Luxoft Holding, Inc Reports Results for Three Months and Full Financial Year Ended March 31, 2017

May 22, 2017

LONDON--(BUSINESS WIRE)--May 22, 2017--"NYSE:LXFT" 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 months and the full financial year ended March 31, 2017.

Highlights – Three Months Ended March 31, 2017

US GAAP revenue amounted to $204.1 million, an increase of 20.6% year over year and an increase of 22.0% year over year on a constant currency basis

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) were $29.2 million and Adjusted EBITDA margin was 14.3%, compared to $26.5 million and 15.7% in the year-ago quarter

Diluted earnings per share (EPS) on a US GAAP basis was $0.40
Diluted EPS on a non-GAAP basis was $0.63

Highlights – Financial Year Ended March 31, 2017

US GAAP revenue amounted to $785.6 million, an increase of 20.7% year over year and an increase of 22.0% on a constant currency basis
Adjusted EBITDA was $133.8 million and EBITDA margin was 17%
Free cash flow amounted to $98.2 million, or 12.5% of revenue, and an increase of 29.0% year over year
Diluted EPS on a US GAAP basis was $1.84
Employee productivity increased by 2.5% to $78,265 per delivery engineer

Revenue for the three months ended March 31, 2017 increased to $204.1 million, up 20.6% from $169.2 million for the same period a year ago, and decreased 1.3% sequentially, reflecting the normal seasonality of the business. Adjusted EBITDA was $29.2 million with corresponding margins of 14.3%, as compared to $26.5 million and 15.7%, respectively, in the year ago quarter. US GAAP net income was $13.7 million, or $0.40 per diluted share, compared to $14.6 million and $0.43 per diluted share for the same period a year ago, and $18.5 million and $0.55 sequentially. Non-GAAP net income was $21.5 million, or $0.63 per diluted share, compared to $18.8 million and $0.56 per diluted share for the same period a year ago, and $27.9 million and $0.82 sequentially.

Revenue for the full financial year ended March 31, 2017 increased to $785.6 million, up 20.7% from $650.8 million a year ago. US GAAP net income was $62.6 million, or $1.84 per diluted share, compared to $70.3 million and $2.06 per diluted share a year ago. Non-GAAP net income was $98.3 million, or $2.89 per diluted share, compared to $92.9 million and $2.72 per diluted share a year ago. Reconciliations between non-GAAP financial measures and US GAAP operating results and diluted EPS are included at the end of this release

“We are pleased to report solid operating and financial results for the fourth quarter and the full year ended March 31, 2017. They reflect strong positive fundamental improvements in our client dynamic and business composition, such as strong growth of HPA accounts, substantial decline in client and vertical concentration, and diversification of our client base,” said Dmitry Loschinin,"NYSE:LXFT" Luxoft's CEO and President. “We have been successfully executing on several transformational initiatives, investing consistently to become a more effective agile global company, capable of competing for bigger deals and serving a wider variety of clients in various markets, namely in Australia and South East Asia. Over the past year we have significantly improved diversification of our client base adding 18 new HPAs and lowering customer concentration by as much as 10% for the top 3 and 5 accounts. Luxoft’s clients continue to benefit from our higher value offerings that include premium consulting services and engineering solutions as they aim to be more competitive and smoothly transition to new digitalization-driven operating models.”

Five of Luxoft's seven verticals experienced revenue growth, with Telecom, Automotive and Transport, Technology, and Financial Services delivering the strongest performance of 87.9%, 40.8%, 14.6% and 8.4% growth, respectively, on a year over year basis. During the year we launched a new vertical – Healthcare, which finished the year with $28.3 million in revenues, representing 3.6% of the total annual turnover for the Company. The company also exhibited solid performance across all of its core revenue-generating geographies: revenues generated in Rest of Europe increased 105.9%, Switzerland revenues increased 48.3%, German revenues increased 33.6%, and the U.S. revenues increased 28.9% as compared to the last financial year.

The company finished the year with 12,766 employees, of which 10,807 were delivery professionals who continued to drive average productivity to $78,265 per engineer; this represents an annual increase of 2.5%. The average delivery headcount increased by 17.8% as compared to the financial year ended March 31, 2016, which is 2.9% slower than the revenue growth for the same period. The effective tax rate for the full financial year ended March 31, 2017 was 11.2%.

