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Luxoft Holding, Inc Reports Results for Three Months and Financial Year Ended March 31, 2015

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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 full financial year and for the three months ended March 31, 2015.

Highlights – Financial Year Ended March 31, 2015

  • US GAAP revenue amounted to $520.5 million, an increase of 30.7% year over year or an increase of 37.3% on a constant currency basis
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $98.8 million, an increase of 35.9% year over year
  • Diluted earnings per share (EPS) on a US GAAP basis was $1.91, compared to $1.59 last year
  • Diluted EPS on a non-GAAP basis was $2.28, compared to $1.74 last year
  • Employee productivity increased by 7% to $73.7 thousand per delivery engineer

Highlights – Three Months Ended March 31, 2015

  • US GAAP revenue amounted to $137.4 million, an increase of 29.3% year over year and a decrease of 5.8% sequentially or an increase of 43.8% year over year and a decrease of 1.1% sequentially on a constant currency basis
  • Adjusted EBITDA was $19.8 million and EBITDA margin was 14.4%, compared to $16.2 million and 15.2% in the year-ago quarter and $35.6 million and 24.4% sequentially
  • Diluted EPS on a US GAAP basis was $0.27, compared to $0.32 in the year-ago quarter and $0.73 sequentially
  • Diluted EPS on a non-GAAP basis was $0.46, compared to $0.36 in the year-ago quarter and $0.81 sequentially

Revenue for the full financial year ended March 31, 2015 increased to $520.5 million, up 30.7% from $398.3 million a year ago. Operating income was $79.6 million, an increase of 35.0% year over year from $59.0 million last year. US GAAP net income was $63.1 million, or $1.91 per diluted share, compared to $51.2 million and $1.59 per diluted share a year ago. Non-GAAP net income was $75.4 million, or $2.28 per diluted share, compared to $56.1 million and $1.74 per diluted share a year ago. Foreign exchange loss on the income statement contributed to the reduction of the Company’s EPS for the year ended March 31, 2015 by $0.22. 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 three months ended March 31, 2015 increased to $137.4 million, up 29.3% from $106.3 million for the same period a year ago, and decreased 5.8% sequentially. This reflects the normal seasonality of the business. Adjusted EBITDA was $19.8 million with corresponding margins of 14.4%, as compared to $16.2 million and 15.2%, respectively, in the year ago quarter, and $35.6 million and 24.4% sequentially. US GAAP net income was $9.0 million, or $0.27 per diluted share, compared to $10.4 million and $0.32 per diluted share for the same period a year ago, and $23.9 million and $0.73 sequentially. Non-GAAP net income was $15.1 million, or $0.46 per diluted share, compared to $11.8 million and $0.36 per diluted share for the same period a year ago, and $26.6 million and $0.81 sequentially.

“We are pleased to announce that Luxoft reported another strong year of growth and excellent operational performance,” said Dmitry Loschinin, President and Chief Executive Officer. “We were able to tackle numerous challenges created by geopolitical and macro conditions and successfully executed on all planned corporate initiatives as well as promises given to the market throughout the year. We have made a series of significant steps towards becoming a truly global enterprise, now with over 9,000 employees and spanning North America, Europe, Asia, Africa and Australia. We have enhanced our portfolio of solutions, expertise and clients – organically and via value-added acquisitions – at a record pace in the Company’s history. Our agility has helped us make necessary adaptive changes throughout the year to become an even stronger company to continue to deliver premier-quality services to our clients and solid results to our shareholders.”

Five of Luxoft’s six verticals experienced solid revenue growth, with Financial services, Automotive and transport and Energy delivering the strongest performance: 45.0%, 28.2% and 22.0% growth, respectively, on a year-over-year basis. Excluding a one-off significant project with Glonass, which has ended, Automotive and transport vertical grew 45.1% year over year. The company also exhibited solid performance across all of its core revenue-generating geographies: revenues generated in the U.S. increased 22.5%, the U.K. revenues increased 44.1%, and German revenues increased 30.4% compared to a year ago. Luxoft finished the financial year with 9,183 employees, of which 7,849 were delivery professionals, who continued to drive average productivity to an annual record of $73.7 thousand per engineer, which represents an increase of 7% vs. last year. The average delivery headcount increased by 22.6% as compared to the financial year ended March 31, 2014, which is 8.1% slower than the revenue growth for the same period. Employee attrition stood at 10.5%, which management believes is the lowest in the industry. The effective tax rate for the full financial year ended March 31, 2014 was 13.5%.

