Luxoft Holding, Inc Reports Results for Three and Nine Months Ended December 31, 2014

LONDON--()--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 nine months ended December 31, 2014.

Highlights – Three Months Ended December 31, 2014

  • US GAAP revenue amounted to $145.8 million, an increase of 31.8% year over year and 16.5% sequentially or an increase of 41.2% year over year and 21.2% sequentially on a constant currency basis
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $35.6 million and EBITDA margin was 24.4%, compared to $22.7 million and 20.5% in the year ago quarter and $24.4 million and 19.5% sequentially
  • Diluted earnings per share (EPS) on a US GAAP basis were $0.73, compared to $0.54 in the year-ago quarter and $0.54 sequentially
  • Diluted EPS on a non-GAAP basis were $0.81, compared to $0.54 in the year-ago quarter, and $0.58 sequentially

Highlights – Nine Months Ended December 31, 2014

  • US GAAP revenue amounted to $383.2 million, an increase of 31.2% year over year or an increase of 34.9% on a constant currency basis
  • Adjusted EBITDA was $79 million and EBITDA margin was 20.6%, compared to $56.5 million and 19.3% for the same period last year
  • Diluted EPS on a US GAAP basis was $1.64, compared to $1.27 in the nine months of last year
  • Diluted EPS on a non-GAAP basis was $1.82, compared to $1.38 in the nine months of last year
  • Productivity per engineer topped $74,500, an increase of 6.9% vs. the same period a year ago

Revenue for the three months ended December 31, 2014 increased to $145.8 million, up 31.8% from $110.6 million for the same period a year ago, and 16.5% sequentially. Adjusted EBITDA was $35.6 million with corresponding margins of 24.4%, as compared to $22.7 million and 20.5%, respectively, in the year ago quarter, and $24.4 million and 19.5% sequentially. US GAAP net income was $23.9 million, or $0.73 per diluted share, compared to $17.7 million and $0.54 per diluted share for the same period a year ago, and $17.6 million and $0.54 sequentially. Non-GAAP net income was $26.6 million, or $0.81 per diluted share, compared to $17.7 million and $0.54 per diluted share for the same period a year ago, and $19 million and $0.58 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 nine months ended December 31, 2014 increased to $383.2 million, up 31.2% from $292.1 million for the same period a year ago. Operating income was $64.9 million, an increase of 40.2% year over year from $46.3 million in the first nine months of last year. US GAAP net income was $54.1 million, or $1.64 per diluted share, compared to $40.8 million and $1.27 per diluted share for the same period a year ago. Non-GAAP net income was $60.2 million, or $1.82 per diluted share, compared to $44.4 million and $1.38 per diluted share for the same period a year ago.

“I am pleased to report that Luxoft continues to move forward on a path of stable growth in terms of revenues and profitability. Our ongoing organic expansion is being leveraged by the successful integration of recently purchased IoT solutions provider Radius. During the first nine months of the financial year, we’ve added three new accounts to the top ten group, including SwissQuote and Microsoft during the last quarter, decreased sequential concentration of the top three clients, and added industry-leading logos to our High Potential Account list. We have also released solutions in the area of augmented reality, computer vision, and visualization,” said Dmitry Loschinin, President and Chief Executive Officer. “We have been focused on achieving measurable progress in every pillar of the Luxoft Global Upgrade and we believe that program has proven to be a success. As global software and technology demand intensifies daily, every quarter brings us closer to our goal of becoming a provider of choice for complex software development and product engineering within certain business domains. We hope to continue to realize our strategic vision and deliver on promises made to our shareholders in this financial year and beyond.”

All key Luxoft’s verticals experienced strong revenue growth in the third quarter with Telecom and Technology, each delivering robust sequential growth of 46%. Financial services and Automotive and transport remained performance leaders for the first nine months of the year with 52% and 18% growth on a year-over-year basis. The Company generated historically steady growth across its core revenue-generating geographies: revenues generated in the U.S. increased 27%, the U.K. revenues increased 34%, and German revenues increased 104% compared to the year-ago quarter. Luxoft finished the first nine months of this financial year with 8,689 employees, of which 7,333 were delivery professionals, who continued to drive average productivity during this period to another record – in excess of $74,500 per engineer or 6.9% annual growth. The effective tax rate for the nine months ended December 31, 2014 was 14.4%.

