Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Staci Strauss Mortenson - IR, ICR

Kris Canekeratne - Chairman and CEO

Tom Holler - EVP and COO

Ranjan Kalia - SVP and CFO

Analysts

Jon Maietta - Needham & Company

Puneet Jain - JPMorgan

Rahul Bhangare - William Blaire & Company

Brian Kinstlinger - Sidoti & Company

Vincent Colicchio - Noble Financial

Virtusa Corporation (VRTU) F1Q11 (Qtr End 06/30/10) Earnings Call July 28, 2010 5:00 PM ET

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Virtusa Corporation first quarter 2011 earnings conference call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference is being recorded.

And now I’d like turn the conference over to Ms. Staci Strauss Mortenson, Integrated Corporate Relations. Please go ahead.

Staci Strauss Mortenson

Thank you. Good evening and welcome to Virtusa’s first quarter fiscal year 2011 earnings conference call, where we will be discussing our financial results for the quarter ended June 30, 2010. On the call with me are Kris Canekeratne, Chairman and Chief Executive Officer; Tom Holler, Executive Vice President and Chief Operating Officer; and Ranjan Kalia, Senior Vice President and Chief Financial Officer of Virtusa.

Certain statements made in this call that are not based on historical information are forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

During this call, we may make express or implied forward-looking statements relating to among other things Virtusa’s expectations and assumptions concerning management’s forecast of financial performance. Virtusa’s ability to assimilate and integrate the operations of InSource and ConVista Consulting, acquisition of new clients and growth of business, the ability Virtusa’s clients to realize benefits from the use of Virtusa’s IT services, the potential impact of currency exchange on our business and operation and management’s plan objectives and strategies.

These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond Virtusa’s control which would cause actual result to differ materially from those contemplated in these forward-looking statements. Existing and perspective investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. Virtusa undertakes no obligations to update and revise the information disclosed during this call, whether as a result of new information, future events or circumstances or otherwise.

Other statements in this call also includes certain non-GAAP financial information as defined by the SEC. We present constant currency revenue to provide a framework for assessing how our revenue performed excluding the effect of foreign currency rate fluctuations. We also present a reconciliation of cash, cash equivalents, short-term and long-term investments that we believe provide insight into our total cash position and overall liquidity.

For additional disclosure regarding these and other risks faced by Virtusa, see the disclosures contained in Virtusa’s public filings with the Securities and Exchange Commission and on our earning press release. With that, I would like turn the call over to Chris. Chris, please go ahead.

Kris Canekeratne

Thank you Staci and thank you for joining us on our first quarter 2011 conference call. We are pleased to report strong Q1 results and increase of our fiscal year 2011 revenue guidance. The momentum we built during the second half of fiscal year 2010, continued into the first quarter and we are expecting the improved demand environment to continue for the remainder of the fiscal year. Our value proposition continues to resonate meaningfully within the marketplace enabling us to drive business transformation, accelerate time-to-market and improve total cost of ownership for our clients. With our expanded solution and service offerings, we are capturing a larger portion of the market opportunity and this is reflected in our significant year-over-year growth rate.

Here are some of the highlights from the first quarter fiscal year 2011. For the June quarter, total revenue was $51.4 million, an increase of 38% year-over-year and 8% sequentially. Our operating income was $3.1 million or 6% and earnings per diluted share was $0.13. Our Q1 growth was broad-based and spent many of our services, geographies and industries. Financial services revenue was particularly strong growing 58% year-over-year driven by the ongoing need of our clients to find operating efficiencies and increases in discretionary spending.

Let me take a moment to provide you with additional detail on what is driving this trend of other business and why we believe that our growth drivers are sustainable. First, the demand environment is improving, clients continue to look to Virtusa to drive operational efficiencies and rationalize their IT spend. We are uniquely able to do this through our platforming approach and optimized global delivery model.

What has changed, however, is that the savings we generate for our clients are now being reinvested in growth initiatives. This is enabling Virtusa to participate in this entire life-cycle from reducing application maintenance costs to investment in support of business outcomes that accelerate time-to-market and improve the consumer experience.

