10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2013

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from             to             

Commission File Number 001-33625

VIRTUSA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	7371	04-3512883
(State or Other Jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
Incorporation or Organization)	Classification Code Number)	Identification Number)

2000 West Park Drive

Westborough, Massachusetts 01581

(508) 389-7300

(Address, Including Zip Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of July 29, 2013:

Class	Number of Shares
Common Stock, par value $.01 per share	26,213,476

Virtusa Corporation and Subsidiaries

Table of Contents

		Page
PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at June 30, 2013 and March 31, 2013	3
	Consolidated Statements of Income for the Three Months Ended June 30, 2013 and 2012	4
	Consolidated Statements of Comprehensive Loss for the Three Months Ended June 30, 2013 and 2012	5
	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2013 and 2012	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23
PART II. OTHER INFORMATION		23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6.	Exhibits	25
SIGNATURES		26
EXHIBIT INDEX		27

2

PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements (Unaudited)

Virtusa Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	June 30, 2013			March 31, 2013
	(In thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	50,968		$	57,199
Short-term investments	30,568			29,452
Accounts receivable, net of allowance of $1,206 and $740 at June 30, 2013 and March 31, 2013, respectively	75,185			68,612
Unbilled accounts receivable	15,972			15,702
Prepaid expenses	6,392			7,562
Deferred income taxes	8,842			7,674
Restricted cash	342			350
Other current assets	6,917			8,333
Total current assets	195,186			194,884
Property and equipment, net of accumulated depreciation of $26,551 and $26,618 at June 30, 2013 and March 31, 2013, respectively	34,406			36,775
Long-term investments	8,126			8,319
Deferred income taxes	9,319			9,275
Goodwill	35,472			35,472
Intangible assets, net	15,055			15,692
Other long-term assets	3,014			3,502
Total assets	$	300,578		$	303,919
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,005		$	9,231
Accrued employee compensation and benefits	14,767			17,683
Accrued expenses and other current liabilities	20,691			17,811
Income taxes payable	2,951			4,509
Total current liabilities	45,414			49,234
Long-term liabilities	6,104			2,478
Total liabilities	51,518			51,712
Commitments and guarantees	—			—
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value: Authorized 5,000,000 shares at June 30, 2013 and March 31, 2013; zero shares issued and outstanding at June 30, 2013 and March 31, 2013	—			—
Common stock, $0.01 par value: Authorized 120,000,000 shares at June 30, 2013 and March 31, 2013; issued 27,381,886 and 27,033,818 shares at June 30, 2013 and March 31, 2013, respectively; outstanding 25,525,183 and 25,177,115 shares at June 30, 2013 and March 31, 2013, respectively	274			270
Treasury stock, 1,856,703 common shares, at cost, at June 30, 2013 and March 31, 2013, respectively	(9,652		)	(9,652		)
Additional paid-in capital	175,480			173,056
Retained earnings	114,769			107,247
Accumulated other comprehensive loss	(31,811		)	(18,714		)
Total stockholders’ equity	249,060			252,207
Total liabilities, undesignated preferred stock and stockholders’ equity	$	300,578		$	303,919

See accompanying notes to unaudited consolidated financial statements

3

Virtusa Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended June 30,
(In thousands, except per share amounts)	2013			2012
Revenue	$	90,489		$	76,217
Costs of revenue	57,802			49,594
Gross profit	32,687			26,623
Operating expenses:
Selling, general and administrative expenses	23,758			19,754
Income from operations	8,929			6,869
Other income (expense):
Interest income	838			698
Foreign currency transaction gains	387			441
Other, net	(89		)	101
Total other income	1,136			1,240
Income before income tax expense	10,065			8,109
Income tax expense	2,543			1,970
Net income	$	7,522		$	6,139
Net income per share of common stock:
Basic	$	0.30		$	0.25
Diluted	$	0.29		$	0.24

See accompanying notes to unaudited consolidated financial statements

4

Virtusa Corporation and Subsidiaries

Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three Months Ended June 30,
(In thousands, except per share amounts)	2013			2012
Net income	$	7,522		$	6,139
Other comprehensive loss:
Foreign currency translation adjustments	(8,245		)	(7,064		)
Pension plan adjustment, net of tax	76			(8		)
Unrealized loss on available-for-sale securities, net of tax	(18		)	(2		)
Unrealized loss on effective cash flow hedges, net of tax	(4,910		)	(3,202		)
Other comprehensive loss	(13,097		)	(10,276		)
Comprehensive loss	$	(5,575	)	$	(4,137	)

See accompanying notes to unaudited consolidated financial statements

5

Virtusa Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended June 30,
(In thousands)	2013			2012
Cash flows from operating activities:
Net income	$	7,522		$	6,139
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	2,606			2,049
Share-based compensation expense	1,710			1,350
Provision for doubtful accounts	486			190
Gain on sale of property and equipment	(3		)	(110		)
Foreign currency gains,net	(387		)	(441		)
Excess tax benefits from stock option exercises	(1,783		)	—
Net change in operating assets and liabilities:
Accounts receivable	(6,995		)	447
Prepaid expenses and other current assets	1,625			263
Other long-term assets	(326		)	(210		)
Accounts payable	(2,524		)	(3,267		)
Accrued employee compensation and benefits	(4,842		)	(5,146		)
Accrued expenses and other current liabilities	(178		)	10
Income taxes payable	1,310			1,035
Other long-term liabilities	(4		)	65
Net cash (used in) provided by operating activities	(1,783		)	2,374
Cash flows from investing activities:
Proceeds from sale of property and equipment	11			116
Purchase of short-term investments	(1,401		)	(2,290		)
Proceeds from sale or maturity of short-term investments	1,800			837
Purchase of long-term investments	(3,858		)	(2,946		)
Proceeds from sale or maturity of long-term investments	600			200
Increase in restricted cash	(10		)	(306		)
Purchase of property and equipment	(1,678		)	(3,116		)
Net cash used in investing activities	(4,536		)	(7,505		)
Cash flows from financing activities:
Proceeds from exercise of common stock options	1,293			132
Purchases of common stock	—			(1,408		)
Principal payments on capital lease obligation	(5		)	(1,018		)
Excess tax benefits from stock option exercises	1,783			—
Net cash provided by (used in) financing activities	3,071			(2,294		)
Effect of exchange rate changes on cash and cash equivalents	(2,983		)	(2,501		)
Net decrease in cash and cash equivalents	(6,231		)	(9,926		)
Cash and cash equivalents, beginning of period	57,199			58,105
Cash and cash equivalents, end of period	$	50,968		$	48,179

See accompanying notes to unaudited consolidated financial statements

6

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts)

(1) Nature of Business

Virtusa Corporation (the “Company” or “Virtusa”) is a global information technology services company. The Company uses an offshore delivery model to provide a broad range of information technology, or IT, services, including IT consulting, technology implementation and application outsourcing. Using its enhanced global delivery model, innovative platforming approach and industry expertise, the Company provides cost-effective services that enable its clients to accelerate time to market, improve service and enhance productivity. Headquartered in Massachusetts, Virtusa has offices in the United States, the United Kingdom, Germany, Austria and Singapore and global delivery centers in Hyderabad, Chennai and Bangalore, India, Colombo, Sri Lanka, Budapest, Hungary and Kuala Lumpur, Malaysia.

(2) Unaudited Interim Financial Information

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles and Article 10 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, and should be read in conjunction with the Company’s audited consolidated financial statements (and notes thereto) for the fiscal year ended March 31, 2013 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May 29, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of the accompanying unaudited consolidated financial statements have been included, and all material adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire fiscal year. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Principles of Consolidation

The consolidated financial statements reflect the accounts of the Company and its direct and indirect subsidiaries: Virtusa (India) Private Limited, Virtusa Consulting Services Private Limited and Virtusa Software Services Private Limited, each organized and located in India; Virtusa (Private) Limited, organized and located in Sri Lanka; Virtusa UK Limited, organized and located in the United Kingdom; Virtusa Securities Corporation, a Massachusetts securities corporation; InSource Holdings, Inc., a company incorporated in the State of Connecticut; InSource LLC, a Connecticut limited liability company located in Connecticut; Virtusa International, B.V., organized and located in the Netherlands, Virtusa Hungary Kft., incorporated and located in Hungary; Virtusa Germany GmbH, organized and located in Germany; Virtusa Singapore Private Limited, organized and located in Singapore; Virtusa Malaysia Private Limited, organized and located in Malaysia; and Virtusa Austria GmbH, organized and located in Austria. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Management re-evaluates these estimates on an ongoing basis. The most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities and valuation of financial instruments, including derivative contracts and investments. Management bases its estimates on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated financial statements.

7

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Fair Value of Financial Instruments

At June 30, 2013 and March 31, 2013, the carrying amounts of the Company’s financial instruments, which included cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits and other accrued expenses, approximate their fair values due to the nature of the items. In addition, investment securities and derivative instruments are also financial instruments. See Note 5 for a discussion of the fair value of the Company’s other financial instruments.

(3) Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per share is computed by including common stock equivalents outstanding for the period in the denominator. Common stock equivalents include shares issuable upon the exercise of outstanding stock options and stock appreciation rights (“SARs”) and unvested shares of restricted stock and, in the case of options and SARs, net of shares assumed to have been purchased with the proceeds, using the treasury stock method. The following table sets forth the computation of basic and diluted net income per share for the periods set forth below:

	Three Months Ended June 30,
	2013		2012
Numerators:
Net income	$	7,522	$	6,139
Denominators:
Weighted average common shares outstanding	25,293,101		24,805,636
Dilutive effect of employee stock options and unvested restricted stock	841,511		660,141
Dilutive effect of stock appreciation rights	16,469		20,171
Weighted average shares-diluted	26,151,081		25,485,948
Net income per share-basic	$	0.30	$	0.25
Net income per share-diluted	$	0.29	$	0.24

During the three months ended June 30, 2013 and 2012, options to purchase 45,591 and 468,707 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.

(4) Investment Securities

At June 30, 2013 and March 31, 2013, all of the Company’s investment securities were classified as available-for-sale and were carried on its balance sheet at their fair market value. A fair market value hierarchy based on three levels of inputs was used to measure each security (see Note 5).

The following is a summary of investment securities at June 30, 2013:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current	$	8,261	$	3	$	(5	)	$	8,259
Non-current	6,831		—		(23		)	6,808
Auction-rate securities:
Non-current	300		—		(2		)	298
Agency and short-term notes:
Current	158		1		—			159
Non-current	1,020		—		—			1,020
Time deposits:
Current	22,150		—		—			22,150
Total available-for-sale securities	$	38,720	$	4	$	(30	)	$	38,694

8

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following is a summary of investment securities at March 31, 2013:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current	$	6,846	$	4	$	(2	)	$	6,848
Non-current	6,246		3		(7		)	6,242
Auction-rate securities:
Non-current	900		—		(7		)	893
Agency and short-term notes:
Non-current	1,184		—		—			1,184
Time deposits:
Current	22,604		—		—			22,604
Total available-for-sale securities	$	37,780	$	7	$	(16	)	$	37,771

The Company evaluates investments with unrealized losses to determine if the losses are other than temporary. The Company has determined that the gross unrealized losses at June 30, 2013 and March 31, 2013 are temporary. In making this determination, the Company considered the financial condition, credit ratings and near-term prospects of the issuers, the underlying collateral of the investments, and the magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position. Additionally, while the Company classifies the securities as available for sale, the Company does not currently intend to sell such investments and it is more likely than not the Company will not be required to sell such investments prior to the recovery of their carrying value, except as disclosed in Note 5.

(5) Fair Value of Financial Instruments

The Company uses a framework for measuring fair value under U.S. generally accepted accounting principles and enhanced disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company’s financial assets and liabilities reflected in the consolidated financial statements at carrying value include marketable securities and other financial instruments which approximate fair value. Fair value for marketable securities is determined using a market approach based on quoted market prices at period end in active markets. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

·Level 1—Quoted prices in active markets for identical assets or liabilities.

·Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

9

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2013:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sales securities—current	$	—	$	30,568	$	—	$	30,568
Available-for-sales securities—non-current	—		7,828		298		8,126
Foreign currency derivative contracts	—		1		—		1
Total assets	$	—	$	38,397	$	298	$	38,695
Liabilities:
Foreign currency derivative contracts	$	—	$	9,198	$	—	$	9,198
Total liabilities	$	—	$	9,198	$	—	$	9,198

The Company’s investments in auction-rate securities (see Note 4), which are listed in the table above under the column “Level 3” under “Investments: Available-for-sale securities—non-current”, are classified within Level 3 because there are currently no active markets or observable market prices. Therefore, the auction-rate securities were valued primarily based on an income approach using an estimate of future cash flows. The Company has estimated the fair value using a discounted cash flow analysis which considered the following key inputs: (i) the underlying structure and maturity of each security; (ii) the timing of expected future principal and interest payments; and (iii) discount rates that are believed to reflect current market conditions and the relevant risk associated with each security. The underlying assets of these auction-rate securities are generally student loans which are substantially backed by the U.S. federal government. In February 2008, auctions began to fail for these securities and each auction since then has failed. The Company classifies its investment in auction-rate securities as long-term investments, reflecting the fact that the Company’s auction-rate securities have underlying final maturities of greater than one year.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets at June 30, 2013:

	Level 3 Assets
Balance at April 1, 2013	$	893
Auction-rate securities redeemed at par	(600		)
Total unrealized gains:
Included in accumulated other comprehensive income	5
Balance at June 30, 2013	$	298

(6) Derivative Financial Instruments

The Company evaluates its foreign exchange policy on an ongoing basis to assess its ability to address foreign exchange exposures on its consolidated balance sheets, statements of income and consolidated statement of cash flows from foreign currencies, including most significantly, the U.K. pound sterling, the Indian rupee and the Sri Lankan rupee. The Company enters into hedging contracts in accordance with its foreign exchange policy (as approved by the Company’s audit committee and board of directors) which permits hedging of material, known foreign currency exposures. Currently, the Company maintains three hedging programs, each with varying contract types, durations and purposes. The Company’s “Cash Flow Program” is designed to mitigate the impact of volatility in the U.S. dollar equivalent of the Company’s Indian rupee denominated expenses over a rolling 36-month period. The Cash Flow Program transactions currently meet the criteria for hedge accounting as cash flow hedges. The Company’s “Balance Sheet Program” involves the use of 30-day derivative instruments designed to mitigate the monthly impact of foreign exchange gains/losses on certain intercompany balances and payments. The Company’s “U.K. Revenue and Cost Program” involves the purchase of derivative instruments with maturities of up to 92 days designed to mitigate the impact of foreign exchange on U.K. pound sterling denominated revenue and costs in the quarter in which such instruments are purchased. The Company’s Balance Sheet Program and U.K. Revenue and Cost Program do not meet the criteria for hedge accounting and all gains and losses are recognized in consolidated statement of income under the same line item as the underlying exposure being hedged.

The Company evaluates all of its derivatives based on market observable inputs, including both forward and spot prices for currencies. Any significant change in the forward or spot prices for hedged currencies would have a significant impact on the value of

10

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

the Company’s derivatives.  Changes in fair value of the designated cash flow hedges for the Company’s Cash Flow Program are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”), net of tax, until the forecasted hedged transactions occur and are then recognized in the consolidated statement of income in the same line item as the item being hedged. The Company evaluates hedge effectiveness at the time a contract is entered into, as well as on an ongoing basis.  If, and when, all or part of a hedge relationship is discontinued because the forecasted transaction is deemed probable of not occurring by the end of the originally specified period or within an additional two-month period of time thereafter, the contract, or the relative amount of the contract, is deemed “ineffective” and any related derivative amounts recorded in equity are reclassified to earnings. There were no gains (losses) that were reclassified from AOCI into earnings as a result of forecasted transactions that were considered probable of not occurring for the three month periods ended June 30, 2013 and 2012.

Changes in the fair value of the derivatives purchased under the Balance Sheet Program are reflected in the Company’s consolidated statement of income and are included in foreign currency transaction gains (losses) for each period.  Changes in the fair value of the derivatives purchased under the U.K. Revenue and Cost Program are also reflected in the Company’s consolidated statement of income and are included in the same line item as the underlying exposure being hedged for each period.

The U.S. dollar notional equivalent market value, which consists of the notional value and net unrealized gain or loss, of all outstanding foreign currency derivative contracts, was $109,426 and $96,630, at June 30, 2013 and March 31, 2013, respectively. Unrealized net losses related to these contracts which are expected to be reclassified from AOCI to earnings during the next 12 months were $4,672 at June 30, 2013. At June 30, 2013, the maximum outstanding term of any derivative instrument was 36 months.

The following table sets forth the fair value of derivative instruments included in the consolidated balance sheets at June 30, 2013 and March 31, 2013:

Derivatives designated as hedging instruments

	June 30, 2013		March 31, 2013
Foreign currency exchange contracts:
Other current assets	$	1	$	884
Other long-term assets	$	—	$	415
Accrued expenses and other current liabilities	$	4,673	$	2,142
Long-term liabilities	$	4,525	$	946

The following tables set forth the effect of the Company’s foreign currency exchange contracts on the consolidated financial statements of the Company for the three months ended June 30, 2013 and 2012:

	Amount of Gain (Loss) Recognized in AOCI on Derivatives(Effective Portion)
Derivatives Designated as Cash Flow	Three months June  30,
Hedging Relationships	2013			2012
Foreign currency exchange contracts	$	(8,387	)	$	(6,521	)

Location of Gain (Loss) Reclassified	Amount of Gain (Loss) Reclassified from AOCI into Income(Effective Portion)
from AOCI into Income (Effective	Three months ended June 30,
Portion)	2013			2012
Costs of revenue	$	(594	)	$	(1,296	)
Operating expenses	$	(385	)	$	(740	)

11

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

		Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives not Designated	Location of Gain or (Loss)	Three months ended June 30,
as Hedging Instrument	Recognized in Income on Derivatives	2013			2012
Foreign currency exchange contracts	Foreign currency transaction gains (losses)	$	(1,609	)	$	(1,236	)
	Revenue	$	(101	)	$	(17	)
	Costs of revenue	$	54		$	15
	Selling, general and administrative expenses	$	4		$	1

(7) Income Taxes

The Company’s effective tax rate was 25.3% for the three months ended June 30, 2013, as compared to an effective tax rate of 24.3% for the three months ended June 30, 2012. The increase in the effective tax rate for three months ended June 30, 2013 is primarily due to the partial expiration of certain tax holidays.  The increased tax rate is partially offset by savings generated from new Special Economic Zone (“SEZ”) tax holiday incentives located in Bangalore, India and effective for the fiscal year ending March 31, 2014.

One of the Company’s Indian subsidiaries, Virtusa (India) Private Limited (“Virtusa India”), is an export oriented company.  The Indian Income Tax Act of 1961 entitles taxpayers to claim tax exemption for a period of ten consecutive years for each Software Technology Park (“STP”) that it operates.  Virtusa India operates two STPs, one in Chennai and one in Hyderabad, India.  The STP tax holiday in Hyderabad, India expired on March 31, 2010 and the STP tax holiday in Chennai, India expired on March 31, 2011.  For the three months ended June 30, 2013 and 2012, all profits in the STPs in Hyderabad and Chennai, India were fully taxable at the Indian statutory tax rate of 34.0% and 32.5%, respectively.  In anticipation of, and to mitigate the impact of, the phase-out of the STP

12

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

tax holidays in Hyderabad and Chennai, India, the Company located new Indian operations in areas designated as a SEZ under the SEZ Act of 2005 through two operating subsidiaries, Virtusa Software Services Private Limited and Virtusa Consulting Services Private Limited. The Company’s profits from its SEZ operations are eligible for certain additional income tax exemptions for a period of up to 15 years based on export income.

In addition, the Company’s Sri Lankan subsidiary, Virtusa (Private) Limited, is operating under a 12-year income tax holiday arrangement that is set to expire on March 31, 2019 and required Virtusa (Private) Limited to meet certain job creation and investment criteria by March 31, 2013.  During the fiscal year ended March 31, 2013, the Company believed it had fulfilled its hiring and investment commitments and is eligible for tax holiday through March 2019. The current agreement provides income tax exemption for all export business income. On June 12, 2013, the Board of Investment certified the Company has met required hiring and investment commitments to receive tax benefits for the period ended March 31, 2013. The Company is required to maintain such job additions through at least March 31, 2014 and receive annual certifications in order to receive future benefits. The Company believes it will continue to meet the job retention target. At June 30, 2013, the Company believes it is eligible for the entire 12-year tax holiday.

The Company’s effective income tax rate is based on the composition of estimated income in different jurisdictions, including those where the Company is enjoying tax holidays, for the applicable fiscal year and adjustments, if any, in the applicable quarterly periods, for unrecognized tax benefits for uncertain income tax positions or other discrete items required to be reported during interim periods. The Company’s aggregate income tax rate in foreign jurisdictions is lower than its income tax rate in the United States due primarily to lower rates generally in jurisdictions in which the Company operates and tax holidays.

Unrecognized tax benefits represent uncertain tax positions for which the Company has established reserves. At June 30, 2013 and March 31, 2013, the total liability for unrecognized tax benefits was $4,799 and $4,823, respectively, of which a portion would negatively impact the annual effective rate, if realized.  Each year, unrecognized tax benefits may be adjusted upon the closing of the statute of limitations for income tax returns filed in various jurisdictions. During the three months ended June 30, 2013 and June 30, 2012, the unrecognized tax benefits decreased by $24 and increased by $78, respectively.  The current quarter decrease is predominantly due to the expiration of tax statutes partially offset by increases for incremental interest on existing uncertain tax positions.

The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions.  Recently, the Internal Revenue Service (“IRS”) conducted a routine audit of the Company’s fiscal years 2008 to 2011, pursuant to which the IRS made certain assessments.  In connection with the audit, during the fourth quarter of fiscal year 2013, the Company executed a settlement arrangement with the IRS for all periods under audit to close out the audit. The Company had fully accrued for all such assessments and the settlement impact on the Company’s financial statements is properly reflected at June 30, 2013. The Company’s U.S. tax return for fiscal year 2012 is currently under examination. In addition, tax returns for various years are under examination by tax authorities of foreign jurisdictions. Currently, several issues are at various levels of appeal with the Indian tax authorities. While it is difficult to predict the final outcome, the Company believes its reserves represent the most likely outcome and continues to evaluate all tax return positions.

Undistributed Earnings of Foreign Subsidiaries

A substantial amount of the Company’s income before provision for income tax is from operations earned in its Indian and Sri Lankan subsidiaries subject to tax holiday. The Company intends to use accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly, undistributed income is considered to be indefinitely reinvested. The Company does not provide for U.S. income taxes on foreign earnings.  At June 30, 2013, the Company had $137.2 million of unremitted earnings from foreign subsidiaries and approximately $59.7 million of cash and short-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested.  Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable.

13

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(8) Concentration of Revenue and Assets

Total revenue is attributed to geographic areas based on location of the client. Long-lived assets represent property, plant and equipment, intangible assets and goodwill, net of accumulated depreciation and amortization, and are attributed to geographic area based on their location. Geographic information is summarized as follows:

	Three Months Ended June 30,
	2013		2012
Client revenue:
North America	$	67,266	$	59,782
Europe	18,339		13,431
Rest of world	4,884		3,004
Consolidated revenue	$	90,489	$	76,217

	June 30, 2013		March 31, 2013
Long-lived assets, net of accumulated depreciation and amortization:
United States	$	52,884	$	53,228
Asia	31,710		34,367
Europe	339		344
Consolidated long-lived assets, net	$	84,933	$	87,939

Revenue from significant clients as a percentage of the Company’s consolidated revenue was as follows:

	Three Months Ended June 30,
	2013		2012
Customer 1	13.6	%	14.9	%
Customer 2	13.5	%	12.0	%
Customer 3	11.2	%	10.2	%

(9) Debt

On July 30, 2010, the Company entered into a $3,000 credit agreement with J.P. Morgan Chase Bank, N.A. (“JPMC”) which had an expiration date of July 31, 2013. The primary purpose of this credit agreement is to support the Company’s foreign currency hedging programs. The credit agreement contains financial and reporting covenants and limitations. The Company is currently in compliance with all covenants contained in the credit agreement and believes that the credit agreement provides sufficient flexibility to enable continued compliance with its terms. Advances under the credit agreement accrue interest at an annual rate equal to LIBOR plus 2.5% or Prime Rate plus 2.5%.   On July 31, 2013, the Company entered into an amendment to its $3,000 credit agreement with JPMC to extend the expiration date until July 31, 2016 (See Note 12 below).

Beginning in fiscal 2009, the Company’s U.K. subsidiary entered into an agreement with a financial institution to sell, without recourse, certain of its Europe-based accounts receivable balances to the financial institution. During the three months ended June 30, 2013, $5,837 of receivables was sold under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the three months ended June 30, 2013. No amounts were outstanding under the financing agreement at June 30, 2013, but the Company may elect to use this program again in future periods. However, the Company cannot provide any assurances that this or any other financing facilities will be available or used in the future.

(10) Pensions and post-retirement benefits

The Company has noncontributory defined benefit plans covering its employees in India and Sri Lanka as mandated by the Indian and Sri Lankan governments.  The following tables provide information regarding pension expense recognized:

14

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

	Three Months Ended June 30,
	2013			2012
Components of net periodic pension cost
Service cost	$	140		$	114
Interest cost	54			45
Expected return on plan assets	(55		)	(47		)
Amortization of past service cost	3			3
Amortization of actuarial loss	23			1
Net periodic pension cost	$	165		$	116

The Company expects to contribute approximately $411 in cash to the pension plans during the fiscal year ending March 31, 2014. The Company made cash contributions of $351 to the plans during the three months ended June 30, 2013.

