaudited)

(In thousands, except percentages)

 
Revenue for the three Months Ended September 30,
  2015     2014
Client location Amount     % of sales Amount     % of sales
UK 59,055 36.6 % 38,189 30.5 %
U.S. 50,559 31.3 % 50,265 40.2 %
Germany 20,469 12.7 % 15,769 12.6 %
Russia 7,528 4.7 % 9,289 7.4 %
Switzerland 4,670 2.9 % 2,435 1.9 %
Singapore 2,840 1.8 % 4,120 3.3 %
Rest of Europe 10,579 6.5 4,367 3.5
Other 5,842 3.5 % 706 0.6 %
Total 161,542 100 % 125,140 100 %
 
Revenue for the six months ended September 30,
2015 2014
Client location Amount % of sales Amount % of sales
UK 111,992 36.2 % 72,055 30.3 %
U.S. 97,173 31.4 % 94,424 39.8 %
Germany 38,408 12.4 % 30,979 13 %
Russia 16,038 5.2 % 17,477 7.4 %
Switzerland 8,641 2.8 4,757 2.0
Singapore 5,138 1.7 % 7,680 3.2 %
Rest of Europe 20,872 6.7 % 8,147 3.4 %
Other 11,335 3.6 % 1,923 0.9 %
Total 309,597 100 % 237,442 100 %
 
Revenue for the three Months Ended September 30,
2015 2014
Industry vertical Amount % of sales Amount % of sales
Financial Services 112,681 69.8 % 85,577 68.4 %
Automotive and transport 17,162 10.6 % 12,697 10.1 %
Technology 11,317 7.0 % 7,233 5.8 %
Telecom 9,390 5.8 % 7,165 5.7 %
Travel and aviation 7,367 4.6 % 8,829 7.1 %
Energy 3,151 2.0 % 2,898 2.3 %
Other 474 0.2 % 741 0.6 %
Total 161,542 100 % 125,140 100 %
 
Revenue for the six months ended September 30,
2015 2014
Industry vertical Amount % of sales Amount % of sales
Financial Services 216,246 69.8 % 160,715 67.7 %
Automotive and transport 31,486 10.2 % 24,260 10.2 %
Technology 22,048 7.1 % 14,002 5.9 %
Telecom 17,967 5.8 % 14,248 6.0 %
Travel and Aviation 14,641 4.7 % 16,839 7.1 %
Energy 6,274 2.0 % 6,006 2.5 %
Other 935 0.4 % 1,372 0.6 %
Total 309,597 100 % 237,442 100 %
 
 

Contacts

Luxoft Holding, Inc
Investor Relations:
Alina V. Plaia, +1 212-964-9900 ext. 2404
Vice-President, Global Communications
IR@luxoft.com

Source: Luxoft Holding, Inc