"Steadily increasing demand for our services and solutions across key geographies and verticals allowed us to post yet another period of growth, which in the first nine months of the year was in excess of 35% year over year in constant currency terms. As we continue to focus on streamlining front office technologies and processes, deploy our products and platforms and execute engagements in managed delivery format for our seasoned clients, we continue to reach historic records in productivity every quarter since our IPO. We view this as a testament to our strong positioning in the competitive IT services landscape as a “different kind” of provider. All key geographies posted strong performance, with the U.K. and Germany growing above the Company’s average at 37% and 54% respectively for the first nine months of the year on year over year basis. Additionally, the past quarter has been extremely beneficial in terms of currency weakness, predominantly in the Russian ruble, which created a significant tailwind on margin levels. Although they are non-recurring, some of these savings were channeled towards the Global Upgrade Program and other expenses, still leaving a significant cushion for further reinvestment into the top line and / or M&A activities," said Roman Yakushkin, Chief Financial Officer.

Outlook for the Year Ending March 31, 2015:

The Company is confirming the following guidance for the financial year ending March 31, 2015:

  • Revenue is expected to be at least $510 million, an increase of at least 28.0% year over year, of which at least 25% is organic
  • Adjusted EBITDA margin is expected to be in the range of 17.0% - 19.0%

The Company is revising its guidance for:

  • Diluted EPS on a US GAAP basis to at least $1.85, revised from previous guidance of at least $1.82
  • Diluted EPS on a non-GAAP basis to at least $2.15, revised from previous guidance of at least $2.00

EPS is based on an estimated weighted average of 33,200,386 diluted shares

Conference Call Information:

A conference call will be conducted with the members of Luxoft’s senior management at 8:00 a.m. EST on Thursday, February 12th, 2015 to review the financial and operational performance of the Company for the above-mentioned period.

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 https://event.webcasts.com/starthere.jsp?ei=1053605 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# 13599419. The replay will be available from two hours as of the end of the call and up to 11:59 p.m. EST on February 20th, 2015. 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 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 18 dedicated delivery centers worldwide. It has over 8,600 employees across 22 offices in 14 countries in the North America, Mexico, Western and Eastern Europe, and Asia Pacific. 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; 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 the 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. 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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(In thousands of US dollars)

For the three months
ended

For the nine months
ended

December 31, December 31,
  2013   2014 2013     2014  
(unaudited) (unaudited)
Sales of services $ 110,621 $ 145,754   $ 292,050 $ 383,196
Operating expenses

Cost of services (exclusive of depreciation and
amortization)

62,669 76,728 166,832 211,904
Selling, general and administrative expenses 24,165 34,110 68,586 93,612
Depreciation and amortization 3,457 4,305 9,392 11,750
Loss from revaluation of contingent liability   181   389     909     996  
Operating income   20,149   30,222     46,331     64,934  
 
Other income and expenses
Interest expense, net (392 ) (123 ) (1,199 ) (513 )
Other gains/(loss), net 232 366 149 1,187
Gain from foreign currency exchange contract (109 ) 71 (317 ) 1,321
Net foreign exchange gain/(loss)   (361 ) (1,109 )   (620 )   (3,723 )

Income from continuing operations before income
taxes

19,519 29,427 44,344 63,206
 
Provision for income tax   (1,809 ) (5,495 )   (3,516 )   (9,099 )
Income from continuing operations   17,710   23,932     40,828     54,107  
Net income $ 17,710 $ 23,932 $ 40,828 $ 54,107

Net (income)/loss attributable to the non-controlling
interest

             
Net income attributable to the Group $ 17,710   $ 23,932   $ 40,828   $ 54,107  

 

Other comprehensive income, net of tax

Foreign currency translation adjustment   74   (1 )   1,141     57  
Comprehensive income $ 17,784 $ 23,931 $ 41,969 $ 54,164

