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TMCNet:  Luxoft Holding, Inc Reports Results for Three Months Ended June 30, 2017

[August 10, 2017]

Luxoft Holding, Inc Reports Results for Three Months Ended June 30, 2017

Luxoft Holding, Inc (NYSE:LXFT), a leading provider of software development services and innovative IT solutions to a global client base, today announced results for the three months ended June 30, 2017.

Highlights - Three Months Ended June 30, 2017

  • US GAAP revenue amounted to $209.2 million, an increase of 17.5% year over year
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $26.4 million and adjusted EBITDA margin was 12.6%, compared to $29.6 million and 16.6% in the year-ago quarter
  • Diluted EPS on a US GAAP basis was $0.18, compared to $0.42 in the year-ago quarter
  • Diluted EPS on a non-GAAP basis was $0.50, compared to $0.62 in the year-ago quarter
  • As of June 30, 2017, the total number of employees was 12 814, revenue per billable engineer has increased to $75.9 thousand.

Revenue for the three months ended June 30, 2017 increased to $209.2 million, up 17.5% from $ 178.0 million for the same period a year ago, and increased 2.5% sequentially. Adjusted EBITDA was $26.4 million with corresponding margins of 12.6%, as compared to $29.6 million and 16.6%, respectively, in the year ago quarter. US GAAP net income was $6.3 million, or $0.18 per diluted share, compared to $14.1 million and $0.42 per diluted share for the same period a year ago, and $13.7 million and $0.40 sequentially. Non-GAAP net income was $17.1 million, or $0.50 per diluted share, compared to $21.0 million and $0.62 per diluted share for the same period a year ago, and $21.5 million and $0.63 sequentially. Reconciliations between non-GAAP financial measures and US GAAP operating results and diluted EPS are included at the end of this release.

"We posted a top line growth for the quarter below 20%, impacted by the expected deceleration in the top two accounts. Additional headwinds came from seasonal weakness, decision making slowdown in the financial services vertical, and softer growth within two large M&A-related customers, affected by their internal reorganizations. Despite of that, outside of the top two accounts the business posted a strong annual growth in excess of 55%. We are expanding offerings in Automotive, Healthcare and Digital Enterprise, where we see demand for high complexity digital innovation and cloud deployments, which is a part of our current backlog," said Dmitry Loschinin, Luxoft's CEO and President. "As we continue to diversify our business, we are pleased to see success across a broad client base and a further increase in our revenue per billable employee, while top 3 client concentration decreases 16% year over year. Financial year 2018 is a pivotal year for our company, with a lot of moving parts, some challenges, yet really exciting changes and business opportunities."

The company's following verticals experienced revenue growth, with Telecom and Automotive delivering the strongest performance of 157.1% and 38.0%, respectively, on a year over year basis. Financial Services decreased 7.3%, compared to the year ago quarter.

The company exhibited solid performance across the following core revenue-generating geographies: revenues generated in North America increased 66.3% and revenues generated in Europe increased 23.4%. This quarter the company changed its methodology for reporting revenue breakdown by geography, merging some of the locations previously reported on the stand-alone basis. This methodology will be consistently applied going forward.

"We are pleased to report good double digit growth in the first quarter, most of which was delivered by strong performance of high potential accounts, which comprise 37% of total revenues for this period. This year we continue seeing some headwinds on our gross margin side, primarily driven by investments associated with development of our high potential accounts, which, while growing in revenue concentration, have not yet reached firm-wide average gross margin levels. Our profitability is also affected by rebalancing of the client portfolio and initially lower margin accounts that usually come from the acquisitions," stated Evgeny Fetisov, Chief Financial Officer. "We have a solid pipeline of new opportunities and a continued strong performance of the HPA base, now consisting of 50 accounts. Thus, we expect the pace of organic growth to improve as compared to last year to above 30% outside of top 2 accounts. In the upcoming quarters we also anticipate to post improved adjusted EBITDA and net income."