In February 2015 Luxoft purchased Excelian Limited, a privately held U.K.-based systems integrator and technology consulting company specializing in trading and risk management software for the financial services and commodities markets. Excelian’s expertise includes implementation of financial software platforms from industry-leading providers such as Murex, OpenLink, and Calypso. As a result, the Company’s results for the year ended March 31, 2015 include 40 days of financial performance of Excelian Limited.

“This year our Company continued to generate superior revenue growth and solid profitability in constant and reporting currency terms. Our annual growth in operating income and adjusted EBITDA outpaced the top line growth. We have expanded the list of our High Potential Accounts with accounts of at least one year old posting on average over 80% growth in revenues on year over year basis,” said Roman Yakushkin, Chief Financial Officer. “We are building up Luxoft to become a next generation provider in our core domains. Our increased focus on combining end-to-end services and solutions continues to generate demand for non-commoditized value-added services, which is being reflected in our productivity metrics. We believe Luxoft is on a path of steady growth in the new financial year 2016 and look forward to delivering another year of strong performance.”

Outlook for the Financial Year Ending March 31, 2016:

  • Revenue is expected to be at least $625.0 million, an increase of at least 20.0% year over year in the reporting currency and 26% year over year in constant currency
  • Adjusted EBITDA margin is expected to be in the range of 17.0% – 19.0%
  • Diluted EPS is expected to be at least $2.00 on a US GAAP basis and at least $2.52 on a non-GAAP basis
  • EPS is based on an estimated weighted average of 33, 606,018 diluted shares

Conference Call Information:

Luxoft Holding, Inc will host a conference call on May 14, 2015 at 8:00 a.m. EDT to discuss its financial results for the three months and financial year ended March 31, 2015. To access the conference call, please dial 877-407-8293 (for U.S. callers) or 201-689-8349 (for international callers). A live webcast of the conference call will also be available during the call and can be accessed at https://event.webcasts.com/starthere.jsp?ei=1062320. 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 U.S. callers) or 201-612-7415 (for international callers) and entering the conference ID#13607831. The replay will be available from two hours as of the end of the call and up to 11:59 p.m. EDT on May 21, 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 9,000 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 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.

Luxoft Holding, Inc

Consolidated statements of comprehensive income

(In thousands of US dollars)

For the three months ended

March 31,

For the years ended

March 31,

2015 2014 2015 2014
Unaudited Unaudited
Sales of services $ 137,352 $ 106,281 $ 520,548 $ 398,331
Operating expenses
Cost of services (exclusive of depreciation and amortization) 82,056 62,705 293,960 229,537
Selling, general and administrative expenses 35,340 27,360 128,952 95,946
Depreciation and amortization 5,084 3,552 16,834 12,944
Loss from revaluation of contingent liability 170 13 1,166 922
Operating income 14,702 12,651 79,636 58,982
Other income and expenses
Interest expense, net (30 ) (309 ) (543 ) (1,508 )
Other gains (loss), net 243 408 1,430 557
Gain (loss) from foreign currency exchange contract (817 ) 1,321 (1,134 )
Net foreign exchange loss (5,144 ) (341 ) (8,867 ) (961 )
Income before income taxes 9,771 11,592 72,977 55,936
Income tax expense (729 ) (1,190 ) (9,828 ) (4,706 )
Net income $ 9,042 $ 10,402 $ 63,149 $ 51,230
Net (income) loss attributable to the non-controlling interest
Net income attributable to the Group $ 9,042 $ 10,402 $ 63,149 $ 51,230
Other comprehensive income, net of tax
Foreign currency translation adjustment (104 ) (23 ) (47 ) 1,118
Unrecognized actuarial loss (378 ) (378 )
Comprehensive income $ 8,560 $ 10,379 $ 62,724 $ 52,348
Comprehensive income (loss) attributable to the non-controlling interest
Comprehensive income attributable to the Group $ 8,560 $ 10,379 $ 62,724 $ 52,348

