- Global business consulting and IT outsourcing specialist enjoying above industry average growth
- $ 1 b revenue forecast comes faster than expected; Lankan operations employ 3,000 software engineers
- Digital transformation needs harnessing advanced technologies driving growth
- Virtusa excels in ‘engineering arbitrage’ solutions as alternative to mere ‘cost arbitrage’ option
- Garners bigger engagement with existing customers and new client wins
- Raises its biggest ever syndicated five-year loan worth $ 450 million
- Says $ 470 m Polaris acquisition as the best in its industry segment
By Nisthar Cassim
Global business consulting and IT outsourcing specialist Virtusa’s revenue in the fiscal year 2018 is expected to top the $ 1 billion milestone, an achievement coming slightly earlier than anticipated.
“We are forecasting fiscal year 2018 revenue to be in the range of $1,013.3-$1,019.3 million. The $ 1 billion forecast is coming faster than we expected,” Virtusa Chairman and CEO Dr. Kris Canekeratne told journalists in Colombo.
At the beginning of FY18, the revenue projection for the full year was $ 935 million.
Last week Virtusa, which employs around 3,000 software engineers in Sri Lanka, reported revenue of $ 263.8 million for the third quarter of FY18, up 6.3% sequentially and 21.5% year-over-year. Fourth quarter revenue is expected to be in the range of $ 274-$280 million.
“We are very pleased with our results,” Kris said, adding that Virtusa’s growth was nearly three times that of its peers. The US and the Americas account for 65% of its business was followed by 25% UK/Europe. Employing around 20,000 people, Virtusa’s biggest business segment is Banking, Financial Services and Insurance, which grew by 7.5% and Kris described BFSI as a “growth enabler” for the company. The communication and technology business segment grew by 5% and the media and information segment was flat.
“Our top 10 clients (largest is Citi accounting for around 20% of revenue) have enabled growth for us as more firms pursued digital transformation. Virtusa also works with 12 of the world’s top 18 banks.
“We have reduced our client’s cost of operation via Virtusa’s tried and proven capability known as ‘engineering arbitrage’ which helps clients to reduce effort, rationalise and consolidate and eliminate systems and reduce cost,” explained Kris.
“To create a great digital presence firms must be able to seamlessly interface with their underlying systems. A large volume of work Virtusa does is specifically around creating the middle-ware or what we call ‘connective-tissue’ between the digital consumer experience requirements of our clients and the underlying systems that support the consumers. We have a very significant area of expertise at Virtusa for digital transformation, to reimagine their digital storefronts or reduce the cost of operations,” he added.
“What we realised is that Virtusa’s positioning across the industries we focus on both in terms of digital work and our engineering arbitrage i.e. reduce the effort, work and systems as opposed to simply applying cost arbitrage or reduce cost,resonated particularly well among our clients. That led to bigger engagement with existing clients and new client wins. We also do a lot of work with advanced technologies such as Blockchain, Artificial Intelligence, machine learning, big data, micro services architectures. That (advanced technologies) is significantly growing. These factors are the reasons why our performance has been robust,” he said.
What is impressive about Virtusa is the growth so far this year has been organic. Two years ago it acquired Polaris Consulting and Services Ltd. for $ 470 million (inclusive of $ 100 million in cash inPolaris) and in the third quarter it has successfully completed the delisting of the latter from the Indian stock exchange. Kris described it as the “most successful” acquisition in their industry segment. By the first full year of its acquisition, Polaris’ BFSI business, which accounted for 90% of its revenue and had remained flat for three years preceding the takeover, has grown by 30%. The acquisition was a win-win, according to Kris, as Polaris was specialising in core-banking and investment banking solutions whilst Virtusa’s expertise was in the consumer and digital banking spheres.
Partly to finance the delisting expenses and related costs, Virtusa has also recently raised its biggest ever syndicated five-year loan worth $ 450 million. The issue, jointly led by JP Morgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, had been oversubscribed by 1.6 times. The facility replaced Virtusa’s existing $300 million credit agreement.
The new credit agreement provides for a $200 million revolving credit facility, a $180 million term loan facility and a $70 million delayed-draw term loan. Virtusa drew down $180 million on the new term loan and $55 million on the new revolving credit facility to repay in full the prior credit facility and fund the Polaris delisting transaction, including transaction-related fees and expenses.
As per its results, Virtusa reported GAAP income from operations of $13.7 million for the third quarter of fiscal 2018, compared to $10.3 million for the second quarter of fiscal 2018 and $6.5 million for the third quarter of fiscal 2017.Non-GAAP income from operations, which excludes stock-based compensation expense, restructuring charges and acquisition related charges, was $26 million for the third quarter of fiscal 2018, compared to $19.8 million for the second quarter of fiscal 2018 and $16.3 million for the third quarter of fiscal 2017.
The company ended the third quarter of fiscal 2018 with $303.9 million of cash, cash equivalents and short-term and long-term investments