Outlook for the Financial Year Ending March 31, 2018

  • Revenue is expected to be at least $920 MM, revised down from originally announced $943 million, which represents an increase of at least 17.1% year over year
  • Adjusted EBITDA margin is expected to be in the range of 15.5% - 16.5%, revised from previous guidance of 17.0% - 19.0%
  • Diluted EPS on GAAP basis is expected to be at least $1.53, and diluted EPS on a non-GAAP basis at least $2.85
  • EPS is based on an estimated weighted average of 35,051 thousand diluted shares

Conference Call Information

A conference call will be conducted with the members of Luxoft's senior management at 8:00 a.m. EDT on Friday, August 11, 2017 to review the financial and operational performance of the company for the above-mentioned period.

To participate in the conference call please dial 877-407-8293 (for domestic U.S. callers) or 201-689-8349 (for international callers). A live webcast will also be available during the call and can be accessed at http://edge.media-server.com/m/p/ek9zw46c/lan/en. Participants, please access the website at least 10 minutes prior to the call to register and follow the instructions provided on the website to download and install the necessary applications.

If you are unable to join our live event, a replay will be available by dialing 877-660-6853 (for domestic U.S. callers) or 201-612-7415 (for international callers) and entering the conference ID# 13666208. The replay will be available from two hours as of the end of the call and up to 11:59 p.m. EDT on August 25, 2017. The replay will also be available at Luxoft's Investor Relations portal for 14 days following the call.

About Luxoft

Luxoft Holding, Inc (NYSE:LXFT) is a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large multinational corporations. Luxoft's software development services consist of core and mission critical custom software development and support, product engineering and testing, and technology consulting. Through its services and solutions, Luxoft helps clients improve their competitive position by increasing efficiency, optimizing costs, and enabling changes through disruptive digital technologies that enhance end-user experience and shorten time-to-market.. The Company develops its solutions and delivers its services from 35 dedicated delivery centers worldwide. It has over 12 800 employees across 40 cities and 19 countries in North America, Mexico, Western and Eastern Europe, Asia Pacific, and South Africa. Luxoft is incorporated in Tortola, British Virgin Islands, has its operating headquarters office in Zug, Switzerland and is listed on the New York Stock Exchange. For more information, please visit http://www.luxoft.com.

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with US GAAP, this press release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: earnings before interest, tax, depreciation and amortization (EBITDA); adjusted EBITDA; non-GAAP net income; non-GAAP diluted Earnings per share (EPS) and Free Cash Flow (FCF). EBITDA is calculated as earnings before interest, tax, depreciation and amortization, where interest includes unwinding of the discount rate for contingent liabilities. Prior year amounts were amended accordingly. Non-GAAP net income and non-GAAP EPS exclude stock-based compensation expense, amortization of fair value adjustments to intangible assets and impairment thereof and other acquisitions related costs that may include changes in the fair value of contingent consideration liabilities. Non-GAAP diluted EPS are calculated as non-GAAP net income divided by weighted average number of diluted shares. Free Cash Flow is calculated as operating cash flow less capital expenditure which consists of purchases of property, plant and equipment and intangible assets as defined in the cash flow statement.

We adjust our non-GAAP financial measures to exclude stock based compensation, because it is a non-cash expense. We also adjust our non-GAAP financial measures to exclude the change in fair value of contingent consideration, because we believe these expenses are not indicative of what we consider to be normal course of operations. Our non-GAAP financial measures are adjusted to exclude amortization of purchased intangible assets in order to allow management and investors to evaluate our results from operating activities as if these assets have been developed internally rather than acquired in a business combination. Finally, we adjust our non-GAAP financial measures to exclude acquisition-related costs, which comprise payments to consulting firms as well as fees paid upon successful completion of acquisition; as well as certain incentive payments for members of management of the acquired companies as provided for in the acquisition agreements. These payments are based on performance of the acquired businesses and are classified as part of management compensation rather than part of purchase consideration. These costs vary with the size and complexity of each acquisition and are generally inconsistent in amount and frequency, and therefore, we believe that they may not be indicative of the size and volume of future acquisition-related costs.

We provide these non-GAAP financial measures because we believe that they present a better measure of our core business and management uses them internally to evaluate our ongoing performance. Accordingly, we believe that these non-GAAP measures are useful to investors in enhancing and understanding of our operating performance. These non-GAAP measures should be considered in addition to, and not as a substitute for, comparable US GAAP measures. The non-GAAP results and a full reconciliation between US GAAP and non-GAAP results are provided in the accompanying tables at the end of this press release.

