Luxoft Holding Expands Its Reach in a Solid Quarter

IMAGE SOURCE: LUXOFT.

Luxoft Holding (LXFT +0.00%) announced fiscal second-quarter earnings Thursday, after the market closedthat . With shares of the software development company up 11% on Friday, it's evident investors couldn't be happier. Let's take a closer look at what drove Luxoft's results as it capped off the first half of its fiscal year.

Luxoft Holding results: The raw numbers

*For the quarter ended Sept. 30, 2016. Data source: Luxoft Holding. 

What happened with Luxoft Holding this quarter?

• On a constant-currency basis, GAAP revenue climbed 22.8% year over year.
• Adjusted (non-GAAP) net income declined 2.8% year over year, to $27.8 million, or $0.83 per share.
• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $37.4 million, or 19.1% of revenue, up from $29.6 million, or 16.6% of revenue, in last year's fiscal second quarter.
• Luxoft doesn't provide quarterly financial guidance. And though we don't normally pay close attention to Wall Street's demands, note that analysts' consensus estimates called for lower revenue of $193.7 million, and lower adjusted earnings of $0.82 per share.
• Revenue by industry vertical included:
• 9.3% year-over-year growth from financial services, to $123.1 million.
• 35.3% growth in automotive and transport, to $23.2 million.
• 103% growth in telecom, to $19.1 million.
• 3.8% growth in technology vertical revenue, to $11.7 million.
• Flat sales in travel and aviation, at roughly $7.4 million.
• A 6.2% decline in energy revenue, to just under $3 million.
• A 17.1% decline in all other verticals, to $393,000.
• Revenue by geography included:
• A 3.1% decline in revenue from the U.K., to $57.2 million.
• 31% growth in the U.S., to $66.2 million.
• 30.9% growth in Germany, to $26.8 million.
• 152.6% growth in Switzerland, to just over $10 million.
• 7% growth in Russia, to $8.1 million.
• 56.8% growth in Switzerland, to $7.3 million.
• An 88.1% decline in Singapore, to $338,000.
• 114.5% growth from all other European countries, to $22.7 million.
• 33.3% growth from the rest of the world, to $7.8 million.
• Top-client concentration declined 7.5% year over year through the first six months of the fiscal year.
• Productivity (annualized revenue) per engineer increased 1.2% from the start of the year, to $77,200.
• The quarter ended with cash and equivalents of $80.2 million, down from $131.8 million at the end of last quarter.
• Cash flow from operations came in at $48.2 million through the first six months of the year, or 12.9% of revenue.
• Free cash flow of $41.8 million came in during the first half of the year, or 11.2% of revenue.
• The company acquired INSYS Group, a software development services and IT solutions provider with a significant proportion of revenue generated from the healthcare, pharmaceuticals, biotech and telecom verticals.
• It also acquired Pelagicore AB, a Sweden-based software development services and IT solutions provider focusing on in-vehicle infotainment and human interface development.

What management had to say

CEO Dmitry Loschinin stated:

We are pleased to report financial results for the first half of the financial year, marked by strong growth despite extremely volatile economic conditions and lack of visibility on the market. This is a transformational year for Luxoft. We are diversifying our business and lowering client and vertical concentration, resulting in 7.5% decline in top-client concentration over the first six months. We are expanding premium services and offering consulting capabilities in many standard platforms, such as Murex, Calypso, Pivotal, and Pega, which our clients are adopting at increasing rates. We are rolling out new offerings in Internet of Things, big data, predictive analytics and many more.

Looking forward

Luxoft reiterated its previous guidance for full fiscal-year revenue of at least $781 million, which would represent growth of 20% year over year. Adjusted EBITDA margin is also expected to be in the range of 17% to 19%, and adjusted diluted earnings per share should still be at least $2.85. Meanwhile, Luxoft reduced its guidance for GAAP earnings per share to be at least $1.65, down from its prior guidance of $2.10 per share because of higher acquisitions expenses and costs for additional incentives for new and existing management.

In the end, this was indeed a strong quarter for Luxoft, especially in light of the macroeconomic headwinds it faces. As the company continues to deliver on its promises while steadily expanding its reach through strategic acquisitions, I think long-term investors have every reason to celebrate these results.