(11) Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) by component were as follows for the three months ended June 30, 2013 and 2012:

	Foreign currency translation adjustments			Pension plan adjustment			Unrealized gain (loss) on available-for- sale securities			Unrealized gain (loss) on effective cash flow hedges			Total
Balance at April 1, 2013	$	(16,918	)	$	(780	)	$	(3	)	$	(1,013	)	$	(18,714	)
Other comprehensive loss before reclassifications	(8,245		)	50			(13		)	(5,532		)	(13,740		)
Amounts reclassified from accumulated other comprehensive loss	—			26			(5		)	622			643
Net other comprehensive loss	(8,245		)	76			(18		)	(4,910		)	(13,097		)
Balance at June 30, 2013	$	(25,163	)	$	(704	)	$	(21	)	$	(5,923	)	$	(31,811	)

The balance at June 30, 2013 includes a tax benefit of $3,321. Amounts reclassified from accumulated other comprehensive loss during the three months ended June 30, 2013 for unrealized losses on effective cash flow hedges consist of a loss of $594 recorded in costs of revenue, a loss of $385 recorded in operating expenses, offset by income tax benefits of $357.

	Foreign currency translation adjustments			Pension plan adjustment			Unrealized gain (loss) on available-for- sale securities			Unrealized gain (loss) on effective cash flow hedges			Total
Balance at April 1, 2012	$	(13,109	)	$	(702	)	$	(8	)	$	(4,524	)	$	(18,343	)
Other comprehensive loss before reclassifications	(7,064		)	—			(2		)	(4,549		)	(11,615		)
Amounts reclassified from accumulated other comprehensive loss	—			(8		)	—			1,347			1,339
Net other comprehensive loss	(7,064		)	(8		)	(2		)	(3,202		)	(10,276		)
Balance at June 30, 2012	$	(20,173	)	$	(710	)	$	(10	)	$	(7,726	)	$	(28,619	)

The balance at June 30, 2012 includes a tax benefit of $3,569. Amounts reclassified from accumulated other comprehensive loss during the three months ended June 30, 2012 for unrealized losses on effective cash flow hedges consist of a loss of $1,296 recorded in costs of revenue, a loss of $740 recorded in operating expenses, offset by income tax benefits of $689.

(12) Subsequent Events

On July 11, 2013 and July 17, 2013, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the U.K. pound sterling against the U.S. dollar. The contracts have an aggregate notional amount of approximately

15

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

£4,941 (approximately $7,460) and will expire on various dates during the period ending September 30, 2013. The weighted average U.K. pound sterling settlement rate associated with these contracts is approximately $1.5095.

On July 31, 2013, the Company entered into an amendment to its $3,000 credit agreement with J.P. Morgan Chase Bank, N.A. to extend the expiration date until July 31, 2016. The primary purpose of this credit agreement is to support the Company’s foreign currency hedging programs. The credit agreement contains financial and reporting covenants and limitations. The Company is currently in compliance with all covenants contained in the credit agreement and believes that the credit agreement provides sufficient flexibility to enable continued compliance with its terms. Advances under the credit agreement accrue interest at an annual rate equal to LIBOR plus 2.5% or Prime Rate plus 2.5%.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of Virtusa Corporation should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013 (the “Annual Report”), which has been filed with the Securities and Exchange Commission, or SEC.

Forward looking statements

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements, such as statements regarding anticipated future revenue, contract percentage completions, capital expenditures, management’s plans and objectives and other statements regarding matters that are not historical facts, involve predictions. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including those factors set forth in Item 1A. “Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended March 31, 2013. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Business overview

Virtusa Corporation (the “Company”, “Virtusa”, “we”, “us” or “our”) is a global information technology services company. We use an offshore delivery model to provide a broad range of information technology (“IT”) services, including IT consulting, technology implementation and application outsourcing. Using our enhanced global delivery model, innovative platforming approach and industry expertise, we provide cost-effective services that enable our clients to use IT to enhance business performance, accelerate time-to-market, increase productivity and improve customer experience. We manage to a targeted 25% to 75% onsite-to-offshore service delivery mix, although such delivery mix may be impacted by several factors, including our new and existing client delivery requirements as well as the impact of any acquisitions.  Headquartered in Massachusetts, we have offices in the United States, the United Kingdom, the Netherlands, Germany, Austria and Singapore and global delivery centers in Hyderabad, Chennai and Bangalore, India, Colombo, Sri Lanka, Kuala Lumpur, Malaysia and Budapest, Hungary. At June 30, 2013, we had 6,877 employees, or team members.

In the three months ended June 30, 2013, our revenue increased by 19% to $90.5 million, compared to $76.2 million in the three months ended June 30, 2012.

In the three months ended June 30, 2013, net income increased by 23% to $7.5 million, as compared to $6.1 million in the three months ended June 30, 2012.

The increase in revenue for the three months ended June 30, 2013, as compared to the three months ended June 30, 2012, primarily resulted from:

·Broad based revenue growth among our clients existing at June 30, 2012, particularly our top ten clients collectively

·Broad based revenue growth from all of our industry groups, led by clients in our banking, financial services and insurance (“BFSI”) industry group

·Broad based growth in all geographies, led by North America and Europe

The key drivers of the increase in our net income for the three months ended June 30, 2013, as compared to the three months ended June 30, 2012, were as follows:

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·Higher revenue contribution from new and existing clients

·Increase in gross profit, partially offset by higher operating costs including an increased investment in our sales and business development organization and facilities to support our growth

High repeat business and client concentration are common in our industry. During the three months ended June 30, 2013 and 2012, 92% and 91%, respectively, of our revenue was derived from clients who had been using our services for more than one year. Accordingly, our global account management and service delivery teams focus on expanding client relationships and converting new engagements to long-term relationships to generate repeat revenue and expand revenue streams from existing clients.

We derive our revenue from two types of service offerings: application outsourcing, which is recurring in nature; and consulting, including technology implementation, which is non-recurring in nature.  For the three months ended June 30, 2013, our application outsourcing and consulting revenue represented 57% and 43%, respectively, of our total revenue as compared to 58% and 42%, respectively, for the three months ended June 30, 2012.

In the three months ended June 30, 2013, our European revenue increased by 37%, or $4.9 million, to $18.3 million, or 20% of total revenue, from $13.4 million, or 18% of total revenue in the three months ended June 30, 2012. The increase for the three months ended June 30, 2013 is primarily due to the strength of two of our largest clients in Europe.

Our gross profit increased by $6.1 million to $32.7 million for the three months ended June 30, 2013, as compared to $26.6 million in the three months ended June 30, 2012. The increase in gross profit during the three months ended June 30, 2013, as compared to the three months ended June 30, 2012, was primarily due to higher revenue and increased utilization, partially offset by increased cost of revenue, which includes increases in the number of IT professionals.  As a percentage of revenue, gross margin was 36.1% and 34.9% in the three months ended June 30, 2013 and 2012, respectively. The increase in gross margin for the three months ended June 30, 2013 was primarily due to higher revenue and depreciation in the Indian rupee, partially offset by increased compensation costs related to an increase in the number of IT professionals.

We perform our services under both time-and-materials and fixed-price contracts. Revenue from fixed-price contracts represented 21% and 14% of total revenue and revenue from time-and-materials contracts represented 79% and 86% for the three months ended June 30, 2013 and 2012, respectively. The increase in revenue earned from fixed-price contracts in the three months ended June 30, 2013 primarily reflects our client preferences.

From time to time, we have also supplemented organic revenue growth with acquisitions. These acquisitions have focused on adding domain expertise, expanding our professional services teams and expanding our client base. We expect that for our long-term growth, we will continue to seek evolving market opportunities through a combination of organic growth and acquisitions.  We believe we can fund future acquisitions with our internally available cash, cash equivalents and marketable securities, cash generated from operations, or through debt or equity financings, although we cannot assure you that any such additional financing will be available at terms favorable to us, or at all.

As an IT services company, our revenue growth is highly dependent on our ability to attract, develop, motivate and retain skilled IT professionals. We monitor our overall attrition rates and patterns to align our people management strategy with our growth objectives. At June 30, 2013, our attrition rate for the trailing 12 months, which reflects voluntary and involuntary attrition, was approximately 18.5%. Our attrition rate at June 30, 2013 reflects a lower rate of voluntary attrition as compared to the corresponding prior year period and is approaching our long-term goal.  Although we remain committed to continuing to improve our attrition levels, there is intense competition for IT professionals with the specific domain skills necessary to provide the type of services we offer. If our attrition rate increases or is sustained at higher levels, our growth may slow and our cost of attracting and retaining IT professionals could increase.

We engage in a foreign currency hedging strategy using foreign currency forward contracts designed to hedge fluctuations in the Indian rupee and Sri Lankan rupee against the U.S. dollar and U.K. pound sterling, as well as the U.K. pound sterling against the U.S. dollar, to reduce the effect of change in these foreign currency exchange rate changes on our foreign operations and intercompany balances. There is no assurance that these hedging programs or hedging contracts will be effective. Because these foreign currency forward contracts are designed to reduce volatility in the Indian rupee and U.K. pound sterling exchange rates, they not only reduce the negative impact of a stronger Indian rupee and weaker U.K. pound sterling but also could reduce the positive impact of a weaker Indian rupee or stronger U.K. pound sterling on our Indian rupee expenses and U.K. pound sterling denominated revenue. In addition, to the extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on the aggregate amount of hedges placed earlier and in larger amounts than expected.

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Application of critical accounting estimates and risks

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, in particular those related to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities and valuation of financial instruments including derivative contracts and investments. Actual amounts could differ significantly from these estimates. Our management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenue and expenses that are not readily apparent from other sources. Additional information about these critical accounting policies may be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in the Annual Report.

Results of operations

Three months ended June 30, 2013 compared to the three months ended June 30, 2012

The following table presents an overview of our results of operations for the three months ended June 30, 2013 and 2012:

	Three Months EndedJune 30,				$			%
(dollars in thousands)	2013		2012		Change			Change
Revenue	$	90,489	$	76,217	$	14,272		18.7	%
Costs of revenue	57,802		49,594		8,208			16.6	%
Gross profit	32,687		26,623		6,064			22.8	%
Operating expenses	23,758		19,754		4,004			20.3	%
Income from operations	8,929		6,869		2,060			30.0	%
Other income (expense)	1,136		1,240		(104		)	(8.4	)%
Income before income tax expense	10,065		8,109		1,956			24.1	%
Income tax expense	2,543		1,970		573			29.1	%
Net income	$	7,522	$	6,139	$	1,383		22.5	%

Revenue

Revenue increased by 18.7%, or $14.3 million, from $76.2 million during the three months ended June 30, 2012 to $90.5 million in the three months ended June 30, 2013. The increase in revenue was primarily driven by higher revenue contribution from our clients existing as of June 30, 2012 and also the result of continued broad based revenue growth from all of our industry groups, led by growth in our BFSI industry group. Revenue from North American clients in the three months ended June 30, 2013 increased by $7.5 million, or 12.5%, as compared to the three months ended June 30, 2012, due to expansion of our existing clients including our top ten clients. Revenue from European clients increased by $4.9 million, or 36.5%, as compared to the three months ended June 30, 2012, led by growth in our two largest European clients. We had 95 active clients at June 30, 2013, as compared to 91 active clients at June 30, 2012.

Costs of revenue

Costs of revenue increased from $49.6 million in the three months ended June 30, 2012 to $57.8 million in the three months ended June 30, 2013, an increase of $8.2 million, or 16.6%. The increase in cost of revenue was primarily driven by an increase of $7.9 million in compensation costs for our IT professionals. At June 30, 2013, we had 6,279 IT professionals as compared to 5,348 at June 30, 2012.

As a percentage of revenue, cost of revenue decreased from 65.1% for the three months ended June 30, 2012 to 63.9% for three months ended June 30, 2013. This was due primarily to a higher utilization rate for our IT professionals, depreciation

19

of the Indian rupee and a decrease in the percentage of work performed onsite for the three months ended June 30, 2013 as compared to the three months ended June 30, 2012.

Gross profit

Our gross profit increased by $6.1 million, or 22.8 %, to $32.7 million for the three months ended June 30, 2013 as compared to $26.6 million for the three months ended June 30, 2012 due to a higher revenue base and increased utilization, depreciation of the Indian rupee and a decrease in percentage of work performed onsite.  As a percentage of revenue, our gross profit was 36.1% and 34.9% in the three months ended June 30, 2013 and 2012, respectively.

Operating expenses

Operating expenses increased from $19.8 million in the three months ended June 30, 2012 to $23.8 million in the three months ended June 30, 2013, an increase of $4.0 million, or 20.3%. The increase in our operating expenses in the three months ended June 30, 2013 was primarily due to an increase of $1.7 million in compensation expense related to the impact of the timing of annual compensation increases and an increased number of sales and business development personnel, a $1.6 million increase in facility expenses and a $0.3 million increase in professional expenses. As a percentage of revenue, our operating expenses increased to 26.3% in the three months ended June 30, 2013 as compared to 25.9% in the three months ended June 30, 2012.

Income from operations

Income from operations increased by 30.0%, from $6.9 million in the three months ended June 30, 2012 to $8.9 million in the three months ended June 30, 2013. As a percentage of revenue, income from operations increased from 9.0% in the three months ended June 30, 2012 to 9.9% in the three months ended June 30, 2013, primarily due to higher gross margins.