Our value proposition matched with a better business environment, is also translating to strong client wins. During the quarter, we added five new clients. All five clients are high quality and have the potential to become strategic. Second, our engagement teams are focused on improving our clients’ end-user experience. This provides us with insights into customer facing processes and critical business drivers enabling us to innovate reduced cycle time, improve application efficiency and create competitive advantage for our clients. This focus on our clients’ consumer experience continues to differentiate us within the marketplace.

In one client example, users were frustrated with the core business application, use of financial modeling, which made critical information difficult to obtain. Data was not well integrated with other critical business systems and therefore not actionable. This resulted in low adoption of the application and several manual workarounds which affected user productivity and caused compliance challengers for the client. But we also were able to establish a vision and strategy for improving application usability and the consumer experience. This strategy was then prototyped to demonstrate the solutions’ potential and facilitate acceptance.

We then implemented this using our global rapid application development methodology, resulting in an increased adoption of the business system and better productivity. Having greatly enhanced the user experience and significantly improved application asset productivity, we have shown our value and strengthened our partnership. This client is also representative of the efforts we have undertaken during the last two years to increase the number and quality of our client base and access a larger percentage of their ideal spend. We are just starting to realize the growth potential of these clients and we expect many of them to drive the long-term growth of our business.

Third, our business consulting team and industry leading solutions provide transformational value to our client, and we are seeing an increase in demand for these services. Our clients need to accelerate many of their customer facing initiatives, but lack internal staff and expertise to rapidly define and implement solutions that accelerate their business goals.

Through a combination of industry, IT and business process expertise, Virtusa has built a strategic organization focused on facilitating business consulting workshops which accelerate the analysis, design and development of a solution. In addition, we are winning a downstream implementation of these programs, significantly expanding our [wallet] share and strengthening our client relationships.

As an example, over the last year, we have conducted several accelerated solution design workshops for a large financial services client. In one case, they have been developed, and built a consensus around a key strategic securities initiative, including a solution architecture and roadmap for a transformational program to improve product and service efficiencies. In another, we worked with the client to design and initiate a major global business process management program across a diverse product lift. In a third, we helped design self-service capabilities intended for use by the external clients. We then worked to build and implement the solution.

The bottom line is that we have provided significant value to this client, and with each specific project, we were able to address larger, more strategic issues and take on the downstream execution. As you can tell, our ongoing investment in support of strategic programs is creating competitive advantage for us. Of a broadened value proposition from consulting through implementation, it is strengthening our client relationships and expanding our revenue opportunities. We will continue to selectively invest in support of our solutions offerings and growth enablers to expand our addressable market.

Turning to our current outlook, we continue to expect double-digit revenue and earnings per share growth for the fiscal year 2011. We expect our growth to be broad-based across services, industry growth and geographies. While competition around hiring and retaining employees has increased with the better demand environment, we have an attractive value proposition of strong and unified culture, a robust hiring engine and the proven ability to scale our operations.

Now let me turn the call over to Ranjan, who will provide more detail on our results and provide with first quarter and fiscal year 2011 guidance. Ranjan?

Ranjan Kalia

Thanks Kris and good evening to everyone. Before I begin, I want to let you know that we have created an analyst data sheet and posted it in the Investor Relations section of our website. This document contains a listing of key metrics we use to manage and measure our business and have been disclosing to you on a regular basis. This analyst datasheet will allow you to focus on specific pieces of the business during the conference call and will provide you consistent data to write your reports and build your models.

Now let me start by summarizing the results of our first quarter fiscal 2011 before providing our guidance for the second quarter and full fiscal year 2011. Please note, that this is the first full quarter for ConVista Consulting which we acquired on February 1st, 2010. All of the numbers being discussed our US GAAP expect with regards to use of constant currency revenue metrics.

Turning to our results for the quarter ended June 30, 2010, revenue for the first quarter came in at $51.4 million. This represents a year-over-year increase of 38% and quarter-over-quarter increase of 8%. In constant currency, our revenue increased 39% year-over-year and 8% sequentially, after normalizing for the British pound against the US dollar in each comparative period.

Our operating income for the quarter was $3.1 million, the same as the year ago period. Operating margin decreased from 8.3% in our first quarter last year to 6% in our first quarter ended June 30th, 2010. The primary drivers of this 230 basis point decrease are 70 basis points negative impact from an increased use of contractors. This was due to the increased demand for new program starts, which initially have more work conducted on site, offset by a positive impact from an increasing utilization and SG&A leverage.

