Luxoft Holding, Inc Reports Results for Second Quarter FY2018

Luxoft Holding, Inc (NYSE:LXFT), a global IT service provider, today announced results for the three months ended September 30, 2017.

Second Quarter FY2018 Highlights

• Revenue of $228.0 million, up 16.1% year-over-year and up 9.0% sequentially
• Adjusted EBITDA of $38.6 million and adjusted EBITDA margin of 16.9%, compared to $37.4 million and 19.1% in the year-ago quarter
• GAAP net income of $18.4 million, up 13.2% year-over-year and up 191.9% sequentially
• Non-GAAP net income of $28.0 million, up 0.7% from $27.8 million in the year-ago quarter and up 63.8% from $17.1 million last quarter
• Diluted GAAP EPS of $0.54, compared to $0.48 in the year-ago quarter
• Non-GAAP diluted EPS of $0.82, compared to $0.83 in the year-ago quarter
• As of September 30, 2017, total number of employees was 13,090; Annual revenue per billable engineer was $82,800, up 4.9% year-over-year and up 9.0% sequentially

Note: Reconciliations of non-GAAP to GAAP measures are included at the end of the release.

"Second quarter results were largely in line with our expectations as execution of our strategic transformation drove strong growth in several verticals and offset moderating demand patterns among our top two accounts," said Dmitry Loschinin, Luxoft's CEO and President "Key highlights of our progress include year-over-year revenue growth of 75.6% in Automotive, 43.2% in Financial Services excluding the top two accounts, and 26.0% in Telecom. Overall, we generated 37.5% revenue growth year-over-year outside our top two accounts, which demonstrates the steady progress we are making in transforming our business through new vertical growth, strengthened key platform-architecture expertise and expanded delivery-center scale. Importantly, we also further increased our High Performance Accounts (HPAs) which reached nearly 36.6% of revenue."

During the quarter, the Company continued to expand its global sales and delivery, including opening a new office in Bangalore, India and increasing its presence in Asia Pacific (APAC) through the acquisition of derivIT. In addition to diversifying across attractive new verticals, emphasis was placed on generating balanced growth across key global markets. Progress here includes Q2 year-over-year revenue growth of 54.9% in APAC, 21.2% in Europe and 17.1% in North America.

The Company continued to decrease client concentration of its top two accounts while driving improved operating and financial performance. The top two accounts in the second quarter amounted to 35.4% of revenue, representing a 10.1% point decrease year-over-year. On the same basis, the top five accounts amounted to 46.7% of revenue, representing an 11.4% point decrease and the top ten accounts amounted to 57.5% of revenue, a decrease of 11.1% points.

Mr. Loschinin concluded, "We continue to place strategic emphasis on accelerating our shift to digital innovation as demand for complex digital and cloud-based deployments remain strong. Looking ahead, we are confident that our overall strategy is aligned with the long-term trends across each of our verticals as we look to become an increasingly critical strategic partner for our customers. The entire management team is focused on driving stronger execution, building momentum across our verticals and further driving our business transformation. We believe we are taking the right steps to best position Luxoft for long-term sustainable growth and value creation for our shareholders."

Outlook for the Financial Year Ending March 31, 2018

The Company is reiterating its full-year outlook which includes:

• Revenue is expected to be at least $920 million, which represents an increase of at least 17.1% year over year
• Adjusted EBITDA margin is expected to be in the range of 15.5% 16.5%
• Diluted EPS on GAAP basis is expected to be at least $1.53, and diluted EPS on a non-GAAP basis at least $2.85
• EPS is based on an estimated weighted average of 34.4 million diluted shares

Conference Call Information

The Company will host a conference call to review the results on Friday, November 17, 2017 at 8:00 a.m. ET. To participate, please dial 877-407-8293 or 201-689-8349 (outside the U.S.) or access the live webcast here.