Other income (expense)

Other income (expense) decreased from $1.2 million in the three months ended June 30, 2012 to $1.1 million in the three months ended June 30, 2013. This decrease is primarily attributed to an increase of foreign currency transaction losses in the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

Income tax expense

Income tax expense increased by $0.5 million, from $2.0 million in the three months ended June 30, 2012 to $2.5 million in the three months ended June 30, 2013. Our effective tax rate increased from 24.3% for the three months ended June 30, 2012 to 25.3% for the three months ended June 30, 2013.  The increase in the effective tax rate was primarily driven by the partial expiration of certain SEZ tax holidays in India, partially offset by new SEZ holiday benefits. The increase in income tax expense of $0.5 million reflects increased taxable income and an increase in the effective tax rate in the three months ended June 30, 2013.

Net income

Net income increased by 22.5%, from $6.1 million in the three months ended June 30, 2012 to $7.5 million in the three months ended June 30, 2013 due primarily to higher operating profits.

Liquidity and capital resources

We have financed our operations from sales of shares of equity securities, including common stock, and from cash from operations. We have not borrowed against our existing or preceding credit facilities.

On July 30, 2010, we entered into a $3.0 million credit agreement with J.P. Morgan Chase Bank, N.A. (“JPMC”) which had an expiration date of July 31, 2013. The primary purpose of this credit agreement is to support our foreign currency hedging programs. The credit agreement is secured by a grant of a security interest in our U.S. assets in favor of JPMC as well as other collateral. The agreement contains financial and reporting covenants and limitations. At June 30, 2013, there were no amounts outstanding under this credit agreement and we are in compliance with all covenants. On July 31, 2013, the Company entered into an amendment to its $3,000 credit agreement with JPMC to extend the expiration date until July 31, 2016 (See Note 12 to the notes to our consolidated financial statements included in this Quarterly Report).

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At June 30, 2013, a significant portion of our cash and short-term investments was held by our foreign subsidiaries. We continually monitor our cash needs and employ tax planning and financing strategies to ensure cash is available in the appropriate jurisdictions to meet operating needs. The cash held by our foreign subsidiaries is considered indefinitely reinvested in local operations. If required, it could be repatriated to the United States. However, under current law, any repatriation would be subject to United States federal income tax less applicable foreign tax credits.

Beginning in fiscal 2009, our U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse, certain of its Europe-based accounts receivable balances from one client to the financial institution. During the three months ended June 30, 2013, we sold $5.8 million of receivables under the terms of the financing agreement. Fees paid pursuant to this agreement were not material during the three months ended June 30, 2013. No amounts were due under the financing agreement at June 30, 2013, but we may elect to use this program again in future periods. However, we cannot provide any assurances that this or any other financing facilities will be available or utilized in the future.

Cash flows

The following table summarizes our cash flows for the periods presented:

	Three Months Ended June 30,
(in thousands)	2013			2012
Net cash (used in) provided by operating activities	$	(1,783	)	$	2,374
Net cash used for investing activities	(4,536		)	(7,505		)
Net cash provided by (used in) financing activities	3,071			(2,294		)
Effect of exchange rate changes on cash	(2,983		)	(2,501		)
Net decrease in cash and cash equivalents	(6,231		)	(9,926		)
Cash and cash equivalents, beginning of period	57,199			58,105
Cash and cash equivalents, end of period	$	50,968		$	48,179

Operating activities

Net cash used in operating activities was $1.8 million during the three months ended June 30, 2013 as compared to $2.4 million provided by operating activities during the three months ended June 30, 2012. This decrease was primarily attributable to an increase in working capital of $4.6 million, primarily driven by an increase in days sales outstanding from 77 days at June 30, 2012 to 91 days at June 30, 2013 or $7.1 million, a decreased change in other long-term assets and liabilities of $0.2 million and excess tax benefits from stock option exercises of $1.8 million.  These were partially offset by an increase in net income of $1.4 million, an increased change in income tax payable of $0.3 million, an increased change in prepaid and other current assets of $1.4 million, an increased change in depreciation and share based compensation of $1.0 million.

Investing activities

Net cash used in investing activities was $4.5 million during the three months ended June 30, 2013 as compared to $7.5 million during the three months ended June 30, 2012. The change was primarily due to the net increases in the proceeds of investments of $1.3 million and a decrease in the purchase of property and equipment of $1.4 million.

Financing activities

Net cash provided by financing activities was $3.1 million during the three months ended June 30, 2013 as compared to cash used in financing activities of $2.3 million during the three months ended June 30, 2012. The increase in cash provided is primarily due to an increase in excess tax benefits from the stock options exercises of $1.8 million, an increase in proceeds from the exercise of common stock options of $1.2 million, a decrease in principal payments on capital lease obligations of $1.0 million and a decrease in the purchase of common stock of $1.4 million.

Off-balance sheet arrangements

We do not have investments in special purpose entities or undisclosed borrowings or debt.

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We have a foreign currency cash flow hedging program designed to mitigate the risks of volatility in the Indian rupee against the U.S. dollar and U.K. pound sterling as described below in “Qualitative and Quantitative Disclosures about Market Risk.” The program contemplates a partially hedged position of the Indian rupee for a rolling twelve-quarter period. From time to time, we may also purchase multiple foreign currency forward contracts designed to hedge fluctuation in foreign currencies, such as the U.K. pound sterling against the U.S. dollar, and multiple foreign currency hedges designed to hedge foreign currency transaction gains and losses on our intercompany balances. Other than these foreign currency derivative contracts, we have not entered into off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of or requirements for capital resources.

Recent accounting pronouncements

In February 2013, the Financial Accounting Standards Board, or FASB, issued additional guidance related to accumulated other comprehensive income, requiring the presentation of significant amounts reclassified out of accumulated other comprehensive income to the respective line items in the statement of operations. For those amounts required by U.S. GAAP to be reclassified to earnings in their entirety in the same reporting period, this presentation is required either on the statement of operations or in a single footnote. For items that are not required to be reclassified in their entirety to earnings, the presentation requirement can be met by cross-referencing disclosures elsewhere in the footnotes. We adopted this standard on April 1, 2013. The adoption of this standard affects financial statement presentation only and has no effect on our financial condition or consolidated results of operations.

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11 “Income Taxes—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” which is part of Accounting Standards Codification (“ASC”) 740: Income Taxes. The new guidance requires an entity to present an unrecognized tax benefit and an NOL carryforward, a similar tax loss, or a tax credit carryforward on a net basis as part of a deferred tax asset, unless the unrecognized tax benefit is not available to reduce the deferred tax asset component or would not be utilized for that purpose, then a liability would be recognized. The updated accounting guidance is effective for fiscal years beginning after December 15, 2013.  We do not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial position.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our market risks, and the ways we manage them, are summarized in Item 7A of the Annual Report. There have been no material changes in the first three months of our fiscal year ending March 31, 2014 to such risks or to our management of such risks except for the additional factors noted below.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk in the ordinary course of business. We have historically entered into, and in the future we may enter into, foreign currency derivative contracts to minimize the impact of foreign currency fluctuations on both foreign currency denominated assets and forecasted expenses. The purpose of this foreign exchange policy is to protect us from the risk that the recognition of and eventual cash flows related to Indian rupee denominated expenses might be affected by changes in exchange rates. Some of these contracts meet the criteria for hedge accounting as cash flow hedges (See Note 6 of the notes to our financial statements included herein for a description of recent hedging activities).

We evaluate our foreign exchange policy on an ongoing basis to assess our ability to address foreign exchange exposures on our balance sheet, income statement and operating cash flows from all foreign currencies, including most significantly the U.K. pound sterling, the Indian rupee and the Sri Lankan rupee.

We use foreign currency hedging programs to mitigate the risks of volatility in the Indian rupee against the U.S. dollar and U.K. pound sterling. The U.S. dollar equivalent market value of the outstanding foreign currency derivative contracts at June 30, 2013 was $109.4 million. There is no assurance that these hedging programs or hedging contracts will be effective. As these foreign currency hedging programs are designed to reduce volatility in the Indian rupee and weaker U.K. pound sterling exchange rates, for example, they not only reduce the negative impact of a stronger Indian rupee and U.K. pound sterling but also reduce the positive impact of a weaker Indian rupee and stronger U.K. pound sterling on our Indian rupee expenses and U.K. pound sterling denominated revenue. In addition, to the extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on the aggregate amount of hedges placed earlier than expected.

Historically the volatility in the U.K. pound sterling has had, and may continue to have, a negative impact on our revenue generated in U.K. pound sterling. In response to this volatility, we have entered into hedging transactions designed to hedge our forecasted revenue and expenses denominated in the U.K. pound sterling. The derivative contracts are less than 90 days in duration and do not meet the criteria for hedge accounting. Such hedges may not be effective in mitigating this currency volatility.

Interest Rate Risk

We had no debt outstanding at June 30, 2013. We do not believe we are exposed to material direct risks associated with changes in interest rates other than with our cash and cash equivalents, short-term investments and long-term investments. At June 30, 2013, we had $89.7 million in cash and cash equivalents, short-term investments and long-term investments, the interest income from which is affected by changes in interest rates. Our invested securities primarily consist of government sponsored entity bonds, money

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market mutual funds, commercial paper, corporate debts, municipal bonds and auction-rate securities. Our investments in debt securities are classified as “available-for-sale” and are recorded at fair value. Our “available-for-sale” investments are sensitive to changes in interest rates. Interest rate changes would result in a change in the net fair value of these financial instruments due to the difference between the market interest rate at the period end and the market interest rate at the date of purchase of the financial instrument.

Concentration of Credit Risk

Financial instruments which potentially expose us to concentrations of credit risk primarily consist of cash and cash equivalents, short-term investments and long-term investments, accounts receivable, derivative contracts, other financial assets and unbilled accounts receivable. We place our operating cash, investments and derivatives in highly-rated financial institutions. We adhere to a formal investment policy with the primary objective of preservation of principal, which contains minimum credit rating and diversification requirements. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties and, accordingly, do not require collateral. Credit losses and write-offs of accounts receivable balances have historically not been material to our financial statements and have not exceeded our expectations.

Item 4.  Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

At June 30, 2013, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in (i) enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period and (ii) ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

We have not made any changes in our internal control over financial reporting during the three months ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1A.  Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, as filed with the Securities and Exchange Commission, on May 29, 2013 (the “Annual Report”), which could materially affect our business, financial condition or future results. During the quarterly periods covered by this Quarterly Report on Form 10-Q, there were no material changes to the risk factors described in our Annual Report.

Item 2.  Unregistered Sale of Equity Securities and Use of Proceeds; Purchases of Equity Securities By the Issuer and Affiliated Purchasers

Under the terms of our 2007 Stock Option and Incentive Plan, or the 2007 Plan, we have issued shares of restricted stock to our employees. On the date that these restricted shares vest, we automatically withhold (unless instructed otherwise in advance by an employee that the employee will pay such taxes in cash), via a net exercise provision pursuant to our applicable restricted stock

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agreements and the 2007 Plan, the number of vested shares (based on the closing price of our common stock on such vesting date) equal to the tax liability owed by such grantee. The shares withheld from the grantees to settle their minimum withholding tax liability are reallocated to the number of shares available for issuance under the 2007 Plan. For the three month period ended June 30, 2013, we withheld an aggregate of 98,338 shares of restricted stock at a price of $23.99 per share.

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Item 6.  Exhibits.

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:

Exhibit No.		Description
10.1*		Master Reaffirmation and Amendment No. 1 to Loan Documents dated as of July 31, 2013 by and among Virtusa Corporation, Insource Holdings, Inc., InSource LLC, JPMORGAN CHASE BANK, N.A., as a Lender and JPMORGAN CHASE BANK, N.A. as the Administrative Agent.
31.1*		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of principal financial and accounting officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
32.2**		Certification of principal financial and accounting officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
101§		The following financial statements from Virtusa Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, as filed with the SEC on August 2, 2013, formatted in XBRL (eXtensible Business Reporting Language), as follows:
	(i)	Consolidated Balance Sheets at June 30, 2013 (Unaudited) and March 31, 2013
	(ii)	Consolidated Statements of Income for the Three Months Ended June 30, 2013 and June 30, 2012 (Unaudited)
	(iii)	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended June 30, 2013 and June 30, 2012 (Unaudited)
	(iv)	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2013 and June 30, 2012 (Unaudited)
	(v)	Notes to Condensed Consolidated Financial Statements (Unaudited)

*Filed herewith.

**Furnished herewith. This certification shall not be deemed filed for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934.

