Luxoft Holding, Inc. Demonstrates Resilience in a Tough Market

Luxoft Holding (LXFT) announced fiscal third-quarter earnings Thursday after the market close. And though the shares initially plunged more than 15% early Friday as results came in below expectations, they largely recovered into the afternoon as the market mulled what turns out was a predominantly decent quarter.

Let's take a closer look at what Luxoft accomplished:

Luxoft Holding results: The raw numbers

*For the quarter ended Dec. 31, 2015. Data source: Luxoft Holding.

What happened with Luxoft Holding this quarter?

• On a constant currency basis, GAAP revenue would have climbed 24.5% year over year to $181.4 million.
• Adjusted (non-GAAP) net income fell 6.8% year over year to $24.8 million, or $0.72 per share. That's below analysts' consensus estimates for adjusted earnings of $0.86 per share, but "fully in line" with Luxoft's own expectations.
• Adjusted earnings before interest, taxes, depreciation, and amortization fell 7.9% year over year to $32.8 million.
• Customer concentration with Luxoft's top client declined 6% on a sequential basis, and 9.9% year over year.
• However, "outstanding performance" driven by Luxoft's second-largest customer and other top 10 clients more than made up for this decline.
• Added two new High Potential Accounts (HPAs) during the quarter, one of which is a "premier U.S.-based computer data storage provider and hard disk drive manufacturer." The other is a multinational telecom conglomerate based in Asia.
• HPAs as a whole have delivered 177% year-over-year growth over the past nine months, and are on track to deliver at least 25% of Luxoft's annual top line this fiscal year.
• Opened new offices in Tricity, Poland; Munich, Germany; and Stockholm, Sweden.
• Formed a new partnership with QNX centering around Automotive ADAS technologies.
• Productivity per engineer grew 3.6% year over year through the first nine months of the fiscal year to $77,208.
• Automotive and transport vertical revenue was 13.9% of Luxoft's total this quarter, up from 10.6% last quarter.
• Ended the quarter with cash and equivalents of $82.6 million, short-term investments of $15 million, and short-term debt of $145,000.
• Generated cash flow from operations of $76.5 million through the first nine months of the fiscal year, up 61.4% year over year.

What management had to say 
CEO Dmitry Loschinin said:

Our company has delivered another quarter of strong organic growth and profitability, fully in line with our expectations. We are witnessing a paradigm shift in the way information technology industry operates and IT services are being consumed. We believe that the offerings that we have in each domain of our expertise are extremely relevant for demand of today's clients. That is the main reason our pipeline remains resilient and supports strong financial and operating performance of Luxoft each quarter. 

Looking forward 
Luxoft doesn't typically provide specific financial guidance for each quarter. But management did reaffirm existing guidance for the full fiscal year ended March 31, 2016. That outlook calls for revenue of "at least" $645.5 million, which would represent 24% growth over last fiscal year, or 28% growth on a constant currency basis. Meanwhile, Luxoft still anticipates EBITDA margin of 17% to 19%, GAAP earnings per diluted share of at least $2.05, and adjusted earnings of at least $2.60 per share. By comparison, going into today's report, analyst consensus estimates predicted full fiscal-year earnings of $2.82 per share on revenue of $663.6 million.

Of course, Luxoft's reaffirmed guidance technically doesn't preclude it from living up to these expectations. But at the same time, this shouldn't particularly concern long-term investors, especially as the company continues to enjoy healthy organic growth and its self-described "resilient" pipeline. While growth will likely remain challenged by the current macroeconomic environment and currency headwinds, I think investors should be more than pleased with where Luxoft stands today.