A replay will be available two hours after the call at http://investor.luxoft.com or by dialing 877-660-6853 or 201-612-7415 (outside the U.S.) and entering the conference ID 13672381. The replay will be available until December 1, 2017.

About Luxoft

Luxoft (NYSE:LXFT) is a global IT service provider of innovative technology solutions that delivers measurable business outcomes to multinational companies. Its offerings encompass strategic consulting, custom software development services, and digital solution engineering. Luxoft enables companies to compete by leveraging its multi-industry expertise in the financial services, automotive, communications, and healthcare life sciences sectors. Its managed delivery model is underpinned by a highly-educated workforce, allowing the Company to continuously innovate upwards on the technology stack to meet evolving digital challenges.

Luxoft has more than 13,000 employees across 42 offices in 21 countries within five continents, with its operating headquarters office in Zug, Switzerland. For more information, please visit the website.

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; non-GAAP diluted Earnings per share (EPS) and Free Cash Flow (FCF). EBITDA is calculated as earnings before interest, tax, depreciation and amortization, where interest includes unwinding of the discount rate for contingent liabilities. Prior year amounts were amended accordingly. 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. Free Cash Flow is calculated as operating cash flow less capital expenditure which consists of purchases of property, plant and equipment and intangible assets as defined in the cash flow statement.

We adjust our non-GAAP financial measures to exclude stock based compensation, because it is a non-cash expense. We also adjust our non-GAAP financial measures to exclude the change in fair value of contingent consideration, because we believe these expenses are not indicative of what we consider to be normal course of operations. Our non-GAAP financial measures are adjusted to exclude amortization of purchased intangible assets in order to allow management and investors to evaluate our results from operating activities as if these assets have been developed internally rather than acquired in a business combination. Finally, we adjust our non-GAAP financial measures to exclude acquisition-related costs, which comprise payments to consulting firms as well as fees paid upon successful completion of acquisition; as well as certain incentive payments for members of management of the acquired companies as provided for in the acquisition agreements. These payments are based on performance of the acquired businesses and are classified as part of management compensation rather than part of purchase consideration. These costs vary with the size and complexity of each acquisition and are generally inconsistent in amount and frequency, and therefore, we believe that they may not be indicative of the size and volume of future acquisition-related costs.

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 and 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, or actual increases to our effective tax rate which we may experience from time to time; 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 Form 20-F for the year ended March 31, 2017 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.

LUXOFT HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share amounts)
		September 30,			As of March 31,
		2017			2017
		(Unaudited)
Assets
Current assets
Cash and cash equivalents			56,102			109,558
Restricted cash, current			3,946			4,000
Trade accounts receivable, net of allowance for doubtful accounts of $1,217 at September 30, 2017 and $435 at March 31, 2017			182,526			144,862
Unbilled revenue			37,727			14,454
Work-in-progress			2,073			2,805
Due from related parties			952			1,084
VAT and other taxes receivable			2,579			1,732
Advances issued			3,415			2,740
Other current assets			6,829			5,224
Total current assets			296,149			286,459
Non-current assets
Restricted cash, non-current			2,917			1,399
Deferred tax assets			4,925			3,423
Property and equipment, net			48,076			49,571
Intangible assets, net			126,818			120,430
Goodwill			93,378			76,918
Other non-current assets			6,894			9,007
Total non-current assets			283,008			260,748
Total assets			579,157			547,207
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings			1,504			633
Accounts payable			19,663			24,402
Accrued liabilities			44,554			38,513
Deferred revenue			6,433			3,815
Due to related parties			562			460
Taxes payable			23,613			21,283
Payable under foreign exchange contracts			1,283			295
Payable for acquisitions, current			15,265			17,221
Other current liabilities			1,817			2,025
Total current liabilities			114,694			108,647
Deferred tax liability, non-current			13,815			16,907
Payable for acquisitions, non-current			19,605			32,206
Other non-current liabilities			4,609			2,629
Total liabilities			152,723			160,389
Shareholders' equity
Share capital (80,000,000 shares authorized; 33,697,103 issued and outstanding with no par value as at September 30, 2017, and 80,000,000 shares authorized; 33,540,034 issued and outstanding with no par value as at March 31, 2017)
Additional paid-in capital			149,291			133,192
Common stock held in treasury, at cost (124,664 shares as of September 30, 2017; 93,813 shares as of March 31, 2017)			(7,980)			(6,028)
Retained earnings			288,265			263,508
Accumulated other comprehensive loss			(3,174)			(3,886)
Total shareholders' equity attributable to the Group			426,402			386,786
Non-controlling interest			32			32
Total equity			426,434			386,818
Total liabilities and equity			579,157			547,207