180 basis point negative impact from increased compensation expense reflecting annual pay increases. 300 basis point of negative impact as a result of acquisition, amortization and acquisition related retention bonuses. Finally, 320 basis point of positive impact due to the changes in the British pound and Indian rupee against the US dollar driven primarily by our hedging strategy.

Fourth quarter operating income decreased by $100,000 quarter-over-quarter. Operating margin decreased from 6.7% in the prior quarter to 6% in our quarter ended June 30th, 2010, primarily driven by the following: Our 635 basis point negative impact from increased compensation due to the annual salary increases, as well as acquisition amortization and acquisition related retention bonuses. Primarily offsetting these increased cost work, SG&A leverage had a positive impact due to the changes in the British pound and Indian rupee against the US dollar driven by our hedging strategy.

First quarter other income was $200,000 inclusive of an FX of $200,000, which was not included in our guidance. This was due to the FX losses or non-GBP trade accounts receivable held by our UK subsidiary. We had an income tax expense of approximately $200,000 in our first quarter ended June 30th, 2010, which equates to an effective tax rate of 6.3%. This includes a one-time tax benefit of approximately $370,000 primarily related to a settlement achieved through the US competent authority procedures under the India US tax treaty.

Net income for our June quarter was $3.1 million, compared to $2.6 million in the first quarter of last year. Diluted earnings per share was $0.13 in our first quarter of fiscal 2011, compared to $0.11 in the first quarter of last fiscal year.

Turning to the balance sheet. Ending cash was $89.9 million, inclusive of cash equivalents, short-term and long-term investments, a decrease of $6.1 million for March 31st, 2010. Cash flows used by operating activities were $2.5 million in the first quarter. This was primarily due to an increase in DSO, including unbilled receivables which were 78 days compared to 68 days in the prior quarter. Our DSO was negatively impacted by the timing of certain collections.

Since the beginning of the second fiscal quarter we have collected a significant portion of these outstanding invoices and we expect DSO to trend more in line with our target of 70 to 75 days. We also expect to return to positive cash flows from operations in Q2. Capital expenditures were $3 million in the June quarter, inclusive of $1.5 million for the build out of our Hyderabad campus.

Depreciation expense in the quarter was $1.3 million. Acquisition amortization and acquisition related retention bonus expense in the quarter was $1.6 million. Now let me turn to some additional quarterly financial and operational metrics beginning with those related to our fiscal quarter revenue. Revenue by geography was as follows: North America was 76% on revenue, increasing 36% year-over-year. Europe was 21% of revenue increasing 34% year-over-year. Excluding BT, Europe grew 14% year-over-year. Other geographies contributed 3% of revenue.

Revenue growth across our industry group was as follows: BFSI increased 58% year-over-year, representing 53% of total revenue in the first quarter. Sequentially, this industry group grew 15%. Communication and technology represented 30% on revenue and grew 35% year-over-year. Sequentially, this group decreased 1%. Media information and other contributed the remaining 17% of revenue, increasing 1% year-over-year. Sequentially, this group increased 3%. BT contributed 15% of revenue in the quarter. We are pleased with our performance at BT which grew year-over-year 44% in reported currency and 51% in constant currency. Sequentially, BT declined 2% in reported currency and grew 2% in constant currency.

For the quarter, we had three clients who contributed greater than 10% of revenue. 77% of our revenue came from clients we have partnered with for more than one year inclusive of those we added through acquisitions during the second half of last fiscal year. On an organic basis, this metric was 90%. Looking at new client wins. During the quarter, we commenced work with five new clients. Of these clients, three were in BFSI, one was in communication and technology and one was in media, information and other. We ended the quarter with 69 active clients.

Turning to our operating metrics. We ended the quarter with 3,985 IT professionals, an increase of 8% compared to the prior quarter. Attrition calculated on a trailing twelve month basis, was 21.4% versus 18.6% in the prior quarter. Similar to our peers, attrition has increased with the improved demand environment. Mobile utilization excluding trainees was 78% in our first quarter consistent with the prior quarter.

