Luxoft Holding (LXFT) announced fiscal second-quarter 2019 results early Thursday, delivering roughly flat sales as it continues its strategic customer-diversification efforts and shifts toward higher-growth markets.
But for the fourth time this year, the software-development company provided an underwhelming forward outlook with promises of improved growth down the road. Shares are down 14% in response, so let's dig in to see how Luxoft capped the first half of its fiscal year and what investors should be watching in the quarters ahead.
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Luxoft Holding results: The raw numbers
| Metric |
Fiscal Q2 2019* |
Fiscal Q2 2018 |
Year-Over-Year Growth |
|---|---|---|---|
|
GAAP revenue |
$228.4 million |
$228.0 million |
0.2% |
|
GAAP net income |
$14.4 million |
$18.4 million |
(21.7%) |
|
GAAP earnings per diluted share |
$0.43 |
$0.54 |
(20.4%) |
DATA SOURCE: LUXOFT HOLDING. *FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018. GAAP = generally accepted accounting principles.
What happened with Luxoft Holding this quarter?
- Revenue was well within Luxoft's guidance provided in August, which called for a range of $225 million to $230 million.
- Adjusted for items like stock-based compensation and acquisition expenses, Luxoft's (non-GAAP) earnings arrived at $25.1 million, or $0.74 per diluted share, well above the $0.63 per share most investors were expecting.
- Adjusted EBITDA fell 5.2% year over year, to $36.6 million.
- By industry vertical:
- Financial services revenue fell 2.9% year over year, to $125.4 million.
- Digital enterprise revenue dropped 10.4%, to $52.7 million.
- Automotive revenue climbed 25.8%, to $50.3 million.
- Annual revenue per billable engineer grew 0.4% year over year, to $83,043.
- Luxoft's top two accounts, UBS and Deutsche Bank, were 30.2% of total revenue, down 5.2 percentage points year over year. Its top five and top 10 accounts were 43.4% and 54.3%, respectively, of total sales, both down 3.3 percentage points from the same year-ago period.
What management had to say
Luxoft CEO Dmitry Loschinin stated:
Our second-quarter results demonstrate continued execution of our strategic priorities and transformational initiatives. We continue to diversify our revenue and realign our focus and resources to the highest growth opportunities. Growth in Financial Services remains healthy, despite challenges in the Investment Banking sector, while our leading Automotive solutions continue to drive strong customer demand. We remain sharply focused on enhancing our Digital solutions in order to advance our competitive position and meet the evolving needs of our clients.
Looking ahead, we remain focused on advancing our transformation and building a stronger and more diversified company. While we expect some headwinds during the second half of the year, we are confident that further execution of our strategy will strengthen our long-term growth profile and position us to deliver increasing shareholder returns.
Looking forward
During the subsequent conference call, Loschinin elaborated that the second half will see growth headwinds from a combination of the timing of revenue recognized in the financial-services space, softness from the investment-banking market, and Luxoft's "decision to walk away from a low-margin project with a Tier 1 financial-services client."
For the current third quarter of fiscal 2019, Luxoft sees revenue arriving in the range of $230 million to $235 million. That's down from $236.6 million in the same year-ago period and well below the $250 million projected by most analysts.
Loschinin also insisted that Luxoft's outlook for next fiscal year is "positive" and predicted accelerated growth with the help of the continued execution of the company's strategic vision. But considering management's recent habit of providing soft guidance, along with the fact that our market hates being told to hurry up and wait, it's hardly surprising to see shares trading sharply lower today.