LUXOFT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except share and per share amounts)
		For the three months						For the six months ended
		ended September 30,						September 30,
		2017			2016			2017			2016
		Unaudited						Unaudited
Sales of services			228,030			196,457			437,272			374,506
Operating expenses
Cost of services (exclusive of depreciation and amortization)			139,305			114,908			274,904			220,660
Selling, general and administrative expenses			58,199			54,315			116,262			103,239
Depreciation and amortization			9,915			7,990			20,645			15,225
Gain from revaluation of contingent liability			(870)			(44)			(2,090)			(444)
Operating income			21,481			19,288			27,551			35,826
Other income and expenses
Interest income/(expense), net			42			(28)			59			4
Unwinding of discount rate for contingent liability			103			(388)			(698)			(505)
Other gains/(losses), net			457			327			946			734
Gain/(Loss) from derivative financial instruments			(3)			(30)			89			361
Net foreign exchange (loss)/ gain			(356)			21			1,124			(646)
Income before income taxes			21,724			19,190			29,071			35,774
Income tax expense			(3,284)			(2,899)			(4,314)			(5,403)
Net income			18,440			16,291			24,757			30,371
Net income attributable to the non-controlling interest
Net income attributable to the Group			18,440			16,291			24,757			30,371
Basic EPS per Class A and Class B ordinary share
Net income attributable to the Group per ordinary share			0.55			0.49			0.74			0.91
Weighted average ordinary shares outstanding			33,570,633			33,208,472			33,537,185			33,202,121
Diluted EPS per Class A and Class B ordinary share
Diluted net income attributable to the Group per ordinary share			0.54			0.48			0.72			0.90
Diluted weighted average ordinary shares outstanding			34,116,417			33,739,017			34,206,683			33,855,169

LUXOFT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of US dollars)
		For the three months						For the six months ended
		ended September 30,						September 30,
		2017			2016			2017			2016
		Unaudited						Unaudited
Net income			18,440			16,291			24,757			30,371
Other comprehensive (loss) income, net of tax
Gains on derivative financial instruments, net of tax effect of $(21) and $54; $72 and $166			80			(253)			(653)			610
Translation adjustments with no tax effects			695			(740)			1,365			(1,645)
Total other comprehensive (loss) income			775			(993)			712			(1,035)
Comprehensive income			19,215			15,298			25,469			29,336
Comprehensive income (loss) attributable to the non-controlling interest
Comprehensive income attributable to the Group			19,215			15,298			25,469			29,336

