Virtusa Corporation EBITDA surged on 67.2% and Revenue jumped on 18.9%
05/15/2018 • About Virtusa Corporation (
$VRTU) • By InTwits
Virtusa Corporation reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:
- Virtusa Corporation is a fast growth stock: FY2018 revenue growth was 18.9%, 5 year revenue CAGR was 25.1% at FY2018 ROIC 5.7%
- EBITDA Margin is quite volatile: 7.2% in FY2018, 5.1% in FY2017, 10.3% in FY2016, 13.8% in FY2015, 13.6% in FY2014
- Virtusa Corporation motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 was 2.2% while average EBITDA Margin was 8.9% for the sames years. In FY2018 SBC/Revenue was even higher: 2.7%
- Virtusa Corporation has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.1%. At the same time it's a lot of higher than industry average of 8.7%.
- CAPEX is quite volatile: $34m in FY2018, $68m in FY2017, $41m in FY2016, $51m in FY2015, $11m in FY2014
- In the last 5 years the company invested considerably less than D&A: $67m vs. $95m. In FY2018 this situation was still the same: CAPEX was 16 while D&A was 28
- The company has potentially unprofitable business model: ROIC is 5.7%
- It operates with medium-size leverage: Net Debt/EBITDA is 1.4x while industry average is -0.4x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Virtusa Corporation's Revenue surged on 18.9%. Revenue growth showed acceleration in FY18Q4 - it increased 24.5% YoY. During the last 5 years Revenue growth topped in FY2017 at 43.0%. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 3.9 pp from 18.2% to 22.1% in 2018. EBITDA Margin declined at -2.1 pp per annum in the last 5 years.
Gross Margin increased slightly on 1.2 pp from 27.7% to 28.9% in FY2018. Gross Margin stuck to a declining trend at -2.5 pp per annum in the last 5 years. SG&A as a % of Revenue decreased slightly on 1.2 pp from 25.6% to 24.4% in FY2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2018. SBC as a % of Revenue grew at 0.42 pp per annum in FY2014-FY2018.
Net Income margin decreased slightly on 1.3 pp from 1.4% to 0.12% in FY2018. Net Income margin declined at -2.5 pp per annum in the last 5 years. The efficient tax rate was 96.3% in FY2018 while the average for the last five years was 35.6%.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 1.6% in FY2018. The company showed small CAPEX/Revenue decline of 1.5 pp from 3.1% in FY2015 to 1.6% in FY2018. For the last three years the average CAPEX/Revenue was 1.9%. During the last 5 years CAPEX as a % of Revenue topped in FY2015 at 3.1% and was declining since that time.
Accounts receivable as a % of Revenue decreased slightly on 0.93 pp from 15.8% to 14.8% in FY2018. Accounts payable as a % of Revenue increased slightly on 0.77 pp from 3.3% to 4.1% in FY2018.
Virtusa Corporation has spent
$78m on M&A in FY2018 which accounts for 7.7% of revenue.
Return on investment
The company operates at low but positive ROIC (5.7%) and negative ROE (-0.6%). ROIC increased on 3.4 pp from 2.3% to 5.7% in FY2018. ROE decreased on 3.0 pp from 2.4% to -0.59% in FY2018. During the last 5 years ROIC bottomed in FY2017 at 2.3%. ROE declined at -3.1 pp per annum in the last 5 years.
Leverage (Debt)
Debt level is 1.4x Net Debt / EBITDA and 4.1x Debt / EBITDA. Net Debt / EBITDA jumped on 0.5x from 0.9x to 1.4x in FY2018. Debt surged on 61.4% while cash surged on 34.5%. Net Debt/EBITDA grew at 0.8x per annum in FY2014-FY2018.
Virtusa Corporation has no short term refinancing risk: cash is higher than short term debt (1,708.6%).
Valuation and dividends
The company's trades at EV/EBITDA 20.6x and P/E 1,131.6x.
The company paid 239.2% of Net Income as dividends in FY2018.
Management team
Virtusa Corporation's CEO Krishan A Canekeratne "Kris" is a founder and has spent 19 years with the company. CEO total compensation was
$8,772,997 in FY2018 which included
$500,000 salary. Ranjan Kalia is a the company's CFO. Ranjan Kalia has spent 10 years at the company.
At the end of financial year the company had 9.0% shares owned by insiders. Insider ownership didn't change in 2018.
At the end of financial year the company had 20,491 employees. The number of employees jumped on 15.4%. Average revenue per employee in FY2018 was
$49,811 and it increased on 3.0%.