“The financial year 2017 has been a challenging but positive year for our company. We have been successfully rebalancing growth from legacy clients into a group of newer, High Potential Accounts, which now comprises nearly 30% of total revenues. Revenues attributed to the HPA group grew close to 100% year over year. We are happy to note that our pipeline of business is strong, underpinned by demand for transformational engagements in all of our core verticals. For example, excluding top legacy customers, revenues from the financial services vertical grew 35% and revenues from the automotive vertical grew over 90% on year over year basis,” stated Evgeny Fetisov, Chief Financial Officer. “During the past year we closed three strategic acquisitions, expanded in key geographies, and launched a new healthcare and life sciences vertical - all while maintaining high pace of top-line growth, preserving our margins, staying free of long-term debt and generating healthy levels of free cash flow: $98 million, or 13% of total revenues and 157% of net income.”

Outlook for the Financial Year Ending March 31, 2018

Revenue is expected to be at least $943 million, an increase of at least 20.0% year over year
Adjusted EBITDA margin is expected to be in the range of 17.0% - 19.0%
Diluted EPS is expected to be at least $1.90 on a US GAAP basis and at least $3.26 on a non-GAAP basis
EPS is based on an estimated weighted average of 35,035 thousand diluted shares

Conference Call Information

A conference call will be conducted with the members of Luxoft's senior management at 8:00 a.m. EDT on Tuesday, May 23, 2017 to review the financial and operational performance of the company for the above-mentioned periods.

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. 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.

If you are unable to join our live event, a replay will be available by dialing 877-660-6853 (for domestic U.S. callers) or 201-612-7415 (for international callers) and entering the conference ID# 13660578. The replay will be available shortly after the call and up to 11:59 p.m. EDT on June 6, 2017. The replay will also be available at Luxoft's Investor Relations portal for 14 days following the call.

About Luxoft

Luxoft Holding, Inc. (NYSE:LXFT) a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large, multinational corporations predominantly in Europe, North America and Asia Pacific. The Company’s software development services consist of core and mission critical custom software development and support, product engineering, and technology consulting. Its bespoke solutions include technology architecture selection and other consulting, proprietary products and/or standard system software and platforms, as well as implementation and maintenance. Through its services and solutions, the Company helps its clients improve their competitive position by increasing efficiency, optimizing costs, and enabling changes through disruptive digital technologies that enhance end-user experience and shorten time-to-market.

The Company develops its solutions and delivers its services from 37 dedicated delivery centers worldwide. It has more than 12,800 employees across 42 offices in 21 countries within five continents – North America, Europe, Africa, Asia, and Australia. 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 https://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; non-GAAP diluted Earnings per share (EPS) and Free Cash Flow (FCF). Non-GAAP net income and non-GAAP EPS exclude stock-based compensation expense, amortization of fair value adjustments to intangible assets and impairment thereof and other acquisitions related costs that may include changes in the fair value of contingent consideration liabilities. Non-GAAP diluted EPS are calculated as non-GAAP net income divided by weighted average number of diluted shares. Free Cash Flow is calculated as operating cash flow less capital expenditure which consists of purchases of property, plant and equipment and intangible assets as defined in the cash flow statement.

We adjust our non-GAAP financial measures to exclude stock based compensation, because it is a non-cash expense. We also adjust our non-GAAP financial measures to exclude the change in fair value of contingent consideration, because we believe these expenses are not indicative of what we consider to be normal course of operations. Our non-GAAP financial measures are adjusted to exclude amortization of purchased intangible assets in order to allow management and investors to evaluate our results from operating activities as if these assets have been developed internally rather than acquired in a business combination. Finally, we adjust our non-GAAP financial measures to exclude acquisition-related costs, which comprise payments to consulting firms as well as fees paid upon successful completion of acquisition; as well as certain incentive payments for members of management of the acquired companies as provided for in the acquisition agreements. These payments are based on performance of the acquired businesses and are classified as part of management compensation rather than part of purchase consideration. These costs vary with the size and complexity of each acquisition and are generally inconsistent in amount and frequency, and therefore, we believe that they may not be indicative of the size and volume of future acquisition-related costs.

We provide these non-GAAP financial measures because we believe that they present a better measure of our core business and management uses them internally to evaluate our ongoing performance. Accordingly, we believe that these non-GAAP measures are useful to investors in enhancing and understanding of our operating performance. These non-GAAP measures should be considered in addition to, and not as a substitute for, comparable US GAAP measures. The non-GAAP results and a full reconciliation between US GAAP and non-GAAP results are provided in the accompanying tables at the end of this press release.