Forward-Looking Statements

In addition to historical information, this release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include information about possible or assumed future results of our business and financial condition, as well as the results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect," "predict," "potential," or the negative of these terms or other similar expressions. These statements include, but are not limited to, statements regarding: the persistence and intensification of competition in the IT industry; the future growth of spending in IT services outsourcing generally and in each of our industry verticals, application outsourcing and custom application development and offshore research and development services; the level of growth of demand for our services from our clients; the level of increase in revenues from our new clients; seasonal trends and the budget and work cycles of our clients; general economic and business conditions in our locations, including geopolitical instability and social, economic or political uncertainties, particularly in Russia and Ukraine, and any potential sanctions, restrictions or responses to such conditions imposed by some of the locations in which we operate; the levels of our concentration of revenues by vertical, geography, by client and by type of contract in the future; the expected timing of the increase in our corporate tax rate, or actual increases to our effective tax rate which we may experience from time to time; our expectations with respect to the proportion of our fixed price contracts; our expectation that we will be able to integrate and manage the companies we acquire and that our acquisitions will yield the benefits we envision; the demands we expect our rapid growth to place on our management and infrastructure; the sufficiency of our current cash, cash flow from operations, and lines of credit to meet our anticipated cash needs; the high proportion of our cost of services comprised of personnel salaries; our plans to introduce new products for commercial resale and licensing in addition to providing services; our anticipated joint venture with one of our clients; and our continued financial relationship with IBS Group Holding limited and its subsidiaries including expectations for the provision and purchase of services and purchase and lease of equipment; and other factors discussed under the heading "Risk Factors" in the Annual Report on Form 20-F for the year ended March 31, 2017 and other documents filed with or furnished to the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update any forward-looking statements for any reason after the date of this press release whether as a result of new information, future events or otherwise.



LUXOFT HOLDING, INC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share amounts)

June 30, As of March 31,
2017 2017
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 98,267 $ 109,558
Restricted cash, current 4,071 4,000

Trade accounts receivable, net of allowance for doubtful accounts
of $715 at June 30, 2017 and $435 at March 31, 2017

144,904

144,862

Unbilled revenue 29,121 14,454
Work-in-progress 6,063 2,805
Due from related parties 948 1,084
VAT and other taxes receivable 1,746 1,732
Advances issued 3,216 2,740
Other current assets 6,434 5,224
Total current assets 294,770 286,459
Non-current assets
Restricted cash, non-current 1,399 1,399
Deferred tax assets 4,208 3,423
Property and equipment, net 47,544 49,571
Intangible assets, net 116,142 120,430
Goodwill 76,918 76,918
Other non-current assets 8,477 9,007
Total non-current assets 254,688 260,748
Total assets $ 549,458 $ 547,207
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings $ 646 $ 633
Accounts payable 18,253 24,402
Accrued liabilities 39,055 38,513
Deferred revenue 9,075 3,815
Due to related parties 549 460
VAT and other taxes payable 19,379 21,283
Payable under foreign exchange contracts 3,007 295
Payable for acquisitions, current 16,740 17,221
Other current liabilities 1,920 2,025
Total current liabilities 108,624 108,647
Deferred tax liability, non-current 16,609 16,907
Contingent payable for software acquisition, non-current 19,818 32,206
Other non-current liabilities 2,624 2,629
Total liabilities 147,675 160,389
Shareholders' equity

Share capital (80,000,000 shares authorized; 33,690,359 issued and
outstanding with no par value as at June 30, 2017, and 80,000,000
shares authorized; 33,540,034 issued and outstanding with no par value
as at March 31, 2017)

-

-

Additional paid-in capital 143,820 133,192

Common stock held in treasury, at cost (122,013 shares as of
June 30, 2017; 93,813 shares as of March 31, 2017)

(7,945)

(6,028)

Retained earnings 269,825 263,508
Accumulated other comprehensive loss (3,949) (3,886)
Total shareholders' equity attributable to the Group 401,751 386,786
Non-controlling interest 32 32
Total equity 401,783 386,818
Total liabilities and equity $ 549,458 $ 547,207