Financial and operational results
FY ended 03/31/2018
Virtusa Corporation ($VRTU) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 397 | 479 | 600 | 859 | 1,021 | 18.9% |
| Gross Profit | 146 | 175 | 211 | 238 | 295 | 24.2% |
| SG&A | 104 | 122 | 166 | 219 | 249 | 13.4% |
| EBITDA | 54 | 66 | 62 | 44 | 74 | 67.2% |
| EBIT | 42 | 53 | 45 | 18 | 46 | 152.5% |
| Tax | 12 | 15 | 13 | 3 | 33 | 1,184.2% |
| Net Income | 34 | 42 | 45 | 12 | 1 | -89.4% |
| Stock Based Compensation | 5 | 6 | 13 | 23 | 27 | 20.0% |
Balance Sheet
|
|---|
| Cash | 83 | 125 | 149 | 145 | 195 | 34.5% |
| Accounts Receivable | 65 | 75 | 139 | 135 | 151 | 11.8% |
| Accounts Payable | 11 | 9 | 27 | 21 | 30 | 44.0% |
| Short Term Debt | 0 | 0 | 9 | 9 | 11 | 28.6% |
| Long Term Debt | 6 | 3 | 186 | 177 | 288 | 63.1% |
Cash flow
|
|---|
| Capex | 7 | 15 | 13 | 15 | 16 | 4.9% |
| Dividends | | | | | 3 | |
| Acquisitions | 21 | 3 | 165 | 3 | 78 | 2,165.2% |
Ratios
|
|---|
| Revenue growth | 19.1% | 20.7% | 25.3% | 43.0% | 18.9% | |
| EBITDA growth | 28.7% | 22.6% | -6.5% | -28.4% | 67.2% | |
|
|---|
| Gross Margin | 36.9% | 36.4% | 35.1% | 27.7% | 28.9% | 1.2% |
| EBITDA Margin | 13.6% | 13.8% | 10.3% | 5.1% | 7.2% | 2.1% |
| EBIT Margin | 10.7% | 11.0% | 7.5% | 2.1% | 4.5% | 2.4% |
| SG&A, % of revenue | 26.2% | 25.5% | 27.6% | 25.6% | 24.4% | -1.2% |
| SBC, % of revenue | 1.3% | 1.3% | 2.2% | 2.7% | 2.7% | 0.0% |
| Net Income Margin | 8.7% | 8.9% | 7.5% | 1.4% | 0.1% | -1.3% |
| CAPEX, % of revenue | 1.9% | 3.1% | 2.2% | 1.8% | 1.6% | -0.2% |
|
|---|
| ROIC | 13.3% | 13.0% | 7.2% | 2.3% | 5.7% | 3.4% |
| ROE | 11.0% | 10.6% | 10.0% | 2.4% | -0.6% | -3.0% |
| Net Debt/EBITDA | -1.4x | -1.8x | 0.7x | 0.9x | 1.4x | 0.5x |
People
|
|---|
| Insider ownership | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 0.0% |
| Employees | | | 18,226 | 17,750 | 20,491 | 15.4% |
| Revenue/Employee, th. $ | | | 33 | 48 | 50 | 3.0% |
Virtusa Corporation ($VRTU) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 227 | 248 | 264 | 281 | | 10.6% | 18.1% | 21.5% | 24.5% |
| EBITDA | 13 | 17 | 21 | 23 | | 192.9% | 75.8% | 57.5% | 37.4% |
| Net Income | 4 | 5 | -10 | 3 | | | 48.4% | -326.7% | -72.5% |
Balance Sheet
|
|---|
| Cash | 154 | 162 | 227 | 195 | | 9.7% | 2.1% | 69.3% | 34.5% |
| Short Term Debt | 0 | 0 | 0 | 11 | | -100.0% | -100.0% | -100.0% | 28.6% |
| Long Term Debt | 105 | 115 | 154 | 288 | | -42.8% | -36.6% | -14.1% | 63.1% |
Ratios
|
|---|
| Gross Margin | 26.9% | 28.1% | 30.5% | 29.9% | | 1.6% | 0.6% | 1.8% | 0.7% |
| EBITDA Margin | 5.6% | 7.0% | 7.9% | 8.2% | | 3.5% | 2.3% | 1.8% | 0.8% |
| Net Income Margin | 1.6% | 1.9% | -3.8% | 1.0% | | 4.7% | 0.4% | -5.9% | -3.6% |
Peers in IT Consulting & Other Services
Below we provide Virtusa Corporation benchmarking against other companies in IT Consulting & Other Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Gopher Protocol Inc ($GOPH) | | -25.0% | 83.3% | 5,471.1% | 461.0% |
| CLPS Incorporation ($CLPS) | | | | 8.1% | 56.0% |
| EPAM Systems, Inc. ($EPAM) | | 25.2% | 26.9% | 25.0% | 27.1% |