Forward-Looking Statements

This news release of Luxoft Holding, Inc (“Luxoft”) 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 are subject to, without limitation, the risk factors discussed under the heading “Risk Factors” in Luxoft’s Annual Report on Form 20-F for the year ended March 31, 2017 and other documents filed with or furnished to the Securities and Exchange Commission by Luxoft. Except as required by law, Luxoft undertakes no obligation to publicly update any forward-looking statements for any reason after the date of this news release whether as a result of new information, future events or otherwise.

All trademarks are recognized and are the property of their respective companies.



LUXOFT HOLDING, INC CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands of US dollars)

	For the three months						For the year
	ended March 31,						ended March 31,
	2017			2016			2017			2016
	(Unaudited)						(Unaudited)
Sales of services	$	204,131		$	169,209		$	785,561		$	650,752
Operating expenses
Cost of services (exclusive of depreciation and amortization)		129,632			103,496			474,980			379,331
Selling, general and administrative expenses		56,193			48,202			213,723			171,707
Depreciation and amortization		10,260			6,703			34,847			23,814
Gain from revaluation of contingent liability		(8,668	)		(3,356	)		(10,031	)		(2,511	)
Impairment loss		5,287			—			5,287			—
Operating income		11,427			14,164			66,755			78,411

Other income and expenses
Interest (expense) gain, net		(91	)		149			(81	)		121
Other gains, net		755			2,346			5,119			3,947
(Loss) gain from foreign currency exchange contract		—			(1,019	)		1,314			261
Net foreign exchange gain (loss)		889			1,524			(2,604	)		(381	)
Income before income taxes	$	12,980		$	17,164		$	70,503		$	82,359
Income tax benefit (expense)		755			(2,572	)		(7,865	)		(12,108	)
Net income	$	13,735		$	14,592		$	62,638		$	70,251
Net (income) loss attributable to the non-controlling interest		—			—			—			—
Net income attributable to the Group	$	13,735		$	14,592		$	62,638		$	70,251

Basic EPS per Class A and Class B ordinary share
Net income attributable to the Group per ordinary share	$	0.41		$	0.44		$	1.88		$	2.13
Weighted average ordinary shares outstanding		33,493,847			33,140,451			33,280,771			32,949,807

Diluted EPS per Class A and Class B ordinary share
Diluted net income attributable to the Group per ordinary share	$	0.40		$	0.43		$	1.84		$	2.06
Diluted weighted average ordinary shares outstanding		34,132,929			33,865,865			34,000,674			34,088,214



LUXOFT HOLDING, INC CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of US dollars except share amounts)

	As of March 31, 2017 (unaudited)			As of March 31, 2016
Assets
Current assets
Cash and cash equivalents	$	109,558		$	108,545
Restricted cash, current		4,000			—
Trade accounts receivable, net of allowance for doubtful accounts of $435 at March 31, 2017 and $79 at March 31, 2016		144,862			131,204
Unbilled revenue		14,454			16,081
Work-in-progress		2,805			1,595
Due from related parties		1,084			2,180
VAT and other taxes receivable		1,732			1,814
Advances issued		2,740			2,413
Other current assets		5,224			3,333
Total current assets	$	286,459		$	267,165

Non-current assets
Restricted cash, non-current		1,399			—
Deferred tax assets		3,423			3,174
Property and equipment, net		49,571			46,072
Intangible assets, net		120,430			43,780
Goodwill		76,918			30,285
Other non-current assets		9,007			4,066
Total non-current assets	$	260,748		$	127,377
Total assets	$	547,207		$	394,542

Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings	$	633		$	460
Accounts payable		24,402			8,266
Accrued liabilities		38,513			27,357
Deferred revenue		3,815			5,048
Due to related parties		460			518
VAT and other taxes payable		21,283			22,532
Payable under foreign exchange contracts		295			2,476
Payables for acquisitions, current		17,221			5,595
Other current liabilities		2,025			1,503
Total current liabilities	$	108,647		$	73,755

Deferred tax liability, non-current		16,907			5,511
Payables for acquisitions, non-current		32,206			11,786
Other non-current liabilities		2,629			1,757
Total liabilities	$	160,389		$	92,809