Now I will provide our current guidance for our second fiscal quarter ending September 30th, 2010, and for full fiscal year 2011. As a reminder, all of our numbers are on a US GAAP basis. Revenue in the second quarter of fiscal 2011 is expected to be $51.5 million to $53.6 million. Diluted earnings per share in the second quarter of fiscal 2011 is expected to be $0.13 to $0.17. Earnings per share anticipates an average share count was approximately $24.6 million. For the full fiscal year ending March 31st, 2011, our revenue range is currently expected to be $206 million to $216 million. Fully diluted earnings per share for the full fiscal year 2011 is expected to be in the range of $0.59 to $0.73. Full year EPS anticipates an average share count of approximately $24.6 million.

Our current guidance is based on the following set of assumptions: annual effective interest rate yield of approximately 1.5% on average projected cash balance including long and short-term investments. This is slightly lower than our previous assumption of 1.9%. We have not considered any potential impact to other income associated with foreign exchange gains and losses. Indian rupee foreign currency hedge contracts are in place for the fiscal year ending March 31st, 2011. Based on existing hedging contracts, the waited average Indian rupee to US dollar conversion rate improves as compared to fiscal 2010.

The weighted average Indian rupee conversion rate for the remainder of fiscal year ending March 31st, 2011 is approximately 48, which is slightly better than the effective rate we realized in our June quarter. In addition, guidance does not consider the possible impact of having ineffective hedging contracts throughout the fiscal year. Our current guidance anticipates a British pound to US dollar conversation rate of 1.5, which consider the benefit of revenue and cost hedging contracts already in place for our second quarter. For the remaining quarters of the fiscal year, we expect an effective tax rate of 17%. We continue to anticipate the spending on Hyderabad campus in our fiscal year will be $7.2 million.

Now I will like to spend a moment providing you with our current thoughts on our second quarter and fiscal year 2011 guidance.

In the first quarter we experienced increasing demand and we expect this will continue as we move throughout fiscal year 2011. As Chris discussed, our value proposition continues to resonate meaningfully. The investments we made in our solutions are enabling us to capture an expanded market opportunity.

We want to share a few observations that are positively impacting our business. Clients are spending on IT rationalization to improve operating efficiencies and realized savings. Today these savings are being reinvested to fund growth initiatives. Our combined solutions, consulting and platform offerings are enabling us to play in this entire life-cycle from reducing maintenance cost to initiatives that drive business outcomes.

Clients are focused on faster and measurable ROIs and this aligns well with Virtusa strengths which reduce time-to-market and improve TCO. Our differentiated value proposition is enabling us to keep realized pricing stable and we have based our current full fiscal year guidance on this assumption. We are pleased with how the business is performing and therefore are incrementally raising our revenue guidance for the full fiscal year. We continue to expect double-digit year-over-year revenue growth with particular strength in our two primary geographies, US and UK and our largest industry group BFSI. When we look at the second quarter, we expect gross margins to return to approximately 40% due to delivery efficiency progress.

We continue to expect that second half gross margins will move to our target range of low 40% as we realized additional efficiencies from the programs we have instituted. As a reminder, our operating profit dollars are expected to increase year-over-year even after the inclusion of $6.1 million or approximately 300 basis points from acquisition amortization and acquisition related retention bonuses. These quarterly expenses will be approximately flat in second and third quarters and then decline significantly in our fourth quarter. Our expectations remain that we will grow earnings per share double-digits for 2011 fiscal year.

I will turn the call over to the operator to begin Q&A. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll hear first from Jon Maietta with Needham & Company.

Jon Maietta - Needham & Company

Kris, I was wondering if you could talk a little bit about the progress you are making in terms of, not only integrating InSource and ConVista, but maybe some early stage traction with regard to cross-selling into those two businesses.

Kris Canekeratne

Jon, actually the integration of both ConVista and InSource have gone quite well. As you know, in some instances with one of the acquisitions, we had actually worked with them for a year before the acquisition, and we are starting to see now that we can actually go in to some of our giant customers and across some of the services that either party didn’t have from prior to the acquisition. So, we are very pleased with both the acquisitions, the cross-sell options that we have within our combined customer base and the quality of the services that we can deliver to a global model.

Jon Maietta - Needham & Company

On the last earnings call, Kris, you had talked about expanding your footprint so to speak in Europe and the UK, and I was wondering if you could talk about that effort?