Other comprehensive income/(loss) attributable to the
non-controlling interest

             

Comprehensive income attributable to the Group

$ 17,784   $ 23,931   $ 41,969   $ 54,164  
 

LUXOFT HOLDING, INC

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands of US dollars except share amounts)

As of
March 31,
2014
(audited)

 

As of
December 31,
2014
(unaudited)

Assets
Current assets:
Cash and cash equivalents $ 37,503 $ 46,963

Trade accounts receivable, net of allowance for doubtful accounts of $651
at March 31, 2014 and $1,255 at December 31, 2014

103,892 102,344
Unbilled revenue 611 28,030
Work-in-progress 4,720 2,645
Due from related parties 1,280 1,316
VAT and other taxes receivable 1,755 2,220
Deferred tax assets 1,027 1,149
Advances issued 3,689 3,950
Other current assets   2,295   2,803
Total current assets   156,772   191,420
 
Non-current assets:
Property and equipment, net 26,445 32,721
Intangible assets, net 21,007 32,261
Goodwill 11,351 25,921
Other non-current assets   2,122   2,761
Total non-current assets   60,925   93,664
Total assets $ 217,697 $ 285,084
 

LUXOFT HOLDING, INC

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands of US dollars except share amounts)

As of
March 31,
2014
(audited)

As of
December 31,
2014
(unaudited)

Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings $ 20,476 $ 6,570
Accounts payable 10,575 3,786
Advances received 1,754 956
Accrued liabilities 15,360 15,015
Deferred revenue 195 8,053
Due to related parties 144 583
Capital lease obligations, current portion 38 39
VAT and other taxes payable 8,965 13,424
Contingent payable for business acquisition, current 1,489 3,948
Dividends payable to shareholders 18 -
Foreign currency exchange contract financial liabilities 411 -
Contingent payable for software acquisition, current 171 379
Other current liabilities 458 778
Total current liabilities 60,054 53,531
 
 
Deferred tax liability, non-current 2,811 3,185
Capital lease obligations, less current portion 68 39
Contingent payable for business acquisition, non-current 3,320 20,880
Contingent payable for software acquisition, non-current 1,749 1,515
Other non-current liabilities 78 69
Total liabilities 68,080 79,219
 
Shareholders’ equity:

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

Additional paid-in capital 83,390 85,474
Retained earnings 67,470 121,577
Accumulated other comprehensive loss (1,275) (1,218)
Total shareholders’ equity attributable to the Group 149,585 205,833
Non-controlling interest 32 32
Total equity 149,617 205,865
Total liabilities and equity $ 217,697 $ 285,084
 

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 December 31, Nine Months Ended December 31,
2014   2014 2014 2014   2014 2014
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Operating income   30,222   3,136   (a) 33,358   64,934   6,913   (a)   71,847  
Operating margin   20.73 % 2.15 % 22.89 % 16.95 % 1.80 %   18.75 %
Net income   23,932   2,636   (b) 26,568   54,107   6,126   (b)   60,233  

Diluted earnings per
share

$ 0.73   -   $ 0.81   $ 1.64   -   $ 1.82  
 

Three Months Ended December 31,

Nine Months Ended December 31,

2013 2013 2013 2013 2013 2013
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Operating income   20,149   (16 ) (a) 20,133   46,331   3,534   (a)   49,865  
Operating margin   18.21 % (0.01 )% 18.20 % 15.86 % 1.21 %   17.07 %
Net income   17,710   (16 ) (b) 17,694   40,828   3,534   (b)   44,362  

Diluted earnings per
share

$ 0.54   -   $ 0.54   $ 1.27   -   $ 1.38  

 

 

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

(a) 2013   2014   2013 2014  
Adjustments to GAAP income from operations:
Stock-based compensation expense $ (838 ) $ 972 $ 702 $ 2,084
Amortization of purchased Intangible assets $ 641 $ 1,416 $ 1,923 $ 3,385
Loss from revaluation of contingent liability $ 181 $ 389 $ 909 $ 996
Acquisition related costs   $ 359     $ 448  