Shareholders’ equity
Share capital (80,000,000 shares authorized; 33,533,198 issued and outstanding with no par value as at March 31, 2016, and 80,000,000 shares authorized; 33,178,641 issued and outstanding with no par value as at March 31, 2016)		—			—
Additional paid-in capital		133,192			107,477
Common stock held in treasury, at cost (92,191 shares as of March 31, 2017; 35,579 shares as of March 31, 2016)		(6,028	)		(2,665	)
Retained earnings		263,508			200,870
Accumulated other comprehensive loss		(3,886	)		(3,981	)
Total shareholders’ equity attributable to the Group		386,786			301,701
Non-controlling interest		32			32
Total equity	$	386,818		$	301,733
Total liabilities and equity	$	547,207		$	394,542



LUXOFT HOLDING, INC CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (In thousands of US dollars except share amounts)

	For the year ended March 31,
	For the year ended March 31,
	2017			2016
	(Unaudited)
Operating activities
Income from operations	$	62,638		$	70,251

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		34,847			23,814
Deferred tax benefit		(3,395	)		(902	)
Foreign currency exchange contracts loss		(1,314	)		(261	)
Loss on foreign exchange		2,604			381
Provision for doubtful accounts		380			311
Loss from revaluation of contingent liability		(10,031	)		(2,511	)
Share-based compensation		28,984			17,745
Impairment loss		5,287			—

Changes in operating assets and liabilities:
Trade accounts receivable and unbilled revenue		145			(10,261	)
Work-in-progress		(1,210	)		(146	)
Due to and from related parties		1,001			(1,084	)
Accounts payable and accrued liabilities		8,879			4,942
Deferred revenue		(1,761	)		(4,222	)
Changes in other assets and liabilities		(5,027	)		7,332
Net cash provided by operating activities		122,027			105,389

Investing activities
Purchases of property and equipment		(19,614	)		(24,171	)
Purchases of intangible assets		(4,182	)		(5,069	)
Proceeds from disposal of property and equipment		—			40
Acquisitions, net of cash acquired		(77,672	)		(3,525	)
Escrow deposits		(5,000	)		—
Net cash used in investing activities		(106,468	)		(32,725	)

Financing activities
Proceeds from short-term borrowings		(5,897	)		(880	)
Acquisition of business, deferred consideration		(4,577	)		(6,126	)
Repurchases of common stock		(3,611	)		(1,774	)
Repayment of capital lease obligations		(133	)		(124	)
Net cash used in financing activities		(14,218	)		(8,904	)
Effect of exchange rate changes on cash and cash equivalents		(328	)		(808	)
Net increase in cash and cash equivalents		1,013			62,952
Cash and cash equivalents at beginning of year		108,545			45,593
Cash and cash equivalents at end of period	$	109,558		$	108,545



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 March 31,								Year ended March 31,
	2017			2017		2017			2017			2017		2017
	GAAP			Adjustments		Non-GAAP			GAAP			Adjustments		Non-GAAP
Operating income	11,427			9,878	(a)	21,305			66,755			40,717	(a)	107,472
Operating margin	5.6		%	4.8	%	10.4		%	8.5		%	5.2	%	13.7		%
Net income	13,735			7,760	(b)	21,495			62,638			35,673	(b)	98,311
Diluted earnings per share	$	0.40		—		$	0.63		$	1.84		—		$	2.89

	Three months ended March 31,								Year ended March 31,
	2016			2016		2016			2016			2016		2016
	GAAP			Adjustments		Non-GAAP			GAAP			Adjustments		Non-GAAP
Operating income	14,164			4,688	(a)	18,852			78,411			24,856	(a)	103,267
Operating margin	8.4		%	2.8	%	11.1%			12.0		%	3.8	%	15.9		%
Net income	14,592			4,250	(b)	18,842			70,251			22,605	(b)	92,856
Diluted earnings per share	$	0.43		—		$	0.56		$	2.06		—		$	2.72


	Three months ended						For the year ended
	March 31,						March 31,
(a)	2017			2016			2017			2016
Adjustments to GAAP operating income
Stock-based compensation expense	$	7,470		$	3,983		$	28,984		$	17,745
Amortization of purchased Intangible assets		3,994			1,858			12,353			7,419
Gain from revaluation of contingent liability		(8,668	)		(3,356	)		(10,031	)		(2,511	)
Acquisition related costs		1,795			2,203			4,124			2,203
Impairment loss		5,287			—			5,287			—
Total Adjustments to GAAP income from operations:	$	9,878		$	4,688		$	40,717		$	24,856

