Virtusa Corporation (NASDAQ GS: VRTU) is a global provider of Digital Business Transformation, Digital Engineering, and Information Technology (IT) outsourcing services that accelerate our clients’ journey to their Digital Future. Virtusa serves Global 2000 companies in Banking, Financial Services, Insurance, Healthcare, Telecommunications, Media, Entertainment, Travel, Manufacturing, and Technology industries.
Our revenue is highly dependent on a small number of clients, and the loss of, or material reduction in, revenue from any one of our major clients could significantly harm our results of operations and financial condition.
We depend on clients concentrated in specific industries, such as BFSI; we are therefore subject to enhanced risks relating to developments affecting these clients and industries that may cause them to reduce or postpone their IT spending.
Restrictions on immigration may affect our ability to compete for and provide services to clients in the United States, Europe (particularly, the United Kingdom), or other countries, which could result in lost revenue, lower gross margins, delays in or losses of client engagements and otherwise adversely affect our ability to meet our growth, revenue and profit projections.
Potential changes in U.S. immigration law, if approved into law, may increase our cost of revenue and may substantially restrict or eliminate our ability to obtain visas to use offshore resources onsite, which could have a material adverse impact on our business, revenue, profitability and utilization rates.
The international nature of our business exposes us to many complex risks, which may be beyond our control.
Our quarterly financial position, revenue, operating results and profitability are challenging to predict and may vary from quarter to quarter, which could cause our share price to decline significantly.
The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.
If we cannot attract and retain highly‑skilled IT professionals, our ability to obtain, manage and staff new projects and expand existing projects may result in loss of revenue and an inability to expand our business.
The IT services market is highly competitive and our competitors may have advantages that may allow them to compete more effectively than we do to secure client contracts and attract skilled IT professionals.
Any future acquisitions may be difficult to integrate, could divert the attention of key management personnel, materially disrupt our business, dilute stockholder value and materially adversely affect our financial results, including impairment of goodwill and other intangible assets, if we are unable to realize the expected revenue and synergy growth or efficiencies from these acquisitions.
There can be no assurance that our business, results of operations and financial condition or our cash needs will not be adversely affected by our incurrence of indebtedness or obligations incurred in connection with our issuance of convertible preferred stock.
Despite our senior secured credit facility and the Orogen Preferred Stock Financing, we may need to raise capital in the future, although our ability to raise capital may be limited.
We could be subject to strict restrictions on the movement of cash and the exchange of foreign currencies which could limit our access to cash in non‑U.S. locations to fund our U.S. operations or otherwise make investments where needed.
We may face damage to our professional reputation and be subject to legal claims and litigation, including high and unexpected costs as a result of any litigation or client disputes, if our services do not meet our clients’ expectations or violate contractual terms with our clients.
We may face difficulties in providing end‑to‑end business solutions or delivering complex and large projects for our clients that could cause clients to discontinue their work with us, which in turn could harm our business, results of operations and financial condition.
Currency exchange rate fluctuations may materially and negatively affect our revenue, gross margin, operating margin, net income and cash flows.
Our operating results may be adversely affected by our use of derivative financial instruments.
Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these regulations could harm our business.
We may not be able to obtain, develop or implement new systems, infrastructure, procedures and internal controls that are required to support our operations, maintain cost controls, market our services and manage our relationships with our clients.
The failure to successfully and timely implement certain financial system changes to improve operating efficiency and enhance our reporting controls could harm our business.
Our share price could be adversely affected if we are unable to maintain effective internal controls.
We are investing substantial cash in new facilities and our profitability could be reduced if our business does not grow proportionately.
We may be audited by software vendors from whom we license or use their software to train our resources or serve our clients, which may result in claims for infringement, violations of license provisions, or other damages.
Negative public perception in the markets in which we sell services regarding offshore IT service providers and proposed anti‑outsourcing legislation may adversely affect demand for our services.
Cyber‑attacks as well as improper disclosure or control of personal information could result in liability and harm our reputation, which could adversely affect our business and results of operations.
We may face liability if we breach our obligations related to the protection, security, nondisclosure of confidential client information or disclosure of sensitive data or failure to comply with data protection laws and regulations.
Interruptions or delays in service from our third‑party providers could impair our global delivery model, which could result in client dissatisfaction and a reduction of our revenue.
Some of our client contracts contain restrictions or penalty provisions that, if triggered, could result in lower future revenue and decrease our profitability.
Our contractual limitations on liability with our clients and third parties may not be enforceable.
Our services may infringe on the intellectual property rights of others, which may subject us to legal liability, harm our reputation, prevent us from offering some services to our clients or distract management.
Political instability or changes in the central or state governments in India could result in the change of several policies relating to foreign direct investment and repatriation of capital and dividends. Further, changes in the monetary and economic policies could adversely affect economic conditions in India generally and our business in particular.
Changes in the policies or political stability of the government of Sri Lanka could adversely affect economic conditions in Sri Lanka, which could adversely affect our business.
Regional conflicts or terrorist attacks and other acts of violence or war in the United States, the United Kingdom, India, Sri Lanka, or other regions could adversely affect financial markets, resulting in loss of client confidence and our ability to serve our clients which, in turn, could adversely affect our business, results of operations and financial condition.
Our net income may decrease if the governments of the United States, the United Kingdom, the Netherlands, India, Sri Lanka, Germany, Singapore, Sweden or Hungary adjust the amount of our taxable income by challenging our transfer pricing policies.
Our net income may decrease if the governments of India or Sri Lanka levy new taxes or reduce or withdraw tax benefits and other incentives provided to us.
Wage pressures and increases in government mandated benefits in India and Sri Lanka may reduce our profit margins.
Our facilities are at risk of damage by earthquakes, tsunamis, flooding and climate change induced natural disasters.
The laws of India and Sri Lanka do not protect intellectual property rights to the same extent as those of the United States and we may be unsuccessful in protecting our intellectual property rights. Unauthorized use of our intellectual property rights may result in loss of clients and increased competition.
The market price of our common stock may fluctuate significantly.
Provisions in our charter documents and under Delaware law may prevent or delay a change of control of us and could also limit the market price of our common stock.
Revenue increased by 6.3%, or $19.0 million, from $300.0 million during the three months ended June 30, 2018 to $319.0 million in the three months ended June 30, 2019. The increase in revenue was primarily driven by an increase in revenue from our top ten clients and growth in our communication and technology industry group including certain acquired customer contracts with an existing customer, partially offset by a decrease in our media, information and other industry group. Revenue from North American clients in the three months ended June 30, 2019 increased by $20.9 million, or 10.0%, as compared to the three months ended June 30, 2018, particularly due to the increase in revenue from clients in the communication and technology industry group. Revenue from European clients decreased by $3.7 million, or 5.5%, as compared to the three months ended June 30, 2018, primarily due to the substantial depreciation in the GBP against the U.S. dollar. We had 217 active clients at June 30, 2019, as compared to 216 active clients at June 30, 2018.