§As provided in Rule 406T of Regulation S-T, this information is furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Virtusa Corporation
Date: August 2, 2013	By:	/s/ Kris Canekeratne
		Kris Canekeratne,
		Chairman and Chief Executive Officer
		(Principal Executive Officer)
Date: August 2, 2013	By:	/s/ Ranjan Kalia
		Ranjan Kalia,
		Executive Vice President
		and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.		Description
10.1*		Master Reaffirmation and Amendment No. 1 to Loan Documents dated as of July 31, 2013 by and among Virtusa Corporation, Insource Holdings, Inc., InSource LLC, JPMORGAN CHASE BANK, N.A., as a Lender and JPMORGAN CHASE BANK, N.A. as the Administrative Agent.
31.1*		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of principal financial and accounting officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
32.2**		Certification of principal financial and accounting officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
101§		The following financial statements from Virtusa Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, as filed with the SEC on August 2, 2013, formatted in XBRL (eXtensible Business Reporting Language), as follows:
	(i)	Consolidated Balance Sheets at June 30, 2013 (Unaudited) and March 31, 2013
	(ii)	Consolidated Statements of Income for the Three Months Ended June 30, 2013 and June 30, 2012 (Unaudited)
	(iii)	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended June 30, 2013 and June 30, 2012 (Unaudited)
	(iv)	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2013 and June 30, 2012 (Unaudited)
	(v)	Notes to Condensed Consolidated Financial Statements (Unaudited)

*Filed herewith.

**Furnished herewith. This certification shall not be deemed filed for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934.

§As provided in Rule 406T of Regulation S-T, this information is furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

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EX-10.1

Exhibit 10.1

MASTER REAFFIRMATION AND AMENDMENT NO. 1 TO LOAN DOCUMENTS

THIS MASTER REAFFIRMATION AND AMENDMENT NO. 1 TO LOAN DOCUMENTS (this “Agreement”) is made as of the 31rst day of July, 2013, by and among by and among VIRTUSA CORPORATION, a Delaware corporation (the “Borrower”), INSOURCE HOLDINGS, INC., a Connecticut corporation (“Holdings”), INSOURCE, LLC, a Connecticut limited liability company (“Insource LLC” and together with the Borrower and Holdings, the “Loan Parties”), JPMORGAN CHASE BANK, N.A., as a Lender (the “Lender”) and JPMORGAN CHASE BANK, N.A. as the Administrative Agent (the “Administrative Agent”).  Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement described below.

W I T N E S S E T H:

WHEREAS, the Loan Parties, the Lender, the other Lenders from time to time party thereto, and the Administrative Agent are parties to that certain Credit Agreement dated July 30, 2010 (as amended, modified, restated or otherwise supplemented from time to time, the “Credit Agreement”) pursuant to which, among other things: (a), the Lender has extended to the Borrower a revolving loan in the principal amount of up to $3,000,000 (the “Revolving Loan”) with a sub-facility for the issuance of Letters of Credit for the account of the Borrower; (b) Holdings and Insource LLC have guaranteed the obligations of the Borrower to the Lenders; and (c) the Borrower has guaranteed the obligations of each Subsidiary of Borrower arising in connection with FX Transactions;

WHEREAS, in addition to the Credit Agreement, the Revolving Loan is evidenced by, among other things a certain Revolving Credit Note of the Borrower dated July 30, 2010 in the original principal amount of up to $3,000,000 (the “Note”);

WHEREAS,  as collateral security for the Secured Obligations, among other things: (a) each of the Loan Parties has granted to the Administrative Agent, for the ratable benefit of the Lenders, a lien on and security interest in all of its assets (other than Intellectual Property) pursuant to certain Security Agreements of the Loan Parties dated July 30, 2010 (the “Security Agreements”); (b) the Borrower has granted and pledged to the Administrative Agent, for the ratable benefit of the Lenders, a lien on and security interest in all of the Borrower’s right, title and interest in and to the capital stock of Virtusa Securities Corporation and Insource Holdings, Inc. pursuant to the terms of certain Pledge Agreements of the Borrower in favor of the Administrative Agent dated July 30, 2010 (the “Borrower Pledge Agreements”); (c) Holdings has granted and pledged to the Administrative Agent, for the ratable benefit of the Lenders, a lien on and security interest in all of Holdings’ right, title and interest in and to the membership interests of Insource LLC pursuant to the terms of a certain Pledge Agreement from Holdings in favor of the Administrative Agent dated July 30, 2010 (the “Holdings Pledge Agreement” and together with the Borrower Pledge Agreements, the “Pledge Agreements”); and (d) the

Borrower has entered in a Negative Pledge Agreement in favor of the Administrative Agent, for the benefit of the Lenders dated July 30, 2010 regarding the Borrower’s Intellectual Property (the “Negative Pledge”);

WHEREAS, as of the date hereof, the Lender is the only Lender under the Credit Agreement;

WHEREAS, the Loan Parties have requested the Lender to extend the Maturity Date of the Revolving Loans to July 31, 2016;

WHEREAS, it is a condition precedent to the Lender’s agreement to grant the requested extension that the Loan Parties enter into this Agreement; and

NOW, THEREFORE, in consideration of the premises set forth herein (which are incorporated herein as though fully set forth below, by this reference thereto) and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the undersigned agrees as follows:

1.Acknowledgments, Affirmations and Representations and Warranties.

a.Each Loan Party acknowledges, affirms, represents and warrants that:

(i)All of the statements contained herein are true and correct and that it understands that the Administrative Agent and the Lender are relying on the truth and completeness of such statements to enter into this Agreement.

(ii)As of June 30, 2013, the Borrower is legally and validly indebted to the Lender: (x) by virtue of the Revolving Loan in the principal outstanding amount of zero ($0), and (y) by virtue of its Guarantee of the FX Guaranteed Obligations, in each case plus interest and fees accrued and accruing on each of the foregoing and costs and expenses of collection, including without limitation, attorneys’ fees, relating thereto and there is no defense, offset or counterclaim with respect to any of the foregoing or independent claim or action against the Lender or the Administrative Agent.

(iii)Each of Holdings and Insource LLC is legally and validly indebted to the Lender by virtue of its Loan Guaranty and there is no defense, offset or counterclaim with respect thereto or independent claim or action against the Lender or the Administrative Agent.

(iv)The resolutions previously adopted by the Board of Directors of each of the Borrower and Holdings and provided to the Administrative Agent and the Lender relating to the Credit Agreement and the other Loan Documents, and to the transactions and matters contained therein, have not in any way been rescinded or modified and have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect, except to the extent that they have been modified or supplemented to authorize this Agreement and the documents and transactions described herein.

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(v)The resolutions previously adopted by the sole member of Insource LLC and provided to the Administrative Agent and the Lender relating to the Credit Agreement and the other Loan Documents, and to the transactions and matters contained therein, have not in any way been rescinded or modified and have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect, except to the extent that they have been modified or supplemented to authorize this Agreement and the documents and transactions described herein.

(vi)Each of the Borrower and Holdings has the corporate power and authority to enter into, and has taken all necessary corporate action to authorize, this Agreement and the transactions contemplated hereby.

(vii)Insource LLC has the limited liability company power and authority to enter into, and has taken all necessary trust action to authorize, this Agreement and the transactions contemplated hereby.

(viii)All representations, warranties and covenants contained in, and schedules and exhibits to, the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the date hereof, are incorporated herein by reference and are hereby remade.

(ix)No Default or Event of Default currently exists under the Credit Agreement or any of the other Loan Documents.

(x)The consummation of the transactions contemplated hereby is not prevented or limited by, nor does it conflict with or result in a breach of terms, conditions or provisions of, the Certificate of Incorporation or Bylaws of the Borrower or Holdings or the Articles of Organization or Operating Agreement of Insource LLC,  or any evidence of indebtedness, agreement or instrument of whatever nature to which any Loan Party is a party or by which it is bound, does not constitute a default under any of the foregoing and does not violate any federal, state or local law, regulation or order or any order of any court or agency which is binding upon any Loan Party and the consummation of the transactions contemplated hereby does not require the consent of any Person not a party to this Agreement.

2.Amendments to Credit Agreement and other Loan Documents.

a.Section 1.1 of the Credit Agreement entitled “Defined Terms” is hereby amended by amending and restating the definition of “Maturity Date” in its entirety as follows:

“Maturity Date” means July 31, 2016, or any earlier date on which this Agreement is terminated pursuant to the terms hereof.

b.Any and all references in any Loan Document to the Credit Agreement (howsoever defined) shall mean the Credit Agreement, as amended and modified by this Agreement.

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3.Reaffirmation. Each Loan Party, as maker, debtor, assignor, obligor, guarantor, or in other similar capacity in which it incurs obligations to the Administrative Agent, the Issuing Bank or the Lenders under any of the Loan Documents or otherwise, hereby ratifies and reaffirms all of its respective payment and performance obligations, contingent or otherwise, under each of the Loan Documents to which it is a party and, to the extent it has granted liens or mortgages on or security interests in any of its properties pursuant to any Collateral Document as security for the Secured Obligations under or with respect to the Credit Agreement and the other Loan Documents, hereby ratifies and reaffirms such grant of liens, mortgages and security interests and confirms and agrees that with respect to liens and security interests on any right, title and interest of such Loan Party in any personal property granted pursuant to a security agreement, pledge agreement or otherwise, such liens and security interests hereafter secure all of the Secured Obligations, including without limitation, the Secured Obligations arising under the Revolving Loans, in each case as if each reference in such Collateral Document to the obligations secured thereby are construed to hereafter mean and refer to such Secured Obligations (including, without limitation, the Revolving Loans) under the Credit Agreement and other Loan Documents, as hereby amended. Each Loan Guarantor acknowledges, affirms and agrees that all Secured Obligations of the Borrower to the Administrative Agent, the Issuing Bank and the Lenders have been guaranteed by such Loan Guarantors pursuant to the terms of the Credit Agreement, including, those Secured Obligations arising under the Revolving Loans, as amended by this Agreement. The Borrower acknowledges, affirms and agrees that all obligations of any Subsidiary to the Lenders arising under or in connection with the FX Transactions has been guaranteed by the Borrower pursuant to the terms of the Credit Agreement, as amended by this Agreement. Each Loan Party acknowledges that each of the Loan Documents to which it is a party remains in full force and effect, continues to apply to the Secured Obligations, including, but not limited to, the Secured Obligations arising under the Revolving Loans, as amended by this Agreement, and are hereby ratified and confirmed. The execution of this Agreement shall not operate as a novation, waiver of any right, power or remedy of the Administrative Agent, the Issuing Bank or the Lenders nor constitute a waiver of any provision of any of the Loan Documents. The Loan Parties agree and acknowledge that this Agreement shall be deemed a Loan Document.

4.Conditions Precedent. The obligation of the Lender to extend the Maturity Date as set forth herein is conditioned on the satisfaction of the following:

a.The receipt by the Administrative Agent of any necessary consent to the extensions and amendments contemplated by this Agreement from any third party, if required.

b.The receipt by the Administrative Agent of UCC search results which shall be satisfactory to the Administrative Agent and which shall evidence no liens on any Collateral other than those in favor of the Administrative Agent and other than those which may be acceptable to the Lender in its sole discretion.

c.The receipt by the Administrative Agent of a secretary’s certificate of each of the Borrower and Holdings certifying as to the certificate of incorporation, bylaws, authorizing resolutions and incumbency and a secretary’s certificated of Insource LLC as to the articles of organization, operating agreement, authorizing resolutions and incumbency of its officers.

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d.The receipt by the Administrative Agent a Certificate of Legal Existence or Good Standing Certificate, as applicable with respect to each of the Loan Parties.

5.No Defenses.  The Loan Parties each hereby represent and warrant to, and covenant with the Administrative Agent and the Lender that, as of the date hereof, it has no defense, offset or counterclaim of any kind or nature whatsoever against the Administrative Agent or the Lender with respect to any of the Secured Obligations or any of the Loan Documents to which it is a party, or any action previously taken or not taken by the Administrative Agent or the Lender with respect thereto.

6.Fees and Expenses. The Loan Parties agree that they will pay all reasonable legal and professional fees and expenses and other reasonable expenses incurred by the Administrative Agent and the Lender in connection with this Agreement and the transactions contemplated hereby.

7.Successors and Assigns.  This Agreement shall be binding upon each of the Loan Parties and upon its respective successors and assigns and shall inure to the benefit of the Administrative Agent, the Lenders and their respective successors and assigns.  The successors and assigns of such entities shall include, without limitation, their respective receivers, trustees, or debtors-in-possession.

8.Governing Law.   THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

9.Execution in Counterparts.  This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

[THE NEXT PAGE IS THE SIGNATURE PAGE]

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IN WITNESS WHEREOF, this Agreement has been duly executed by each of the undersigned as of the day and year first set forth above.