LUXOFT HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(In thousands of US dollars)
		For the six months ended
		ended September 30,
		2017				2016
		(unaudited)
Operating activities
Income from operations			24,757			30,371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			20,645			15,225
Deferred tax benefit			(1,711)			(781)
Income from derivative financial instruments			(89)			(361)
(Income)/ Loss on foreign exchange			(1,124)			646
Provision for doubtful accounts			622			60
Gain from revaluation of contingent liability			(2,090)			(444)
Unwinding of discount rate for contingent liability, loss			698			505
Share-based compensation			14,237			13,889
Changes in operating assets and liabilities:
Trade accounts receivable and unbilled revenue			(45,423)			(14,150)
Work-in-progress			732			(2,026)
Due to and from related parties			234			396
Accounts payable and accrued liabilities			(4,114)			2,903
Deferred revenue			2,605			(813)
Changes in other assets and liabilities			(793)			2,772
Net cash provided by operating activities			9,186			48,192
Investing activities
Purchases of property and equipment			(11,332)			(8,354)
Purchases of intangible assets			(2,127)			(1,907)
Acquisitions, net of cash acquired			(34,155)			(54,464)
Restricted cash			125
Net cash used in investing activities			(47,489)			(64,725)
Financing activities
Net repayment of short-term borrowings			(138)			(6,028)
Acquisition of business, deferred consideration			(12,707)			(4,534)
Repurchases of common stock			(2,017)			(930)
Repayment of capital lease obligations			(69)			(60)
Net cash used in financing activities			(14,931)			(11,552)
Effect of exchange rate changes on cash and cash equivalents			(222)			(271)
Net decrease in cash and cash equivalents			(53,456)			(28,356)
Cash and cash equivalents at beginning of year			109,558			108,545
Cash and cash equivalents at end of period			56,102			80,189

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 September 30,														Six Months Ended September 30,
		2017					2017				2017					2017					2017				2017
		GAAP					Adjustments				Non-GAAP					GAAP					Adjustments				Non-GAAP
Operating income			21,481				10,715		(a)			32,196					27,551				22,619		(a)			50,170
Operating margin			9.4				4.7					14.1					6.3				5.2					11.5
Net income			18,440				9,596		(b)			28,036					24,757				20,399		(b)			45,156
Diluted earnings per share			0.54									0.82					0.72									1.32
		Three Months Ended September 30,															Six Months Ended September 30,
		2016					2016				2016					2016					2016				2016
		GAAP					Adjustments				Non-GAAP					GAAP					Adjustments				Non-GAAP
Operating income			19,288				12,286		(a)			31,574					35,826				20,103		(a)			55,929
Operating margin			9.8				6.3					16.1					9.6				5.4					14.9
Net income			16,291				11,555		(b)			27,846					30,371				18,497		(b)			48,868
Diluted earnings per share			0.48									0.83					0.90									1.44

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									Six Months Ended
			September 30,									September 30,
(a)			2017					2016				2017				2016
Adjustments to GAAP operating income
Stock-based compensation expense				6,185					9,029				14,237				13,889
Amortization of purchased Intangible assets				3,657					2,446				8,030				4,553
Gain from revaluation of contingent liability				(870)					(44)				(2,090)				(444)
Acquisition related costs				1,743					855				2,442			2,105
Total Adjustments to GAAP income from operations				10,715					12,286				22,619				20,103
			Three Months Ended									Six Months Ended
			September 30,									September 30,
(b)			2017					2016				2017				2016
Adjustments to GAAP net income
Stock-based compensation expense				6,185					9,029				14,237				13,889
Amortization of purchased Intangible assets				3,657					2,446				8,030				4,553
(Gain)/ Loss from revaluation of contingent liability and unwinding of discount rate for contingent liability				(973)					344				(1,392)				61
Acquisition related costs				1,743					855				2,442				2,105
Tax effect of the adjustments				(1,016)					(1,119)				(2,918)				(2,111)
Total Adjustments to GAAP net income				9,596					11,555				20,399				18,497
			Three Months Ended									Six Months Ended
			September 30,									September 30,
			2017					2016				2017				2016
Net income				18,440					16,291				24,757				30,371
Adjusted for:
Interest (Income)/ Expense				(42)					28				(59)				(4)
Unwinding of discount rate for contingent liability, (gain)/ loss				(103)					388				698				505
Income tax				3,284					2,899				4,314				5,403
Depreciation and Amortization				9,915					7,990				20,645				15,225
EBITDA				31,494					27,596				50,355				51,500
Adjusted for
Stock based compensation				6,185					9,029				14,237				13,889
Gain from revaluation of contingent liability				(870)					(44)				(2,090)				(444)
Acquisition related costs				1,743					855				2,442				2,105
Adjusted EBITDA				38,552					37,436				64,944				67,050