	Three months ended						For the year ended
	March 31,						March 31,
(b)	2017			2016			2017			2016
Adjustments to GAAP net income
Stock-based compensation expense	$	7,470		$	3,983		$	28,984		$	17,745
Amortization of purchased Intangible assets		3,994			1,858			12,353			7,419
Gain from revaluation of contingent liability		(8,668	)		(3,356	)		(10,031	)		(2,511	)
Acquisition related costs		1,795			2,203			4,124			2,203
Impairment loss		5,287			—			5,287			—
Tax effect of the adjustments		(2,118	)		(438	)		(5,044	)		(2,251	)
Total Adjustments to GAAP net income	$	7,760		$	4,250		$	35,673		$	22,605


	Three months ended						For the year ended
	March 31,						March 31,
	2017			2016			2017			2016
Net income	$	13,735		$	14,592		$	62,638		$	70,251
Adjusted for:
Interest Expense (Income)		91			(149	)		81			(121	)
Income tax		(755	)		2,572			7,865			12,108
Depreciation and Amortization		10,260			6,703			34,847			23,814
EBITDA	$	23,331		$	23,718		$	105,431		$	106,052
Adjusted for
Stock based compensation		7,470			3,983			28,984			17,745
Gain from revaluation of contingent liability		(8,668	)		(3,356	)		(10,031	)		(2,511	)
Acquisition related costs		1,795			2,203			4,124			2,203
Impairment loss		5,287			—			5,287			—
Adjusted EBITDA	$	29,215		$	26,548		$	133,795		$	123,489



LUXOFT HOLDING, INC Schedule of supplemental information (unaudited) (In thousands, except percentages)

	Revenue for the three months ended March 31,
	2017				2016
Client location	Amount		% of sales		Amount		% of sales
U.S.	$	76,953	37.7	%	$	53,420	31.6	%
UK		44,976	22.0	%		51,526	30.5	%
Germany		29,683	14.5	%		24,211	14.3	%
Russia		9,272	4.5	%		6,523	3.9	%
Switzerland		9,243	4.5	%		8,712	5.1	%
Poland		8,943	4.4	%		6,227	3.7	%
Romania		5,747	2.8	%		5,747	3.4	%
Singapore		984	0.5	%		2,936	1.7	%
Rest of Europe		10,035	4.9	%		4,142	2.4	%
Other		8,295	4.2	%		5,765	3.4	%
Total	$	204,131	100	%	$	169,209	100	%

	Revenue for the year ended March 31,
	2017				2016
Client location	Amount		% of sales		Amount		% of sales
U.S.	$	261,443	33.3	%	$	202,855	31.2	%
UK		213,547	27.2	%		223,566	34.4	%
Germany		115,301	14.7	%		86,332	13.3	%
Russia		36,905	4.7	%		32,748	5.0	%
Switzerland		34,833	4.4	%		23,489	3.6	%
Poland		30,940	3.9	%		17,009	2.6	%
Romania		21,403	2.7	%		14,381	2.2	%
Singapore		4,889	0.6	%		10,154	1.6	%
Rest of Europe		36,148	4.7	%		17,554	2.7	%
Other		30,152	3.8	%		22,664	3.4	%
Total	$	785,561	100	%	$	650,752	100	%

	Revenue for the three months ended March 31,
	2017				2016
Industry vertical	Amount		% of sales		Amount		% of sales
Financial Services	$	115,964	56.8	%	$	115,330	68.2	%
Automotive and transport		29,443	14.4	%		22,740	13.4	%
Telecom		23,087	11.3	%		9,927	5.9	%
Technology		14,512	7.1	%		8,989	5.3	%
Healthcare		9,587	4.7	%		—	—	%
Travel and Aviation		6,146	3.0	%		7,429	4.4	%
Energy		4,042	2.0	%		3,358	2.0	%
Other		1,350	0.7	%		1,436	0.8	%
Total	$	204,131	100	%	$	169,209	100	%

	Revenue for the year ended March 31,
	2017				2016
Industry vertical	Amount		% of sales		Amount		% of sales
Financial Services	$	483,801	61.6	%	$	446,138	68.6	%
Automotive and transport		110,839	14.1	%		78,698	12.1	%
Telecom		69,900	8.9	%		37,200	5.7	%
Technology		48,581	6.2	%		42,398	6.5	%
Healthcare		28,258	3.6	%		—	—	%
Travel and Aviation		27,744	3.5	%		29,232	4.5	%
Energy		13,345	1.7	%		12,873	2.0	%
Other		3,093	0.4	%		4,213	0.6	%
Total	$	785,561	100	%	$	650,752	100	%

Contacts

Luxoft Holding, Inc

Patrick Corcoran, 212-964-9900 ext. 2453

Global Director – External Relations

IR@luxoft.com