Kris Canekeratne

So, as you can tell from the results that we had, we made very good progress in general across both the US and the UK. Europe continues to be a very small percentage of our revenue, and we don’t anticipate nor expect that we will see significant growth in Europe outside of the UK this year. However, we feel that the opportunities that we have and the engagements that we have started in Europe actually have very high potential, and therefore we expect that the return on those initial engagements could actually occur later as the European economy starts to improve. But in interim we are seeing strong growth in the UK. We expect that, that will continue for the remainder of this fiscal year as is the case with the US.

Operator

We’ll go next to Puneet Jain with JPMorgan.

Puneet Jain - JPMorgan

Hey guys. Nice revenue performance during the quarter.

Kris Canekeratne

Thank you Puneet.

Puneet Jain - JPMorgan

So Kris, a question for you. Offshore leverage continued to decline sequentially, which we assume is due to acquisition in the March quarter, but given that your business mix has changed it include more consulting work right now related to maybe a year ago? How should we think about the new normal offshore leverage in your business? Can it go back to [percent] what it’s called?

Kris Canekeratne

So Puneet, it had been as low as 85%. There are two reasons for the increase: one is that we have started several new engagements, and as you well know, when you start engagements that are complex engagements, there is a higher onsite percentage than as these engagements move into a downstream execution mode.

The other is obviously the fact that we’ve acquired two companies, ConVista and InSource, that they had predominantly a domestic base consulting and our services. We believe that as time goes on and as we take advantage of combined customer base and provide our general services as into our global delivery model that we will continue to maintain a very strong onsite offshore ratio. We have always talked about being a 20-80, we have operated well within that threshold in the past, and as we move forward we believe that we will continue to operate very efficiently perhaps more efficiently than most others in our industry.

Puneet Jain - JPMorgan

So 20-80 or closer to 20-80 is more like it, like it may not go back to 15-85…

Kris Canekeratne

We believe that it will be that it will be less than 20-80, but depending on the mix of work, I do not believe that for the remainder of this fiscal year that we will see onsite offshore ratio go as low as 15%.

Puneet Jain - JPMorgan

Your guidance indicates a relative growth slowdown in the September quarter, which is seasonally a very high growth quarter for the industry. So is there anything specific, any headwinds that you expect in the next quarter or is it just like being conservative?

Ranjan Kalia

We feel very good about that if we look at all ranges in our guidance, it really talks about a note of 25% year-over-year growth versus last year. We do a bottoms-up view in terms of determining our guidance ranges. They have assumptions which relate to expansion and other existing clients. They have assumption related to conversion of pipelines, and also we try to incorporate assumptions related to how economic environment can impact us. I mean all that is incorporated and computed with regards to getting to the ranges. And if you look at it today versus the guidance that we gave last time, the low end of the guidance has been raised by $5 million. So, you know, we feel better in terms of the visibility that we have in the business today.

Puneet Jain - JPMorgan

My question was more about the September quarter guidance, like I mean on the sequential growth, this is from June to September. So, like at the low end September quarter implies zero growth. Some of that could be because of currency, but even if you exclude that, I mean it’s still a low single-digit.

Ranjan Kalia

There is lot of variables that are still out there, right. The economic environment is still a little bit fragile, so we wanted to make sure we incorporate all those in the range that we provide deals, and that’s what we have done.

Puneet Jain - JPMorgan

And last question if I could. BT continued to grow nicely sequentially during the quarter on constant currency, while it was probably weak at some of the larger IT services vendors. So Kris, can you comment what drove the relative out performance on the contract and what your expectations are for the rest of the year?

Kris Canekeratne

We are actually very pleased, Puneet, with the progress that we are making at BT. As you well know, both the type of work that we do, the platforming approach the quality of service and the track record that we have had at BT. The relationship that we have at BT have all been very, very strong and bode very well for Virtusa. I think we have also shared with you over the past especially during last year.

We made some investments in continuing to take over new work additional opportunities and we are starting to realize some of the benefits of those programs. We believe that the reason that we are doing well at BT is simply because of the fact that we have an outstanding track record of service at BT, they extremely will align strategically in terms of their platforming approach, and our platforming approach in terms of delivery, and that’s really the underline premise behind the strong performance of BT.