Luxoft Holding, Inc

Consolidated Balance Sheet

(In thousands of US dollars except share amounts)

Luxoft Holding, Inc

As of March 31,

2015

As of March 31,

2014

Assets Unaudited
Current assets
Cash and cash equivalents $ 45,593 $ 37,503

Trade accounts receivable, net of allowance for doubtful accounts of $1,299 at
March 31, 2015 and $651 at March 31, 2014

102,269 78,624
Unbilled revenue 34,269 25,879
Work-in-progress 1,449 4,720
Due from related parties 1,121 1,280
VAT and other taxes receivable 2,403 1,755
Deferred tax assets 1,864 1,027
Advances issued 3,467 3,689
Other current assets 2,685 2,295
Total current assets 195,120 156,772
Non-current assets
Deferred tax assets 1,518
Property and equipment, net 34,727 26,445
Intangible assets, net 41,787 21,007
Goodwill 28,556 11,351
Other non-current assets 2,638 2,122
Total non-current assets 109,226 60,925
Total assets $ 304,346 $ 217,697
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings $ 1,333 $ 20,476
Accounts payable 9,007 10,575
Advances received 678 1,754
Accrued liabilities 19,860 15,360
Deferred revenue 9,165 195
Due to related parties 508 144
VAT and other taxes payable 17,382 8,965
Contingent payable for business acquisition, current 8,460 1,489
Contingent payable for software acquisition, current 698 171
Other current liabilities 920 925
Total current liabilities 68,011 60,054
Deferred tax liability, non-current 3,863 2,811
Contingent payable for business acquisition, non-current 12,605 3,320
Contingent payable for software acquisition, non-current 1,359 1,749
Other non-current liabilities 384 146
Total liabilities 86,222 68,080
Shareholders’ equity

Share capital (80,000,000 shares authorized; 32,851,345 issued and outstanding
with no par value as at March 31, 2015, and 80,000,000 shares authorized;
32,758,535 issued and outstanding with no par value as at March 31, 2014)

Additional paid-in capital 89,173 83,390
Retained earnings 130,619 67,470
Accumulated other comprehensive loss (1,700 ) (1,275 )
Total shareholders’ equity attributable to the Group 218,092 149,585
Non-controlling interest 32 32
Total equity 218,124 149,617
Total liabilities and equity $ 304,346 $ 217,697

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,
2015 2015 2015 2015 2015 2015
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Operating income 14,702 6,642

(a)

21,344 79,636 13,555

(a)

93,191
Operating margin 10.70% 4.84% 15.54% 15.30% 2.60% 17.90%
Net income 9,042 6,103

(b)

15,145 63,149 12,229

(b)

75,378
Diluted earnings per share $ 0.27 $ 0.46 $ 1.91 $ 2.28
Three Months Ended March 31, Year Ended March 31,
2014 2014 2014 2014 2014 2014
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Operating income 12,651 1,369

(a)

14,020 58,982 4,904

(a)

63,886
Operating margin 11.90% 1.29% 13.19% 14.81% 1.23% 16.04%
Net income 10,402 1,369

(b)

11,771 51,230 4,904

(b)

56,134
Diluted earnings per share $ 0.32 $ 0.36 $ 1.59

$

1.74

Three Months Ended

March 31,

Years Ended March 31,
(a) 2015 2014 2015 2014
Adjustments to GAAP operating income
Stock-based compensation expense $ 3,699 $ 715 $ 5,783 $ 1,418
Amortization of purchased Intangible assets 1,718 641 5,103 2,564
Loss from revaluation of contingent liability 170 13 1,166 922
Acquisition related costs 1,055 1,503
Total Adjustments to GAAP income from operations: $ 6,642 $ 1,369 $ 13,555 $ 4,904

