Luxoft Holding Delivers a Quarterly Win

Luxoft Holding (LXFT) announced strong fiscal fourth-quarter results on Monday, after the market closed. Similar to its modest post-earnings drop in February, shares of the software development specialist fell 3.6% on Tuesday as investors absorbed the news.

Keeping in mind that shares are still up more than 12% so far in 2017, let's take a closer look at how Luxoft ended its fiscal year, as well as what we should expect from the company going forward.

Image source: Getty Images.

Luxoft Holding results: The raw numbers

Data source: Luxoft Holding. *For the quarter ended March 31, 2017.

What happened with Luxoft Holding this quarter?

• Revenue climbed 22% on a constant-currency basis.
• On an adjusted (non-GAAP) basis -- which excludes items such as stock-based compensation and acquisition expenses -- net income climbed 14.4% year over year to $21.5 million. Adjusted earnings per diluted share increased 12.5% to $0.63.
• Quarterly adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 10.2% to $29.2 million.
• That brought full fiscal-year revenue to $785.6 million, with adjusted EBITDA of $133.8 million, or 17% of revenue, and adjusted earnings per diluted share of $2.89.
• Luxoft's full-year guidance -- which was reiterated last quarter -- called for full fiscal-year revenue of at least $781 million, adjusted EBITDA margin of 17% to 19%, and adjusted earnings of at least $2.85 per share.
• Revenue by industry vertical included:
• 0.5% growth in financial services revenue to $116 million.
• 29.5% growth from automotive and transport to $29.4 million.
• 132.6% growth in telecom revenue to $23.1 million.
• 61.4% growth from technology to $14.5 million.
• $9.6 million in revenue from the recently broken-out healthcare market.
• 17.3% growth in travel and aviation to $6.1 million.
• 20.4% growth from energy to just over $4 million.
• $1.4 million in revenue from all other market verticals.
• Top-three and top-five client concentration has declined roughly 10% over the past year. Luxoft's top 10 accounts now represent roughly 66% of total revenue, down from 74% a year ago.
• Productivity (annualized revenue) per engineer climbed 2.5% year over year to $78,265.
• The company generated free cash flow of $98 million this fiscal year.

What management had to say

Luxoft CEO Dmitry Loschinin stated:

We are pleased to report solid operating and financial results for the fourth quarter and the full year ended March 31, 2017. They reflect strong positive fundamental improvements in our client dynamic and business composition, such as strong growth of [high potential accounts], substantial decline in client and vertical concentration, and diversification of our client base. We have been successfully executing on several transformational initiatives, investing consistently to become a more effective agile global company, capable of competing for bigger deals and serving a wider variety of clients in various markets. [...] During the past year we closed three strategic acquisitions, expanded in key geographies, and launched a new healthcare and life-sciences vertical -- all while maintaining high pace of top-line growth, preserving our margins, staying free of long-term debt and generating healthy levels of free cash flow.

Looking forward

For the full fiscal year ending March 31, 2018, Luxoft expects revenue of at least $943 million, good for growth of at least 20% year over year. Luxoft also anticipates that adjusted EBITDA margin will remain steady in the 17% to 19% range, which should translate to GAAP EPS of at least $1.90 and adjusted EPS of at least $3.26. By comparison -- and though we don't typically pay close attention to Wall Street's demands -- consensus estimates called for higher adjusted earnings of $3.48 per share on revenue of $968 million.

Combined with Luxoft's year-to-date share-price appreciation, this explains the market's immediate muted negative reaction. At the same time, Luxoft's chosen verbiage leaves some wiggle room for the company to over-deliver on its guidance. So all things considered, I think Luxoft investors should be pleased with their company's progress as it kicks off a new fiscal year.