Operator

We’ll go next to Rahul Bhangare with William Blair & Company

Rahul Bhangare - William Blair & Company

Hi, it’s Rahul in for Bhavan Suri. Nice quarter.

Kris Canekeratne

Hi Rahul. Thank you.

Rahul Bhangare - William Blair & Company

First question has to deal with attrition. What is your expectations and how you plan to combat it and also hiring plans?

Tom Holler

Hi Rahul, it’s Tom. Our attrition did step up a little bit sequentially. As you know, the demand environment has improved pretty significantly across the industry and with that across the industry we’ve also seen higher attrition rates. It s not overly concerning to us, most of our attrition is really at the junior level employees and we have a very robust hiring engine employees. We anticipate through overreach our initiatives in additional investments that we will be able to improve retention going forward for the rest of the year. We have strong programs in career planning, mentoring and coaching programs. We have implemented an early warning system to detect employee dissatisfaction. So we have a number of programs in place. And we have, again a robust hiring engine.

Rahul Bhangare - William Blair & Company

Do you have a projected consulted hiring plan for the year?

Tom Holler

We don’t disclose our specific hiring plans, but our utilization targets long-term are 70% to 75%. We anticipate running at the higher end of our model going forward. So, based on our revenue projections and those utilization ranges, that’s how we model our accepting plans.

Rahul Bhangare - William Blair & Company

Okay. Then turning to acquisitions. Anything that you feel is still missing from the portfolio, any types of companies you are still looking at?

Kris Canekeratne

You know, Rahul, we obviously made directly this in accordance with our strategy of making sure that we can incorporate services and our expertise that we felt very important from a go-to-market perspective. We are obviously very focused on integrating and leveraging the benefits that we have now with a broader client base that we can cross-sell. Having said that, we will continue to work towards adding new services, new geographies and domain expertise as we move forward, but I think for the immediate, we will continue to focus on the two acquisitions that we have made and continuing to integrate them and leverage the benefits that we can leverage out of them.

Operator

We’ll go next in line Brian Kinstlinger with Sidoti & Company.

Brian Kinstlinger - Sidoti & Company

I was just curious on the outlook, first of all on the bottom line, why such a wide range? It seems abnormally wide.

Ranjan Kalia

So Brian, we have reduced the range. The range used to be $14 million revenue, but it is now down to a $10 million range.

Brian Kinstlinger - Sidoti & Company

I am talking about the earning range is so wide though.

Ranjan Kalia

It is similar with the EPS range. The EPS range is also strong, which used to be $0.16, it’s now $0.14. As we are having more visibility into the business, we are reducing that and we can always revisit that again in October.

Brian Kinstlinger - Sidoti & Company

Okay. And then on the sequential revenue growth on the guidance, it seems that most of the smaller players, especially with differentiated platforms which they suing apart between, but you seem to be one of them, are posting much stronger sequential growth. So I am curious if you think it is, anything holding you back to be going a little bit faster. I mean, certainly you’ve put at some nice growth, but when you look at some of peers, it seems to lag a little bit. So I am wondering how you get there or something has been differed in any way to not allow you grow a little bit faster?

Ranjan Kalia

Well, Brian, I understand from a sequential perspective that you have, but you’ve also got to look at it from year-over-year growth, and if you look at it from all dimensions on the business, the portfolio that we have of the business in front us is really growing double-digits across. We believe, sequentially we are going to grow based on the guidance that we’ve provided on market, and value proposition is resonating. That is shown in Q1. So we feel pretty good about our growth prospects, this quarter and going forward.

Brian Kinstlinger - Sidoti & Company

Right, but at the low end, if it isn’t the same exact number pretty much as the first as you just reported?

Ranjan Kalia

Yes, I think we talked about earlier at the low end, and really on all ends. We’ve got various levels of assumptions which range from expansion at existing clients, conversion of pipelines in terms of taking IT spending at our clients. We incorporate all of that to compute revenue guidance range and we try to reflect in each one of those levels, and that’s what we’ve provided you.

Brian Kinstlinger - Sidoti & Company

Have you lost any clients? Any decent sized clients or are there any major contractions of spending some particularly large clients?

