Luxoft Holding, Inc. :LXFT-US: Earnings Analysis: Q1, 2017 By the Numbers : August 15, 2016

Luxoft Holding, Inc. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Luxoft Holding, Inc. – EPAM Systems, Inc., Computer Sciences Corporation, Cognizant Technology Solutions Corporation Class A, Accenture Plc and Infosys Limited Sponsored ADR (EPAM-US, CSC-US, CTSH-US, ACN-US and INFY-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 178.05 million, Net Earnings of USD 14.08 million.
  • Gross margins narrowed from 36.96% to 36.54% compared to the same period last year, operating (EBITDA) margins now 13.13% from 14.46%.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 148.06 161.54 171.95 169.21 178.05
Revenue Growth (%YOY) 31.84 29.09 17.97 23.19 20.26
Earnings (mil) 14.61 23.01 18.04 14.59 14.08
Earnings Growth (%YOY) 16.18 30.74 -24.62 61.38 -3.64
Net Margin (%) 9.87 14.24 10.49 8.62 7.91
EPS 0.43 0.67 0.52 0.43 0.42
Return on Equity (%) 25.67 36.72 26.18 19.82 18.1
Return on Assets (%) 18.65 27.64 20.36 15.36 13.91

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Market Share Versus Profits

Revenues History
Earnings History

LXFT-US‘s change in revenue this period compared to the same period last year of 20.26% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that LXFT-US is holding onto its market share. Also, for comparison purposes, revenues changed by 5.22% and earnings by -3.51% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 36.96% to 36.54%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 14.46% to 13.13% in this time frame. For comparison, gross margins were 34.87% and EBITDA margins were 10.35% in the previous period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

LXFT-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 101.78 days, compared to last year’s level of 83.73 days.

Gross Margin Versus Working Capital Days

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 10.84% to 9.06% and (2) one-time items that contributed to a decrease in pretax margins from 11.41% to 9.31%

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Luxoft Holding, Inc. operates as a provider of software development services and information technology solutions to a global client base consisting of multinational corporations. The company’s services include software development and support, product engineering and testing, and technology consulting. It provides its services to six industry verticals: Financial services, Travel and aviation, Technology, Telecom, Automotive and transport and Energy. The company was founded in March 2000 and is headquartered in Zug, Switzerland.

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