PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

Virtusa Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)


	September 30, 2020		March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	297,459	$	290,837
Short-term investments		3,287		9,785
Accounts receivable, net of allowance of $1,151 and $1,541 at September 30, 2020 and March 31, 2020, respectively		134,825		148,950
Unbilled accounts receivable		93,259		137,839
Prepaid expenses		62,853		55,574
Restricted cash		2,653		659
Assets held for sale		10,718		8,334
Other current assets		26,590		29,214
Total current assets		631,644		681,192
Property and equipment, net		98,248		101,250
Operating lease right-of-use assets		42,295		48,684
Investments accounted for using equity method		—		1,336
Long-term investments		15		4
Deferred income taxes		30,158		30,225
Goodwill		293,583		296,493
Intangible assets, net		123,714		130,903
Other long-term assets		35,369		46,980
Total assets	$	1,255,026	$	1,337,067
Liabilities, Series A Convertible Preferred Stock and Stockholders’ equity
Current liabilities:
Accounts payable	$	31,940	$	38,537
Accrued employee compensation and benefits		75,667		79,373
Deferred revenue		9,340		8,054
Accrued expenses and other		87,095		95,124
Current portion of long-term debt		40,138		16,043
Operating lease liabilities		11,522		11,543
Income taxes payable		7,704		3,233
Total current liabilities		263,406		251,907
Deferred income taxes		15,175		16,067
Operating lease liabilities, noncurrent		36,303		41,697
Long-term debt, less current portion		363,823		480,154
Long-term liabilities		45,765		42,475
Total liabilities		724,472		832,300
Commitments and contingencies
Series A Convertible Preferred Stock: par value $0.01 per share, 108,000 shares authorized, 108,000 shares issued and outstanding at September 30, 2020 and March 31, 2020; redemption amount and liquidation preference of $108,000 at September 30, 2020 and March 31, 2020		107,408		107,326
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value; Authorized 5,000,000 shares at September 30, 2020 and March 31, 2020		—		—
Common stock, $0.01 par value; Authorized 120,000,000 shares at September 30, 2020 and March 31, 2020; issued 33,695,073 and 33,518,389 shares at September 30, 2020 and March 31, 2020, respectively; outstanding 30,309,509 and 30,132,825 shares at September 30, 2020 and March 31, 2020, respectively		337		335
Treasury stock, 3,385,564 common shares, at cost, at September 30, 2020 and March 31, 2020		(58,332)		(58,332)
Additional paid-in capital		253,013		246,862
Retained earnings		301,319		293,831
Accumulated other comprehensive loss		(73,191)		(85,255)
Total Stockholders' equity		423,146		397,441
Total liabilities, Series A convertible preferred stock and stockholders’ equity	$	1,255,026	$	1,337,067

See accompanying notes to unaudited consolidated financial statement

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Virtusa Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenue	$	317,188	$	328,501	$	618,252	$	647,525
Costs of revenue		233,170		238,584		465,630		473,319
Gross profit		84,018		89,917		152,622		174,206
Operating expenses:
Selling, general and administrative expenses		71,292		70,682		132,741		141,543
Income from operations		12,726		19,235		19,881		32,663
Other income (expense):
Interest income		192		551		468		1,224
Interest expense		(5,736)		(4,835)		(11,035)		(9,743)
Foreign currency transaction gains (losses), net		4,098		(3,437)		2,857		(2,235)
Other, net		1,235		564		1,542		928
Total other expense		(211)		(7,157)		(6,168)		(9,826)
Income before income tax expense		12,515		12,078		13,713		22,837
Income tax expense		3,746		4,830		4,050		9,569
Net income		8,769		7,248		9,663		13,268
Less: net income attributable to noncontrolling interests, net of tax		—		146		—		332
Net income available to Virtusa stockholders		8,769		7,102		9,663		12,936
Less: Series A Convertible Preferred Stock dividends and accretion		1,088		1,088		2,175		2,175
Net income available to Virtusa common stockholders	$	7,681	$	6,014	$	7,488	$	10,761
Basic earnings per share available to Virtusa common stockholders	$	0.25	$	0.20	$	0.25	$	0.36
Diluted earnings per share available to Virtusa common stockholders	$	0.25	$	0.20	$	0.25	$	0.35

See accompanying notes to unaudited consolidated financial statements

Table of Contents

Virtusa Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)


	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2020		2019		2020		2019

Net income	$	8,769	$	7,248	$	9,663	$	13,268
Other comprehensive income (loss):
Foreign currency translation adjustment		5,620		(6,355)		7,685		(6,736)
Pension plan adjustment, net of tax effect		92		(848)		171		(686)
Unrealized loss on available-for-sale debt securities, net of tax effect		—		(3)		—		—
Unrealized gain (loss) on effective cash flow hedges, net of tax effect		2,071		(1,379)		4,208		(2,213)
Other comprehensive income (loss)	$	7,783	$	(8,585)	$	12,064	$	(9,635)
Comprehensive income (loss)		16,552		(1,337)		21,727		3,633
Less: comprehensive income attributable to noncontrolling interest, net of tax		—		35		—		365
Comprehensive income (loss) available to Virtusa stockholders	$	16,552	$	(1,372)	$	21,727	$	3,268

See accompanying notes to unaudited consolidated financial statements

Table of Contents

Virtusa Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended September 30, 2020 and 2019

(Unaudited)

(In thousands, except share amounts)


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

Table of Contents


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


Delaware				04-3512883
(State or Other Jurisdiction of				(I.R.S. Employer
Incorporation or Organization)				Identification Number)

Large Accelerated Filer ☒		Accelerated Filer ☐

Non-Accelerated Filer ☐		Smaller reporting company ☐
		Emerging growth company ☐


Class		Number of Shares
Common Stock, par value $.01 per share		30,309,509



		Page

PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at September 30, 2020 and March 31, 2020	3
	Consolidated Statements of Income for the Three and Six Months Ended September 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended September 30, 2020 and 2019	5
	Consolidated Statements of Stockholder’s Equity for the Three and Six Months Ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2020 and 2019	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	51
PART II. OTHER INFORMATION		53
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 6.	Exhibits	57
SIGNATURES		58