Three Months Ended

March 31,

Years Ended March 31,
(b) 2015 2014 2015 2014
Adjustments to GAAP net income
Stock-based compensation expense $ 3,699 $ 715 $ 5,783 $ 1,418
Amortization of purchased Intangible assets 1,271 641 4,105 2,564
Loss from revaluation of contingent liability 183 13 1,010 922
Acquisition related costs 950 1,331
Total Adjustments to GAAP net income $ 6,103 $ 1,369 $ 12,229 $ 4,904

Three Months Ended

March 31,

Years Ended March 31,
2015 2014 2015 2014
Net income $ 9,042 $ 10,402 $ 63,149 $ 51,230
Adjusted for:
Interest Expense 30 309 543 1,508
Income tax 729 1,190 9,828 4,706
Depreciation and Amortization 5,084 3,552 16,834 12,944
EBITDA $ 14,885 $ 15,453 $ 90,354 $ 70,388
Adjusted for
Stock based compensation 3,699 715 5,783 1,418
Change in fair value of contingent consideration 170 13 1,166 922
Acquisition related costs 1,055 1,503
Adjusted EBITDA $ 19,809 $ 16,181 $ 98,806 $ 72,728

Luxoft Holding, Inc

Schedule of supplemental information (Unaudited)

(In thousands; except percentages)

Revenue for the three Months Ended March 31,
2015 2014
Client location Amount % of sales Amount % of sales
U.S. $ 47,702 34.7 % $ 44,406 41.8 %
UK 45,517 33.1 % 27,380 25.8 %
Germany 18,559 13.5 % 19,637 18.5 %
Russia 7,325 5.3 % 6,327 6.0 %
Singapore 2,850 2.1 % 656 0.6 %
Switzerland 3,178 2.3 % 2,133 2.0 %
Rest of Europe 8,461 6.2 % 4,051 3.8 %
Other 3,760 2.8 % 1,691 1.5 %
Total $ 137,352 100 % $ 106,281 100 %
Revenue for the Years Ended March 31,
2015 2014
Client location Amount % of sales Amount % of sales
U.S. $ 204,541 39.3 % $ 167,038 41.9 %
UK 159,866 30.7 % 110,950 27.9 %
Germany 64,723 12.4 % 49,648 12.5 %
Russia 36,022 6.9 % 35,835 9.0 %
Singapore 15,216 2.9 % 1,536 0.4 %
Switzerland 10,800 2.1 % 7,057 1.8 %
Rest of Europe 22,109 4.2 % 14,032 3.5 %
Other 7,271 1.5 % 12,235 3.0 %
Total $ 520,548 100 % $ 398,331 100 %
Revenue for the three Months Ended March 31,
2015 2014
Industry vertical Amount % of sales Amount % of sales
Financial Services $ 88,985 64.8 % $ 69,187 65.1 %
Automotive and transport 17,637 12.8 % 11,052 10.4 %
Technology 11,042 8.0 % 7,263 6.8 %
Telecom 8,994 6.5 % 7,934 7.5 %
Travel and Aviation 7,186 5.2 % 7,639 7.2 %
Energy 3,118 2.3 % 2,849 2.7 %
Other 390 0.4 % 357 0.3 %
Total $ 137,352 100 % $ 106,281 100 %
Revenue for the Years Ended March 31,
2015 2014
Industry vertical Amount % of sales Amount % of sales
Financial Services $ 346,027 66.5 % $ 238,712 59.9 %
Automotive and transport 57,516 11.0 % 44,875 11.3 %
Technology 35,581 6.8 % 33,505 8.4 %
Telecom 33,683 6.5 % 32,076 8.1 %
Travel and Aviation 33,100 6.4 % 37,206 9.3 %
Energy 12,164 2.3 % 9,973 2.5 %
Other 2,477 0.5 % 1,984 0.5 %
Total $ 520,548 100 % $ 398,331 100 %

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