| Gartner, Inc. ($IT) | | 7.0% | 13.0% | 35.5% | 20.1% |
| Computer Task Group, Incorporated ($CTG) | | -6.0% | -12.1% | -7.3% | 19.1% |
| |
|---|
| Median (35 companies) | | 3.3% | 7.7% | 3.8% | 3.4% |
|---|
| Virtusa Corporation ($VRTU) | | 20.7% | 25.3% | 43.0% | 18.9% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Inpixon ($INPX) | 29.8% | 28.9% | 28.1% | 68.7% | 71.4% |
| Gartner, Inc. ($IT) | 60.5% | 61.2% | 61.3% | 60.1% | 63.1% |
| InterXion Holding N.V. ($INXN) | 59.2% | 60.8% | 61.5% | 61.1% | 60.9% |
| LiveRamp Holdings, Inc. ($RAMP) | 25.1% | 38.6% | 42.5% | 45.7% | 56.2% |
| Booz Allen Hamilton Holding Corporation ($BAH) | 50.4% | 50.8% | 52.3% | 53.6% | 53.5% |
| |
|---|
| Median (36 companies) | 25.8% | 30.9% | 28.1% | 30.0% | 30.4% |
|---|
| Virtusa Corporation ($VRTU) | 36.9% | 36.4% | 35.1% | 27.7% | 28.9% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InterXion Holding N.V. ($INXN) | 41.3% | 44.9% | 43.3% | 42.2% | 42.8% |
| Switch, Inc. ($SWCH) | | 50.7% | 37.0% | 28.5% | 39.8% |
| Cognizant Technology Solutions Corporation ($CTSH) | 20.4% | 19.9% | 19.8% | 19.7% | 20.5% |
| Taoping Inc. ($TAOP) | -54.0% | -237.5% | -117.7% | 13.2% | 18.7% |
| DXC Technology Company ($DXC) | | | | 8.0% | 16.3% |
| |
|---|
| Median (35 companies) | 4.8% | 3.3% | 6.7% | 7.0% | 7.2% |
|---|
| Virtusa Corporation ($VRTU) | 13.6% | 13.8% | 10.3% | 5.1% | 7.2% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InterXion Holding N.V. ($INXN) | 62.5% | 48.1% | 57.4% | 50.5% | 78.3% |
| Switch, Inc. ($SWCH) | | 71.5% | 90.2% | 106.4% | 67.9% |
| Taoping Inc. ($TAOP) | 1.4% | 29.2% | 34.0% | 20.8% | 8.7% |
| Teradata Corporation ($TDC) | 2.0% | 2.1% | 2.3% | 3.6% | 7.1% |
| ServiceSource International, Inc. ($SREV) | 3.4% | 4.7% | 10.4% | 7.2% | 6.5% |
| |
|---|
| Median (34 companies) | 0.9% | 0.8% | 1.1% | 1.2% | 1.5% |
|---|
| Virtusa Corporation ($VRTU) | 1.9% | 3.1% | 2.2% | 1.8% | 1.6% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Accenture plc ($ACN) | 80.5% | 81.0% | 81.3% | 61.7% | 66.1% |
| The Hackett Group, Inc. ($HCKT) | 11.2% | 19.5% | 31.7% | 23.8% | 24.6% |
| Cognizant Technology Solutions Corporation ($CTSH) | 24.7% | 22.0% | 21.3% | 21.9% | 23.8% |
| Booz Allen Hamilton Holding Corporation ($BAH) | 25.3% | 26.5% | 23.1% | 22.6% | 22.5% |
| EPAM Systems, Inc. ($EPAM) | 19.7% | 18.4% | 18.2% | 18.9% | 21.2% |
| |
|---|
| Median (43 companies) | 6.2% | 4.7% | 7.7% | 5.6% | 6.9% |
|---|
| Virtusa Corporation ($VRTU) | 13.3% | 13.0% | 7.2% | 2.3% | 5.7% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Infinite Group Inc ($IMCI) | | | 169.6x | | 10.5x |
| InterXion Holding N.V. ($INXN) | 3.3x | 2.9x | 3.4x | 3.8x | 4.6x |
| Gartner, Inc. ($IT) | 0.1x | 1.3x | 0.6x | 11.7x | 4.1x |
| Switch, Inc. ($SWCH) | | 2.2x | 4.0x | 3.2x | 3.3x |
| Presidio, Inc. ($PSDO) | 0.0x | | 5.6x | 3.6x | 3.1x |
| |
|---|
| Median (27 companies) | -0.2x | -0.2x | 0.0x | 0.4x | 0.0x |
|---|
| Virtusa Corporation ($VRTU) | -1.4x | -1.8x | 0.7x | 0.9x | 1.4x |