LUXOFT HOLDING, INC

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of US dollars, except share and per share amounts)

For the three months ended June 30, 2017 � � 2016 UnauditedSales of services $ 209,242 $ 178,049 Operating expenses Cost of services (exclusive of depreciation and amortization) 135,599 105,752 Selling, general and administrative expenses 58,063 48,924 Depreciation and amortization 10,730 7,235 Gain from revaluation of contingent liability � (1,220) � (400) Operating income6,07016,538Other income and expenses Interest income, net 17 32 Unwinding of discount rate for contingent liability (801) (117) Other gains, net 489 407 Gain from foreign currency exchange contract 92 391 Net foreign exchange gain/ (loss) � 1,480 � (667) Income before income taxes 7,347 16,584 Income tax expense � (1,030) � (2,504) Net income $ 6,317 $ 14,080 Net (income)/loss attributable to the non-controlling interest � - � - Net income attributable to the Group $ 6,317 $ 14,080Basic EPS per Class A and Class B ordinary share Net income attributable to the Group per ordinary share $ 0.19 $ 0.42 Weighted average ordinary shares outstanding33,503,34433,199,856Diluted EPS per Class A and Class B ordinary share Diluted net income attributable to the Group per ordinary share $

0.18

$ 0.42 Diluted weighted average ordinary shares outstanding34,297,04933,875,832

LUXOFT HOLDING, INC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of US dollars)

For the three months ended June 30, 2017 2016 Unaudited Net income $ 6,317 $ 14,080 Other comprehensive income/(loss) income, net of tax (Losses)/gains on derivative instruments, net of tax effect of $(102) and $144

(733)

863

Translation adjustments with no tax effects 670 (905) Total other comprehensive loss(63)(42) Comprehensive income6,25414,038 � Comprehensive income (income)/loss attributable to the non-controlling interest �

-

-

Comprehensive income attributable to the Group $ 6,254 $ 14,038

LUXOFT HOLDING, INC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

(In thousands of US dollars)

For the three months ended ended June 30, 20172016 (unaudited) Operating activities Income from operations $ 6,317 $ 14,080Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,730 7,235 Deferred tax benefit (917) (281) Foreign currency exchange contracts income (92) (391) (Income)/ loss on foreign exchange (1,480) 667 Provision for doubtful accounts 267 233 Gain from revaluation of contingent liability (1,220) (400) Unwinding of discount rate for contingent liability 801 117 Share-based compensation 8,052 4,860 � Changes in operating assets and liabilities: Trade accounts receivable and unbilled revenue (12,257) (1,042) Work-in-progress (3,258) (1,170) Due to and from related parties 225 273 Accounts payable and accrued liabilities (986) 8,003 Deferred revenue 5,253 (30) Changes in other assets and liabilities (1,192) 501 Net cash provided by operating activities 10,243 32,655Investing activities Purchases of property and equipment (6,285) (3,169) Purchases of intangible assets (1,038) (909) Net cash used in investing activities (7,323) (4,078)Financing activities (Net repayment)/proceeds from of short-term borrowings (13) 143 Acquisition of business, deferred consideration (12,707) (4,207) Repurchases of common stock (1,982) (930) Repayment of capital lease obligations (58) (15) Net cash used in financing activities (14,760) (5,009) � Effect of exchange rate changes on cash and cash equivalents 549 (325) Net (decrease)/ increase in cash and cash equivalents (11,291) 23,243 Cash and cash equivalents at beginning of year 109,558 108,545 Cash and cash equivalents at end of period $ 98,267 $ 131,788

Luxoft Holding, Inc

Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures (Unaudited) (In thousands of US dollars, except per share amounts and percentages)Three Months Ended June 30, 2017 2017 2017GAAP Adjustments Non-GAAP Operating income � 6,070 11,904 (a) � 17,974 Operating margin � 2.9 % 5.7 % � 8.6 % Net income6,317 10,803 (b)17,120 Diluted earnings per share $ 0.18 � $ 0.50 � Three Months Ended June 30, 2016 2016 2016GAAP Adjustments Non-GAAP Operating income � 16,538 7,817 (a) � 24,355 Operating margin � 9.3 % 4.4 % � 13.7 % Net income14,080 6,942 (b)21,022 Diluted earnings per share $ 0.42 � $ 0.62 �
Luxoft Holding, Inc � �

Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures

(Unaudited)

(In thousands of US dollars, except per share amounts and percentages)Three Months Ended June 30, (a) 2017 2016 Adjustments to GAAP operating income Stock-based compensation expense $ 8,052 $ 4,860 Amortization of purchased Intangible assets 4,373 2,107 Gain from revaluation of contingent liability (1,220) (400) Acquisition related costs � 699 � 1,250 Total Adjustments to GAAP income from operations: $ 11,904 $ 7,817Three Months Ended June 30, (b) 2017 2016 Adjustments to GAAP net income Stock-based compensation expense $ 8,052 $ 4,860 Amortization of purchased Intangible assets 4,373 2,107

Gain from revaluation of contingent liability and unwinding
of discount rate for contingent liability

(419)

(283)

Acquisition related costs 699 1,250 Tax effect of the adjustments � (1,902) � (992) Total Adjustments to GAAP net income $ 10,803 $ 6,942
Three Months Ended June 30, 2017 � � 2016 Net income $ 6,317 $ 14,080 Adjusted for: Interest Income (17) (32) Unwinding of discount rate for contingent liability 801 117 Income tax 1,030 2,504 Depreciation and Amortization � 10,730 � 7,235 EBITDA $ 18,861 $ 23,904 Adjusted for Stock-based compensation 8,052 4,860 Gain from revaluation of contingent liability (1,220) (400) Acquisition related costs � 699 � 1,250

Adjusted EBITDA

$ 26,392 $ 29,614 � �

Luxoft Holding, Inc

Schedule of supplemental information

(Unaudited)

(In thousands; except percentages) Revenue for the three Months Ended June 30, 20172016 Client location Amount % of sales Amount % of sales North America $ 79,826 38.2 % $ 47,996 27.0 % Europe (excl. UK) 65,501 31.3 % 53,065 29.8 % UK 48,129 23.0 % 61,120 34.3 % Russia 7,562 3.6 % 6,945 3.9 % APAC 7,025 3.4 % 7,849 4.4 % Other � 1,199 0.5 % � 1,074 0.6 % Total $ 209,242 100.0 % $ 178,049 100.0 %

Revenue for the three Months Ended June 30,

20172016 Industry vertical Amount % of sales Amount % of sales Financial Services $ 113,470 54.2 % $ 122,367 68.7 % Automotive and transport 35,134 16.8 % 25,452 14.3 % Digital 25,831 12.3 % 19,872 11.2 % Telecom 25,543 12.2 % 9,934 5.6 % Healthcare 8,733 4.2 % - - % Other � 531 0.3 % � 424 0.2 % Total $ 209,242 100.0 % $ 178,049 100.0 %

LUXOFT HOLDING, INC

Reconciliations of Non-GAAP Forward-looking Financial Measures

to Comparable GAAP Forward-looking Measures

(Unaudited)

(In thousands of US dollars, except share, per share amounts and percentages)

Year Ended
March 31, 2018 Revenue $ 920,000Net income $ 53,488 Adjusted for: Interest Expense (242) Income tax 8,707 Depreciation and Amortization 46,359 EBITDA $ 108,312 Adjusted for: Stock based compensation 29,501 Loss from revaluation of contingent liability 682 Acquisition related costs 5,248 Adjusted EBITDA $ 143,743 Adjusted EBITDA margin 15.6 % � Net income $ 53,488 Adjusted for: Stock-based compensation expense 29,501 Amortization of purchased Intangible assets 19,681 Loss from revaluation of contingent liability 682 Acquisition related costs 5,248 Tax effect of the adjustments (8,672) Total adjustments to Net Income $ 46,440 Adjusted Net Income $ 99,928 Diluted weighted average ordinary shares outstanding 35,051,297 Adjusted EPS $ 2.85
Year Ended March 31, 2018 GAAPAdjustmentsNon-GAAP Net income $ 53,488 $ 46,440 $ 99,928 Diluted earnings per share $ 1.53 � $ 2.85 �


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