WITNESSES:

VIRTUSA CORPORATION
By:	/s/ Ranjan Kalia
Name: Ranjan Kalia
Title: EVP & CFO
Duly Authorized
INSOURCE HOLDINGS, INC.
By:		/s/ Ranjan Kalia
Name: Ranjan Kalia
Title: Treasurer
Duly Authorized
INSOURCE, LLC
By:			/s/ Ranjan Kalia
Name: Ranjan Kalia
Title: Treasurer
Duly Authorized

[Signature Page (1) to Master Reaffirmation and Amendment No. 1 to Loan Documents]

JPMORGAN CHASE BANK, N.A. as Administrative Agent
By:	/s/ Jacob Dowden
Name: Jacob Dowden
Its Senior Vice President
Duly Authorized
JPMORGAN CHASE BANK, N.A. as Lender
By:		/s/ Jacob Dowden
Name: Jacob Dowden
Its Senior Vice President
Duly Authorized

[Signature Page (2) to Master Reaffirmation and Amendment No. 1 to Loan Documents]

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kris Canekeratne, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Virtusa Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2013	/s/ Kris Canekeratne
	Kris Canekeratne
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

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EX-31.2

Exhibit 31.2

CERTIFICATION

I, Ranjan Kalia, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Virtusa Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2013	/s/ Ranjan Kalia
	Ranjan Kalia
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Virtusa Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kris Canekeratne, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 2, 2013	/s/ Kris Canekeratne
	Kris Canekeratne
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Virtusa Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ranjan Kalia, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 2, 2013	/s/ Ranjan Kalia
	Ranjan Kalia
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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Accumulated Other Comprehensive Loss

3 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

(11) Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) by component were as follows for the three months ended June 30, 2013 and 2012:

	Foreign currency translation adjustments			Pension plan adjustment			Unrealized gain (loss) on available-for- sale securities			Unrealized gain (loss) on effective cash flow hedges			Total
Balance at April 1, 2013	$	(16,918	)	$	(780	)	$	(3	)	$	(1,013	)	$	(18,714	)
Other comprehensive loss before reclassifications	(8,245		)	50			(13		)	(5,532		)	(13,740		)
Amounts reclassified from accumulated other comprehensive loss	—			26			(5		)	622			643
Net other comprehensive loss	(8,245		)	76			(18		)	(4,910		)	(13,097		)
Balance at June 30, 2013	$	(25,163	)	$	(704	)	$	(21	)	$	(5,923	)	$	(31,811	)

The balance at June 30, 2013 includes a tax benefit of $3,321. Amounts reclassified from accumulated other comprehensive loss during the three months ended June 30, 2013 for unrealized losses on effective cash flow hedges consist of a loss of $594 recorded in costs of revenue, a loss of $385 recorded in operating expenses, offset by income tax benefits of $357.

	Foreign currency translation adjustments			Pension plan adjustment			Unrealized gain (loss) on available-for- sale securities			Unrealized gain (loss) on effective cash flow hedges			Total
Balance at April 1, 2012	$	(13,109	)	$	(702	)	$	(8	)	$	(4,524	)	$	(18,343	)
Other comprehensive loss before reclassifications	(7,064		)	—			(2		)	(4,549		)	(11,615		)
Amounts reclassified from accumulated other comprehensive loss	—			(8		)	—			1,347			1,339
Net other comprehensive loss	(7,064		)	(8		)	(2		)	(3,202		)	(10,276		)
Balance at June 30, 2012	$	(20,173	)	$	(710	)	$	(10	)	$	(7,726	)	$	(28,619	)

The balance at June 30, 2012 includes a tax benefit of $3,569. Amounts reclassified from accumulated other comprehensive loss during the three months ended June 30, 2012 for unrealized losses on effective cash flow hedges consist of a loss of $1,296 recorded in costs of revenue, a loss of $740 recorded in operating expenses, offset by income tax benefits of $689.

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Consolidated Statements of Income
Revenue	$ 90,489	$ 76,217
Costs of revenue	57,802	49,594
Gross profit	32,687	26,623
Operating expenses:
Selling, general and administrative expenses	23,758	19,754
Income from operations	8,929	6,869
Other income (expense):
Interest income	838	698
Foreign currency transaction gains	387	441
Other, net	(89)	101
Total other income	1,136	1,240
Income before income tax expense	10,065	8,109
Income tax expense	2,543	1,970
Net income	$ 7,522	$ 6,139
Net income per share of common stock:
Basic (in dollars per share)	$ 0.30	$ 0.25
Diluted (in dollars per share)	$ 0.29	$ 0.24

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Investment Securities

3 Months Ended

Jun. 30, 2013

Investment Securities

Investment Securities

(4) Investment Securities

At June 30, 2013 and March 31, 2013, all of the Company’s investment securities were classified as available-for-sale and were carried on its balance sheet at their fair market value. A fair market value hierarchy based on three levels of inputs was used to measure each security (see Note 5).

The following is a summary of investment securities at June 30, 2013:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current	$	8,261	$	3	$	(5	)	$	8,259
Non-current	6,831		—		(23		)	6,808
Auction-rate securities:
Non-current	300		—		(2		)	298
Agency and short-term notes:
Current	158		1		—			159
Non-current	1,020		—		—			1,020
Time deposits:
Current	22,150		—		—			22,150
Total available-for-sale securities	$	38,720	$	4	$	(30	)	$	38,694

The following is a summary of investment securities at March 31, 2013:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current	$	6,846	$	4	$	(2	)	$	6,848
Non-current	6,246		3		(7		)	6,242
Auction-rate securities:
Non-current	900		—		(7		)	893
Agency and short-term notes:
Non-current	1,184		—		—			1,184
Time deposits:
Current	22,604		—		—			22,604
Total available-for-sale securities	$	37,780	$	7	$	(16	)	$	37,771

The Company evaluates investments with unrealized losses to determine if the losses are other than temporary. The Company has determined that the gross unrealized losses at June 30, 2013 and March 31, 2013 are temporary. In making this determination, the Company considered the financial condition, credit ratings and near-term prospects of the issuers, the underlying collateral of the investments, and the magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position. Additionally, while the Company classifies the securities as available for sale, the Company does not currently intend to sell such investments and it is more likely than not the Company will not be required to sell such investments prior to the recovery of their carrying value, except as disclosed in Note 5.

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Concentration of Revenue and Assets (Tables)

3 Months Ended

Jun. 30, 2013

Concentration of Revenue and Assets

Schedule of revenue attributed to geographic areas based on location of the client

	Three Months Ended June 30,
	2013		2012
Client revenue:
North America	$	67,266	$	59,782
Europe	18,339		13,431
Rest of world	4,884		3,004
Consolidated revenue	$	90,489	$	76,217

Schedule of long-lived assets, net of accumulated depreciation and amortization attributed to geographic areas based on location of assets

	June 30, 2013		March 31, 2013
Long-lived assets, net of accumulated depreciation and amortization:
United States	$	52,884	$	53,228
Asia	31,710		34,367
Europe	339		344
Consolidated long-lived assets, net	$	84,933	$	87,939

Schedule of revenue from significant clients as a percentage of consolidated revenue

	Three Months Ended June 30,
	2013		2012
Customer 1	13.6	%	14.9	%
Customer 2	13.5	%	12.0	%
Customer 3	11.2	%	10.2	%

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Subsequent Events

3 Months Ended

Jun. 30, 2013

Subsequent Events

Subsequent Events

(12) Subsequent Events

On July 11, 2013 and July 17, 2013, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the U.K. pound sterling against the U.S. dollar. The contracts have an aggregate notional amount of approximately £4,941 (approximately $7,460) and will expire on various dates during the period ending September 30, 2013. The weighted average U.K. pound sterling settlement rate associated with these contracts is approximately $1.5095.

On July 31, 2013, the Company entered into an amendment to its $3,000 credit agreement with J.P. Morgan Chase Bank, N.A. to extend the expiration date until July 31, 2016. The primary purpose of this credit agreement is to support the Company’s foreign currency hedging programs. The credit agreement contains financial and reporting covenants and limitations. The Company is currently in compliance with all covenants contained in the credit agreement and believes that the credit agreement provides sufficient flexibility to enable continued compliance with its terms. Advances under the credit agreement accrue interest at an annual rate equal to LIBOR plus 2.5% or Prime Rate plus 2.5%.

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Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Changes in accumulated other comprehensive income (loss)
Balance at the beginning of the period	$ (18,714)	$ (18,343)
Other comprehensive loss before reclassifications	(13,740)	(11,615)
Amounts reclassified from accumulated other comprehensive loss	643	1,339
Net other comprehensive loss	(13,097)	(10,276)
Balance at the end of the period	(31,811)	(28,619)
Accumulated other comprehensive income (loss), tax effect	3,321	3,569
Costs of revenue	57,802	49,594
Operating expenses	23,758	19,754
Income tax benefit	(2,543)	(1,970)
Foreign currency translation adjustments
Changes in accumulated other comprehensive income (loss)
Balance at the beginning of the period	(16,918)	(13,109)
Other comprehensive loss before reclassifications	(8,245)	(7,064)
Net other comprehensive loss	(8,245)	(7,064)
Balance at the end of the period	(25,163)	(20,173)
Pension plan adjustment
Changes in accumulated other comprehensive income (loss)
Balance at the beginning of the period	(780)	(702)
Other comprehensive loss before reclassifications	50
Amounts reclassified from accumulated other comprehensive loss	26	(8)
Net other comprehensive loss	76	(8)
Balance at the end of the period	(704)	(710)
Unrealized gain (loss) on available-for-sale securities
Changes in accumulated other comprehensive income (loss)
Balance at the beginning of the period	(3)	(8)
Other comprehensive loss before reclassifications	(13)	(2)
Amounts reclassified from accumulated other comprehensive loss	(5)
Net other comprehensive loss	(18)	(2)
Balance at the end of the period	(21)	(10)
Unrealized gain (loss) on effective cash flow hedges
Changes in accumulated other comprehensive income (loss)
Balance at the beginning of the period	(1,013)	(4,524)
Other comprehensive loss before reclassifications	(5,532)	(4,549)
Amounts reclassified from accumulated other comprehensive loss	622	1,347
Net other comprehensive loss	(4,910)	(3,202)
Balance at the end of the period	(5,923)	(7,726)
Unrealized gain (loss) on effective cash flow hedges | Reclassification out of accumulated other comprehensive income
Changes in accumulated other comprehensive income (loss)
Costs of revenue	594	1,296
Operating expenses	385	740
Income tax benefit	$ 357	$ 689

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Net Income per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Numerators:
Net income	$ 7,522	$ 6,139
Denominators:
Weighted average common shares outstanding	25,293,101	24,805,636
Dilutive effect of employee stock options and unvested restricted stock (in shares)	841,511	660,141
Dilutive effect of stock appreciation rights (in shares)	16,469	20,171
Weighted average shares-diluted	26,151,081	25,485,948
Net income per share-basic (in dollars per share)	$ 0.30	$ 0.25
Net income per share-diluted (in dollars per share)	$ 0.29	$ 0.24
Options excluded from the calculations of diluted earnings per share (in shares)	45,591	468,707

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Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Jun. 30, 2013

Accumulated Other Comprehensive Loss

Schedule of changes in accumulated other comprehensive income (loss) by component

	Foreign currency translation adjustments			Pension plan adjustment			Unrealized gain (loss) on available-for- sale securities			Unrealized gain (loss) on effective cash flow hedges			Total
Balance at April 1, 2013	$	(16,918	)	$	(780	)	$	(3	)	$	(1,013	)	$	(18,714	)
Other comprehensive loss before reclassifications	(8,245		)	50			(13		)	(5,532		)	(13,740		)
Amounts reclassified from accumulated other comprehensive loss	—			26			(5		)	622			643
Net other comprehensive loss	(8,245		)	76			(18		)	(4,910		)	(13,097		)
Balance at June 30, 2013	$	(25,163	)	$	(704	)	$	(21	)	$	(5,923	)	$	(31,811	)

	Foreign currency translation adjustments			Pension plan adjustment			Unrealized gain (loss) on available-for- sale securities			Unrealized gain (loss) on effective cash flow hedges			Total
Balance at April 1, 2012	$	(13,109	)	$	(702	)	$	(8	)	$	(4,524	)	$	(18,343	)
Other comprehensive loss before reclassifications	(7,064		)	—			(2		)	(4,549		)	(11,615		)
Amounts reclassified from accumulated other comprehensive loss	—			(8		)	—			1,347			1,339
Net other comprehensive loss	(7,064		)	(8		)	(2		)	(3,202		)	(10,276		)
Balance at June 30, 2012	$	(20,173	)	$	(710	)	$	(10	)	$	(7,726	)	$	(28,619	)

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Concentration of Revenue and Assets (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Mar. 31, 2013
Concentration of Revenue and Assets
Consolidated revenue	$ 90,489	$ 76,217
Consolidated long-lived assets, net	84,933		87,939
North America
Concentration of Revenue and Assets
Consolidated revenue	67,266	59,782
Europe
Concentration of Revenue and Assets
Consolidated revenue	18,339	13,431
Consolidated long-lived assets, net	339		344
Rest of world
Concentration of Revenue and Assets
Consolidated revenue	4,884	3,004
United States
Concentration of Revenue and Assets
Consolidated long-lived assets, net	52,884		53,228
Asia
Concentration of Revenue and Assets
Consolidated long-lived assets, net	$ 31,710		$ 34,367

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Derivative Financial Instruments (Details) (Foreign currency exchange contracts, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Mar. 31, 2013
Derivative Financial Instruments and Trading Activities
Number of hedging programs maintained	3
U.S. dollar notional equivalent market value	$ 109,426		$ 96,630
Maximum outstanding term of derivative instruments	36 months
Derivatives designated as hedging instruments
Derivative Financial Instruments and Trading Activities
Period hedged by Cash Flow Program	36 months
Additional period after which the contract is deemed ineffective	2 months
Amount reclassified to earnings as a result of hedge ineffectiveness	0	0
Unrealized net losses related to derivative instruments expected to be reclassified from AOCI into earnings during the next 12 months	4,672
Other current assets	1		884
Other long-term assets			415
Accrued expenses and other current liabilities	4,673		2,142
Long-term liabilities	$ 4,525		$ 946
Derivatives not Designated as Hedging Instrument
Derivative Financial Instruments and Trading Activities
Maturity period of Balance Sheet Program derivatives	30 days
Maximum maturity period of UK Revenue and Cost Program derivatives	92 days

