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Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

  Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

  Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from             to             

Commission File Number 001-33625

VIRTUSA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware

    

    

04-3512883

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification Number)

132 Turnpike Rd

Southborough, Massachusetts

(Address of principal executive offices)

01772

(Zip Code)

(508389-7300

(Telephone Number,

Including Area Code,)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $0.01 par value per share

Trading Symbol(s)

VRTU

Name of each exchange on which registered
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer 

    

Accelerated Filer 

Non-Accelerated Filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of October 30, 2020:

Class

    

Number of Shares

Common Stock, par value $.01 per share

30,309,509

Table of Contents

Virtusa Corporation and Subsidiaries

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

2

Table of Contents

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

3

Table of Contents

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

4

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

5

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

6

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

$