Ranjan Kalia

Nothing significant. We have got four clients that became inactive. The clients have become inactive, didn’t really contribute meaningfully to the quarter at all, and even if you take them for the last four quarters, their revenue contribution was less than 1%, so no meaningful contractions.

Brian Kinstlinger - Sidoti & Company

The last question I had on the insurance side of the SAP product that you, the company you bought. I am curious if you are seeing in the future any major cross-selling opportunities or any new sales as a result of you having this product yet, but now you have scaled more than they had. So, maybe they went to win a client that maybe now you are winning with them.

Kris Canekeratne

And the answer yes, Brian, we are seeing opportunities there in the past. ConVista by themselves would not have been able to completely execute, nor could we have, given the fact that we didn’t have the high volume enterprise application competency that ConVista brought to the table. So, on a combined basis, we believe that they have brought an ongoing cross-sell opportunity within the ConVista clients that we acquired and into our clients, and we also believe that we can execute some of this work and new service opportunities through a global delivery model. So we feel very good about both the acquisitions and the opportunity it presents us.

Operator

(Operator Instructions) We will go next to Vincent Colicchio with Noble Financial.

Vincent Colicchio - Noble Financial

Kris, in terms of downstream work, could you give us some more color in terms of which practices are seeing the most traction?

Kris Canekeratne

I missed the first part of that question in terms of what type of work?

Vincent Colicchio - Noble Financial

Downstream work. The follow-up work, what it could be on the maintenance.

Kris Canekeratne

So clearly, all of our industry sectors are showing strength and growth for the full fiscal year. We are seeing particularly strong growth opportunities in the banking and financial services on the BFSI segment, and in this segment specifically and generally across all segments we have very strong value proposition, it resonates particularly well, enables us to go in and provide consulting services to really help them realize certain business outcomes and opportunities, and then once we get in, we continue to take on the downstream project work and execute it through our growth delivery model and continue to expand.

So, generally speaking we are seeing this across the board, specifically in banking and financial services, I could say there is a heightened demand in BFSI. And then obviously, the solutions that we have are resonating particularly well and the solutions as you well know in the business process management, enterprise content management, data warehousing and business intelligence, and now high volume enterprise applications are built on SAP platforms. These are all areas that are resonating particularly well and once we get in, we have the fairly significant pull-through opportunity of being able to execute and implement these solutions through a global delivery model.

Vincent Colicchio - Noble Financial

Well, I was wondering, some of the partners you go to market with, into [whirlwinds] for example. Does any particular partner stand out in terms of getting very good traction right now?

Kris Canekeratne

In each of our solutions sets are sowing Enterprise Content Management, BPM, now in SAP, DW/BI, in all of these areas we have multiple partners. In different industries we see that different partners have more traction than others, but our approach has been to provide best-in-class services. In these areas we are second to none. We have some of the finest services across DW/BI, ECM, BPM and our high volume enterprise applications built on SAP. So, we do partner with a variety of different service solutions providers and together depending on the market that they are strong in, we see different other subtractions. But as far as we are concerned, we provide best-in-class services across these four solutions sets.

Vincent Colicchio - Noble Financial

A question on sales. Have you been hiring any serious sales people? Are you well positioned sort of in a steady state to capitalize on the current market conditions?

Kris Canekeratne

We continue to hire and add sales people, planned-services, people consult in the business. We have made good progress with the sales professionals that we have had in the firm and we believe that, that’s one of the primary reasons for the traction that we have with new clients and also expanding with our existing plans.

Operator

And we have no further questions from the phone audience. I’ll turn the conference back over to our speakers for any additional or closing remarks.

Kris Canekeratne

Thank you. Thank you for joining us today. In closing, we are pleased with our results of the first quarter and expect the strong demand trends to continue. We will expand in our addressable market and this is clearly helping to drive growth. Our business consulting and solutions and rationalization expertise provides our clients with significant competitive advantage and clear differentiation from the [two subs] versus our competition. I would like to once again thank our global team members for tireless efforts. Thank you for joining our call today.

Operator

Ladies and gentlemen, that does conclude today’s conference call. We would like to thank you all for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Virtusa Corporation F1Q11 (Qtr End 06/30/10) Earnings Call Transcript
This Transcript
All Transcripts