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Pensions and post-retirement benefits (Tables)

3 Months Ended

Jun. 30, 2013

Pensions and post-retirement benefits

Schedule of pension expense recognized

	Three Months Ended June 30,
	2013			2012
Components of net periodic pension cost
Service cost	$	140		$	114
Interest cost	54			45
Expected return on plan assets	(55		)	(47		)
Amortization of past service cost	3			3
Amortization of actuarial loss	23			1
Net periodic pension cost	$	165		$	116

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net income	$ 7,522	$ 6,139
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	2,606	2,049
Share-based compensation expense	1,710	1,350
Provision for doubtful accounts	486	190
Gain on sale of property and equipment	(3)	(110)
Foreign currency gains, net	(387)	(441)
Excess tax benefits from stock option exercises	(1,783)
Net change in operating assets and liabilities:
Accounts receivable	(6,995)	447
Prepaid expenses and other current assets	1,625	263
Other long-term assets	(326)	(210)
Accounts payable	(2,524)	(3,267)
Accrued employee compensation and benefits	(4,842)	(5,146)
Accrued expenses and other current liabilities	(178)	10
Income taxes payable	1,310	1,035
Other long-term liabilities	(4)	65
Net cash (used in) provided by operating activities	(1,783)	2,374
Cash flows from investing activities:
Proceeds from sale of property and equipment	11	116
Purchase of short-term investments	(1,401)	(2,290)
Proceeds from sale or maturity of short-term investments	1,800	837
Purchase of long-term investments	(3,858)	(2,946)
Proceeds from sale or maturity of long-term investments	600	200
Increase in restricted cash	(10)	(306)
Purchase of property and equipment	(1,678)	(3,116)
Net cash used in investing activities	(4,536)	(7,505)
Cash flows from financing activities:
Proceeds from exercise of common stock options	1,293	132
Purchases of common stock		(1,408)
Principal payments on capital lease obligation	(5)	(1,018)
Excess tax benefits from stock option exercises	1,783
Net cash provided by (used in) financing activities	3,071	(2,294)
Effect of exchange rate changes on cash and cash equivalents	(2,983)	(2,501)
Net decrease in cash and cash equivalents	(6,231)	(9,926)
Cash and cash equivalents, beginning of period	57,199	58,105
Cash and cash equivalents, end of period	$ 50,968	$ 48,179

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Unaudited Interim Financial Information

3 Months Ended

Jun. 30, 2013

Unaudited Interim Financial Information

Unaudited Interim Financial Information

(2) Unaudited Interim Financial Information

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles and Article 10 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, and should be read in conjunction with the Company’s audited consolidated financial statements (and notes thereto) for the fiscal year ended March 31, 2013 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May 29, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of the accompanying unaudited consolidated financial statements have been included, and all material adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire fiscal year. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Principles of Consolidation

The consolidated financial statements reflect the accounts of the Company and its direct and indirect subsidiaries: Virtusa (India) Private Limited, Virtusa Consulting Services Private Limited and Virtusa Software Services Private Limited, each organized and located in India; Virtusa (Private) Limited, organized and located in Sri Lanka; Virtusa UK Limited, organized and located in the United Kingdom; Virtusa Securities Corporation, a Massachusetts securities corporation; InSource Holdings, Inc., a company incorporated in the State of Connecticut; InSource LLC, a Connecticut limited liability company located in Connecticut; Virtusa International, B.V., organized and located in the Netherlands, Virtusa Hungary Kft., incorporated and located in Hungary; Virtusa Germany GmbH, organized and located in Germany; Virtusa Singapore Private Limited, organized and located in Singapore; Virtusa Malaysia Private Limited, organized and located in Malaysia; and Virtusa Austria GmbH, organized and located in Austria. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Management re-evaluates these estimates on an ongoing basis. The most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities and valuation of financial instruments, including derivative contracts and investments. Management bases its estimates on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated financial statements.

Fair Value of Financial Instruments

At June 30, 2013 and March 31, 2013, the carrying amounts of the Company’s financial instruments, which included cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits and other accrued expenses, approximate their fair values due to the nature of the items. In addition, investment securities and derivative instruments are also financial instruments. See Note 5 for a discussion of the fair value of the Company’s other financial instruments.

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Fair Value of Financial Instruments

3 Months Ended

Jun. 30, 2013

Fair Value of Financial Instruments

Fair Value of Financial Instruments

(5) Fair Value of Financial Instruments

The Company uses a framework for measuring fair value under U.S. generally accepted accounting principles and enhanced disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company’s financial assets and liabilities reflected in the consolidated financial statements at carrying value include marketable securities and other financial instruments which approximate fair value. Fair value for marketable securities is determined using a market approach based on quoted market prices at period end in active markets. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

· Level 1—Quoted prices in active markets for identical assets or liabilities.

· Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2013:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sales securities—current	$	—	$	30,568	$	—	$	30,568
Available-for-sales securities—non-current	—		7,828		298		8,126
Foreign currency derivative contracts	—		1		—		1
Total assets	$	—	$	38,397	$	298	$	38,695
Liabilities:
Foreign currency derivative contracts	$	—	$	9,198	$	—	$	9,198
Total liabilities	$	—	$	9,198	$	—	$	9,198

The Company’s investments in auction-rate securities (see Note 4), which are listed in the table above under the column “Level 3” under “Investments: Available-for-sale securities—non-current”, are classified within Level 3 because there are currently no active markets or observable market prices. Therefore, the auction-rate securities were valued primarily based on an income approach using an estimate of future cash flows. The Company has estimated the fair value using a discounted cash flow analysis which considered the following key inputs: (i) the underlying structure and maturity of each security; (ii) the timing of expected future principal and interest payments; and (iii) discount rates that are believed to reflect current market conditions and the relevant risk associated with each security. The underlying assets of these auction-rate securities are generally student loans which are substantially backed by the U.S. federal government. In February 2008, auctions began to fail for these securities and each auction since then has failed. The Company classifies its investment in auction-rate securities as long-term investments, reflecting the fact that the Company’s auction-rate securities have underlying final maturities of greater than one year.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets at June 30, 2013:

	Level 3 Assets
Balance at April 1, 2013	$	893
Auction-rate securities redeemed at par	(600		)
Total unrealized gains:
Included in accumulated other comprehensive income	5
Balance at June 30, 2013	$	298

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Net Income per Share

3 Months Ended

Jun. 30, 2013

Net Income per Share

Net Income per Share

(3) Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per share is computed by including common stock equivalents outstanding for the period in the denominator. Common stock equivalents include shares issuable upon the exercise of outstanding stock options and stock appreciation rights (“SARs”) and unvested shares of restricted stock and, in the case of options and SARs, net of shares assumed to have been purchased with the proceeds, using the treasury stock method. The following table sets forth the computation of basic and diluted net income per share for the periods set forth below:

	Three Months Ended June 30,
	2013		2012
Numerators:
Net income	$	7,522	$	6,139
Denominators:
Weighted average common shares outstanding	25,293,101		24,805,636
Dilutive effect of employee stock options and unvested restricted stock	841,511		660,141
Dilutive effect of stock appreciation rights	16,469		20,171
Weighted average shares-diluted	26,151,081		25,485,948
Net income per share-basic	$	0.30	$	0.25
Net income per share-diluted	$	0.29	$	0.24

During the three months ended June 30, 2013 and 2012, options to purchase 45,591 and 468,707 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.

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Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Mar. 31, 2013
Investment Securities
Amortized Cost	$ 38,720	$ 37,780
Gross Unrealized Gains	4	7
Gross Unrealized Losses	(30)	(16)
Fair Value	38,694	37,771
Corporate bonds | Current
Investment Securities
Amortized Cost	8,261	6,846
Gross Unrealized Gains	3	4
Gross Unrealized Losses	(5)	(2)
Fair Value	8,259	6,848
Corporate bonds | Non-current
Investment Securities
Amortized Cost	6,831	6,246
Gross Unrealized Gains		3
Gross Unrealized Losses	(23)	(7)
Fair Value	6,808	6,242
Auction-rate securities | Non-current
Investment Securities
Amortized Cost	300	900
Gross Unrealized Losses	(2)	(7)
Fair Value	298	893
Agency and short-term notes | Current
Investment Securities
Amortized Cost	158
Gross Unrealized Gains	1
Fair Value	159
Agency and short-term notes | Non-current
Investment Securities
Amortized Cost	1,020	1,184
Fair Value	1,020	1,184
Time deposits | Current
Investment Securities
Amortized Cost	22,150	22,604
Fair Value	$ 22,150	$ 22,604

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Derivative Financial Instruments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Costs of revenue
Derivative Financial Instruments
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	$ (594)	$ (1,296)
Operating expenses
Derivative Financial Instruments
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	(385)	(740)
Derivatives Designated as Cash Flow Hedging Relationships | Foreign currency exchange contracts
Derivative Financial Instruments
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)	(8,387)	(6,521)
Derivatives not Designated as Hedging Instrument | Foreign currency exchange contracts | Costs of revenue
Derivative Financial Instruments
Amount of Gain (Loss) Recognized in Income on Derivatives	54	15
Derivatives not Designated as Hedging Instrument | Foreign currency exchange contracts | Foreign currency transaction gains (losses)
Derivative Financial Instruments
Amount of Gain (Loss) Recognized in Income on Derivatives	(1,609)	(1,236)
Derivatives not Designated as Hedging Instrument | Foreign currency exchange contracts | Revenue
Derivative Financial Instruments
Amount of Gain (Loss) Recognized in Income on Derivatives	(101)	(17)
Derivatives not Designated as Hedging Instrument | Foreign currency exchange contracts | Selling, general and administrative expenses
Derivative Financial Instruments
Amount of Gain (Loss) Recognized in Income on Derivatives	$ 4	$ 1

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Pensions and post-retirement benefits (Details) (Pension benefits, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Pension benefits
Pensions and post-retirement benefits
Service cost	$ 140	$ 114
Interest cost	54	45
Expected return on plan assets	(55)	(47)
Amortization of past service cost	3	3
Amortization of actuarial loss	23	1
Net periodic pension cost	165	116
Expected cash contributions to the plans in current fiscal period	411
Cash contributions to the plans	$ 351

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Mar. 31, 2013
Consolidated Balance Sheets
Accounts receivable, allowance (in dollars)	$ 1,206	$ 740
Property and equipment, accumulated depreciation (in dollars)	$ 26,551	$ 26,618
Undesignated preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Undesignated preferred stock, Authorized shares	5,000,000	5,000,000
Undesignated preferred stock, Issued shares	0	0
Undesignated preferred stock, outstanding shares	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, Authorized shares	120,000,000	120,000,000
Common stock, Issued shares	27,381,886	27,033,818
Common stock, Outstanding shares	25,525,183	25,177,115
Treasury stock, common shares	1,856,703	1,856,703

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Concentration of Revenue and Assets

3 Months Ended

Jun. 30, 2013

Concentration of Revenue and Assets

Concentration of Revenue and Assets

(8) Concentration of Revenue and Assets

Total revenue is attributed to geographic areas based on location of the client. Long-lived assets represent property, plant and equipment, intangible assets and goodwill, net of accumulated depreciation and amortization, and are attributed to geographic area based on their location. Geographic information is summarized as follows:

	Three Months Ended June 30,
	2013		2012
Client revenue:
North America	$	67,266	$	59,782
Europe	18,339		13,431
Rest of world	4,884		3,004
Consolidated revenue	$	90,489	$	76,217

	June 30, 2013		March 31, 2013
Long-lived assets, net of accumulated depreciation and amortization:
United States	$	52,884	$	53,228
Asia	31,710		34,367
Europe	339		344
Consolidated long-lived assets, net	$	84,933	$	87,939

Revenue from significant clients as a percentage of the Company’s consolidated revenue was as follows:

	Three Months Ended June 30,
	2013		2012
Customer 1	13.6	%	14.9	%
Customer 2	13.5	%	12.0	%
Customer 3	11.2	%	10.2	%

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Consolidated Statements of Comprehensive Loss (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Consolidated Statements of Comprehensive Loss
Net income	$ 7,522	$ 6,139
Other comprehensive loss:
Foreign currency translation adjustments	(8,245)	(7,064)
Pension plan adjustment, net of tax	76	(8)
Unrealized loss on available-for-sale securities, net of tax	(18)	(2)
Unrealized loss on effective cash flow hedges, net of tax	(4,910)	(3,202)
Other comprehensive loss	(13,097)	(10,276)
Comprehensive loss	$ (5,575)	$ (4,137)