Total Adjustments to GAAP income from
operations:

$ (16 ) $ 3,136   $ 3,534 $ 6,913  
 

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

(b) 2013   2014   2013 2014  
Adjustments to GAAP net income
Stock-based compensation expense $ (838 ) $ 972 $ 702 $ 2,084
Amortization of purchased Intangible assets $ 641 $ 1,075 $ 1,923 $ 2,834
Loss from revaluation of contingent liability $ 181 $ 266 $ 909 $ 827
Acquisition related costs   $ 323     $ 381  
Total Adjustments to GAAP net income $ (16 ) $ 2,636   $ 3,534 $ 6,126  
 

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

2013   2014   2013 2014  
Net income $ 17,710 $ 23,932 $ 40,828 $ 54,107
Adjusted for:
Interest Expense 392 123 1,199 513
Income tax 1,809 5,495 3,516 9,099
Depreciation and Amortization 3,457   4,305   $ 9,392 $ 11,750  
EBITDA $ 23,368   $ 33,855   $ 54,935 $ 75,469  
Adjusted for
Stock based compensation $ (838 ) 972 $ 702 $ 2,084
Change in fair value of contingent consideration $ 181 389 $ 909 $ 996
Acquisition related costs   359   $ - $ 448  
Adjusted EBITDA $ 22,711   $ 35,575   $ 56,546 $ 78,997  
 

LUXOFT HOLDING, INC

Schedule of supplemental information (unaudited)

 

(In thousands, except percentages)

 

Revenue for the three Months Ended December 31,2014,

2013     2014  
Client location Amount % of sales Amount % of sales
U.S. 49,033 44.3 % 62,415 42.8 %
UK 31,488 28.5 % 42,293 29.0 %
Germany 7,454 6.7 % 15,184 10.4 %
Russia 13,141 11.9 % 11,221 7.7 %
Singapore 573 0.5 % 4,686 3.2 %
Switzerland 2,208 2.0 % 2,866 2.0 %
Rest of Europe 3,722 3.4 % 5,500 3.8 %
Other   3,002 2.7 %     1,588 1.1 %
Total $ 110,621 100 % $ 145,754 100 %
Revenue for the nine Months Ended December 31,2014,
2013   2014
Client location Amount % of sales Amount % of sales
U.S. 122,632 42.0% 156,839 40.9%
UK 83,570 28.6% 114,349 29.8%
Germany 30,011 10.3% 46,163 12.0%
Russia 29,507 10.1% 28,698 7.5%
Singapore 880 0.3% 12,366 3.2%
Switzerland 4,924 1.7% 7,623 2.0%
Rest of Europe 9,982 3.4% 13,648 3.6%
Other 10,544 3.6%   3,510 0.9%
Total $ 292,050 100% $ 383,196 100%
Revenue for the three Months Ended December 31,
2013   2014
Industry vertical Amount % of sales Amount % of sales
Financial Services 65,840 59.5% 96,327 66.1%
Automotive and transport 12,988 11.7% 15,619 10.7%
Travel and aviation 10,859 9.8% 9,075 6.2%
Technology 9,472 8.6% 10,537 7.2%
Telecom 8,060 7.3% 10,442 7.2%
Energy 2,825 2.6% 3,040 2.1%
Other 577 0.5%   713 0.5%
Total $ 110,621 100% $ 145,754 100%
Revenue for the nine Months Ended December 31,
2013   2014
Industry vertical Amount % of sales Amount % of sales
Financial Services 169,525 58.0% 257,041 67.1%
Automotive and transport 33,823 11.6% 39,880 10.4%
Travel and aviation 29,567 10.1% 25,914 6.8%
Technology 26,242 9.0% 24,539 6.4%
Telecom 24,142 8.3% 24,690 6.4%
Energy 7,124 2.4% 9,046 2.4%
Other 1,627 0.6%   2,086 0.5%
Total $ 292,050 100% $ 383,196 100%

Contacts

Luxoft Holding, Inc
Investor Relations
Alina V. Plaia, 212-964-9900, ext. 2404
Vice President
ir@luxoft.com

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