LUXOFT HOLDING, INC.
Schedule of supplemental information (Unaudited) (In thousands; except percentages)
		Revenue for the three Months Ended September 30,
		2017								2016
Client location		Amount				% of sales				Amount				% of sales
North America			78,835			34.6						67,345		34.3
Europe (excl. U.K.)			68,033			29.8						56,116		28.6
U.K.			52,164			22.9						57,221		29.1
Russia			17,872			7.8						8,055		4.1
APAC			10,002			4.4						6,456		3.3
Other			1,124			0.5						1,264		0.6
Total			228,030			100.0						196,457		100.0
		Revenue for the six Months Ended September 30,
		2017								2016
Client location		Amount				% of sales				Amount				% of sales
North America			158,661			36.3						115,341		30.8
Europe (excl. U.K.)			133,534			30.5						109,181		29.2
U.K.			100,293			22.9						118,341		31.6
Russia			25,434			5.8						15,000		4.0
APAC			17,027			3.9						14,305		3.8
Other			2,323			0.6						2,338		0.6
Total			437,272			100.0						374,506		100.0
		Revenue for the three Months Ended September 30,
		2017								2016
Industry vertical		Amount				% of sales				Amount				% of sales
Financial Services				129,174		56.6					123,137			62.7
Automotive and transport				40,778		17.9					23,227			11.8
Digital				26,067		11.4					22,071			11.2
Telecom				24,023		10.5					19,059			9.7
Healthcare				7,684		3.4					8,570			4.4
Other				304		0.2					393			0.2
Total				228,030		100.0					196,457			100.0
				Revenue for the six months ended September 30,
				2017						2016
Industry vertical		Amount				% of sales				Amount				% of sales
Financial Services				242,644		55.5					245,504			65.6
Automotive and transport				75,912		17.4					48,679			13.0
Digital				51,898		11.9					41,943			11.2
Telecom				49,566		11.3					28,993			7.7
Healthcare				16,417		3.8					8,570			2.3
Other				835		0.1					817			0.2
Total				437,272		100.0					374,506			100.0

LUXOFT HOLDING, INC.
Reconciliations of Non-GAAP Forward-looking Financial Measures
to Comparable GAAP Forward-looking Measures
(Unaudited)
(In thousands of US dollars, except share, per share amounts and percentages)
		Year Ended March 31, 2018
Revenue			920,000
Net income			53,695
Adjusted for:
Interest Expense		(236)
Income tax		9,476
Depreciation and Amortization		45,368
EBITDA			108,303
Adjusted for:
Stock based compensation		29,501
Loss from revaluation of contingent liability		(350)
Acquisition related costs		5,185
Adjusted EBITDA			142,639
Adjusted EBITDA margin		15.5
Net income			53,695
Adjusted for:
Stock-based compensation expense		29,501
Amortization of purchased Intangible assets		17,437
Loss from revaluation of contingent liability		(350)
Acquisition related costs		5,185
Tax effect of the adjustments		(6,960)
Total adjustments to Net Income			44,813
Adjusted Net Income			98,508
Diluted weighted average ordinary shares outstanding		34,397,900
Adjusted EPS			2.86

		Year Ended March 31, 2018
		GAAP			Adjustments			Non-GAAP
Net income			53,695			44,813			98,508
Diluted earnings per share			1.56						2.86

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Contacts:

Luxoft Holding, Inc
Investor Inquires
Tracy Krumme, 212-964-9900 ext. 2460
Vice President, Investor Relations
[e-mail]
or
Media Inquiries
Patrick R. Corcoran, 212-964-9900 ext. 2453
Global Director, External Relations
[e-mail]
Twitter: @Luxoft