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Mar. 31, 2013
Current assets:
Cash and cash equivalents	$ 50,968	$ 57,199
Short-term investments	30,568	29,452
Accounts receivable, net of allowance of $1,206 and $740 at June 30, 2013 and March 31, 2013, respectively	75,185	68,612
Unbilled accounts receivable	15,972	15,702
Prepaid expenses	6,392	7,562
Deferred income taxes	8,842	7,674
Restricted cash	342	350
Other current assets	6,917	8,333
Total current assets	195,186	194,884
Property and equipment, net of accumulated depreciation of $26,551 and $26,618 at June 30, 2013 and March 31, 2013, respectively	34,406	36,775
Long-term investments	8,126	8,319
Deferred income taxes	9,319	9,275
Goodwill	35,472	35,472
Intangible assets, net	15,055	15,692
Other long-term assets	3,014	3,502
Total assets	300,578	303,919
Current liabilities:
Accounts payable	7,005	9,231
Accrued employee compensation and benefits	14,767	17,683
Accrued expenses and other current liabilities	20,691	17,811
Income taxes payable	2,951	4,509
Total current liabilities	45,414	49,234
Long-term liabilities	6,104	2,478
Total liabilities	51,518	51,712
Commitments and guarantees
Stockholders' equity:
Undesignated preferred stock, $0.01 par value: Authorized 5,000,000 shares at June 30, 2013 and March 31, 2013; zero shares issued and outstanding at June 30, 2013 and March 31, 2013
Common stock, $0.01 par value: Authorized 120,000,000 shares at June 30, 2013 and March 31, 2013; issued 27,381,886 and 27,033,818 shares at June 30, 2013 and March 31, 2013, respectively; outstanding 25,525,183 and 25,177,115 shares at June 30, 2013 and March 31, 2013, respectively	274	270
Treasury stock, 1,856,703 common shares, at cost, at June 30, 2013 and March 31, 2013, respectively	(9,652)	(9,652)
Additional paid-in capital	175,480	173,056
Retained earnings	114,769	107,247
Accumulated other comprehensive loss	(31,811)	(18,714)
Total stockholders' equity	249,060	252,207
Total liabilities, undesignated preferred stock and stockholders' equity	$ 300,578	$ 303,919

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Fair Value of Financial Instruments (Details) (Recurring, USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Level 2
Investments:
Available-for-sale securities - current	$ 30,568
Available-for-sale securities - non-current	7,828
Foreign currency derivative contracts	1
Total assets	38,397
Liabilities:
Foreign currency derivative contracts	9,198
Total liabilities	9,198
Level 3
Investments:
Available-for-sale securities - non-current	298
Total assets	298
Total
Investments:
Available-for-sale securities - current	30,568
Available-for-sale securities - non-current	8,126
Foreign currency derivative contracts	1
Total assets	38,695
Liabilities:
Foreign currency derivative contracts	9,198
Total liabilities	$ 9,198

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Derivative Financial Instruments (Tables)

3 Months Ended

Jun. 30, 2013

Derivative Financial Instruments

Schedule of fair value of derivative instruments included in the consolidated balance sheets

	June 30, 2013		March 31, 2013
Foreign currency exchange contracts:
Other current assets	$	1	$	884
Other long-term assets	$	—	$	415
Accrued expenses and other current liabilities	$	4,673	$	2,142
Long-term liabilities	$	4,525	$	946

Schedule of effect of the foreign currency exchange contracts on the consolidated financial statements

	Amount of Gain (Loss) Recognized in AOCI on Derivatives(Effective Portion)
Derivatives Designated as Cash Flow	Three months June  30,
Hedging Relationships	2013			2012
Foreign currency exchange contracts	$	(8,387	)	$	(6,521	)

Location of Gain (Loss) Reclassified	Amount of Gain (Loss) Reclassified from AOCI into Income(Effective Portion)
from AOCI into Income (Effective	Three months ended June 30,
Portion)	2013			2012
Costs of revenue	$	(594	)	$	(1,296	)
Operating expenses	$	(385	)	$	(740	)

		Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives not Designated	Location of Gain or (Loss)	Three months ended June 30,
as Hedging Instrument	Recognized in Income on Derivatives	2013			2012
Foreign currency exchange contracts	Foreign currency transaction gains (losses)	$	(1,609	)	$	(1,236	)
	Revenue	$	(101	)	$	(17	)
	Costs of revenue	$	54		$	15
	Selling, general and administrative expenses	$	4		$	1

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Subsequent Events (Details) In Thousands, unless otherwise specified		3 Months Ended			0 Months Ended
	Jun. 30, 2013 Line of credit agreement USD ($)	Jun. 30, 2013 Line of credit agreement LIBOR	Jun. 30, 2013 Line of credit agreement Prime Rate	Jul. 31, 2013 Subsequent event Line of credit agreement USD ($)	Jul. 31, 2013 Subsequent event Line of credit agreement LIBOR	Jul. 31, 2013 Subsequent event Line of credit agreement Prime Rate	Jul. 31, 2013 Subsequent event Derivatives designated as hedging instruments Foreign currency forward contracts U.S. Dollar and U.K. Pound Sterling Forward Contract USD ($)	Jul. 31, 2013 Subsequent event Derivatives designated as hedging instruments Foreign currency forward contracts U.S. Dollar and U.K. Pound Sterling Forward Contract GBP (£)
Subsequent Events
Aggregate notional amount of foreign currency forward contracts							$ 7,460	£ 4,941
Weighted average settlement rate							1.5095	1.5095
Maximum borrowing capacity under the credit agreement	$ 3,000			$ 3,000
Variable rate basis		LIBOR	Prime Rate		LIBOR	Prime Rate
Interest rate added to the base rate (as a percent)		2.50%	2.50%		2.50%	2.50%

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Concentration of Revenue and Assets (Details 2)	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Customer 1
Concentration of Revenue and Assets
Revenue from significant clients as a percentage of consolidated revenue	13.60%	14.90%
Customer 2
Concentration of Revenue and Assets
Revenue from significant clients as a percentage of consolidated revenue	13.50%	12.00%
Customer 3
Concentration of Revenue and Assets
Revenue from significant clients as a percentage of consolidated revenue	11.20%	10.20%

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Debt (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013
Debt
Receivables sold under the terms of the financing agreement	$ 5,837
Amounts due related to a financing agreement to sell certain accounts receivable balances	0
Line of credit agreement
Debt
Maximum borrowing capacity under the credit agreement	$ 3,000
Line of credit agreement | LIBOR
Debt
Variable rate basis	LIBOR
Interest rate added to the base rate (as a percent)	2.50%
Line of credit agreement | Prime Rate
Debt
Variable rate basis	Prime Rate
Interest rate added to the base rate (as a percent)	2.50%

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Income Taxes

3 Months Ended

Jun. 30, 2013

Income Taxes

Income Taxes

(7) Income Taxes

The Company’s effective tax rate was 25.3% for the three months ended June 30, 2013, as compared to an effective tax rate of 24.3% for the three months ended June 30, 2012. The increase in the effective tax rate for three months ended June 30, 2013 is primarily due to the partial expiration of certain tax holidays.  The increased tax rate is partially offset by savings generated from new Special Economic Zone (“SEZ”) tax holiday incentives located in Bangalore, India and effective for the fiscal year ending March 31, 2014.

One of the Company’s Indian subsidiaries, Virtusa (India) Private Limited (“Virtusa India”), is an export oriented company.  The Indian Income Tax Act of 1961 entitles taxpayers to claim tax exemption for a period of ten consecutive years for each Software Technology Park (“STP”) that it operates.  Virtusa India operates two STPs, one in Chennai and one in Hyderabad, India.  The STP tax holiday in Hyderabad, India expired on March 31, 2010 and the STP tax holiday in Chennai, India expired on March 31, 2011.  For the three months ended June 30, 2013 and 2012, all profits in the STPs in Hyderabad and Chennai, India were fully taxable at the Indian statutory tax rate of 34.0% and 32.5%, respectively.  In anticipation of, and to mitigate the impact of, the phase-out of the STP tax holidays in Hyderabad and Chennai, India, the Company located new Indian operations in areas designated as a SEZ under the SEZ Act of 2005 through two operating subsidiaries, Virtusa Software Services Private Limited and Virtusa Consulting Services Private Limited. The Company’s profits from its SEZ operations are eligible for certain additional income tax exemptions for a period of up to 15 years based on export income.

In addition, the Company’s Sri Lankan subsidiary, Virtusa (Private) Limited, is operating under a 12-year income tax holiday arrangement that is set to expire on March 31, 2019 and required Virtusa (Private) Limited to meet certain job creation and investment criteria by March 31, 2013.  During the fiscal year ended March 31, 2013, the Company believed it had fulfilled its hiring and investment commitments and is eligible for tax holiday through March 2019. The current agreement provides income tax exemption for all export business income. On June 12, 2013, the Board of Investment certified the Company has met required hiring and investment commitments to receive tax benefits for the period ended March 31, 2013. The Company is required to maintain such job additions through at least March 31, 2014 and receive annual certifications in order to receive future benefits. The Company believes it will continue to meet the job retention target. At June 30, 2013, the Company believes it is eligible for the entire 12-year tax holiday.

The Company’s effective income tax rate is based on the composition of estimated income in different jurisdictions, including those where the Company is enjoying tax holidays, for the applicable fiscal year and adjustments, if any, in the applicable quarterly periods, for unrecognized tax benefits for uncertain income tax positions or other discrete items required to be reported during interim periods. The Company’s aggregate income tax rate in foreign jurisdictions is lower than its income tax rate in the United States due primarily to lower rates generally in jurisdictions in which the Company operates and tax holidays.

Unrecognized tax benefits represent uncertain tax positions for which the Company has established reserves. At June 30, 2013 and March 31, 2013, the total liability for unrecognized tax benefits was $4,799 and $4,823, respectively, of which a portion would negatively impact the annual effective rate, if realized.  Each year, unrecognized tax benefits may be adjusted upon the closing of the statute of limitations for income tax returns filed in various jurisdictions. During the three months ended June 30, 2013 and June 30, 2012, the unrecognized tax benefits decreased by $24 and increased by $78, respectively.  The current quarter decrease is predominantly due to the expiration of tax statutes partially offset by increases for incremental interest on existing uncertain tax positions.

The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions.  Recently, the Internal Revenue Service (“IRS”) conducted a routine audit of the Company’s fiscal years 2008 to 2011, pursuant to which the IRS made certain assessments.  In connection with the audit, during the fourth quarter of fiscal year 2013, the Company executed a settlement arrangement with the IRS for all periods under audit to close out the audit. The Company had fully accrued for all such assessments and the settlement impact on the Company’s financial statements is properly reflected at June 30, 2013. The Company’s U.S. tax return for fiscal year 2012 is currently under examination. In addition, tax returns for various years are under examination by tax authorities of foreign jurisdictions. Currently, several issues are at various levels of appeal with the Indian tax authorities. While it is difficult to predict the final outcome, the Company believes its reserves represent the most likely outcome and continues to evaluate all tax return positions.

Undistributed Earnings of Foreign Subsidiaries

A substantial amount of the Company’s income before provision for income tax is from operations earned in its Indian and Sri Lankan subsidiaries subject to tax holiday. The Company intends to use accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly, undistributed income is considered to be indefinitely reinvested. The Company does not provide for U.S. income taxes on foreign earnings.  At June 30, 2013, the Company had $137.2 million of unremitted earnings from foreign subsidiaries and approximately $59.7 million of cash and short-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested.  Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable.

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Fair Value of Financial Instruments (Details 2) (Auction-rate securities, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013
Auction-rate securities
Summary of changes in fair value of the Company's Level 3 financial assets
Balance at the beginning of the period	$ 893
Auction-rate securities redeemed at par	(600)
Total unrealized gains:
Included in accumulated other comprehensive income	5
Balance at the end of the period	$ 298

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Pensions and post-retirement benefits

3 Months Ended

Jun. 30, 2013

Pensions and post-retirement benefits

Pensions and post-retirement benefits

(10) Pensions and post-retirement benefits

The Company has noncontributory defined benefit plans covering its employees in India and Sri Lanka as mandated by the Indian and Sri Lankan governments.  The following tables provide information regarding pension expense recognized:

	Three Months Ended June 30,
	2013			2012
Components of net periodic pension cost
Service cost	$	140		$	114
Interest cost	54			45
Expected return on plan assets	(55		)	(47		)
Amortization of past service cost	3			3
Amortization of actuarial loss	23			1
Net periodic pension cost	$	165		$	116

The Company expects to contribute approximately $411 in cash to the pension plans during the fiscal year ending March 31, 2014. The Company made cash contributions of $351 to the plans during the three months ended June 30, 2013.

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Derivative Financial Instruments

3 Months Ended

Jun. 30, 2013

Derivative Financial Instruments

Derivative Financial Instruments

(6) Derivative Financial Instruments

The Company evaluates its foreign exchange policy on an ongoing basis to assess its ability to address foreign exchange exposures on its consolidated balance sheets, statements of income and consolidated statement of cash flows from foreign currencies, including most significantly, the U.K. pound sterling, the Indian rupee and the Sri Lankan rupee. The Company enters into hedging contracts in accordance with its foreign exchange policy (as approved by the Company’s audit committee and board of directors) which permits hedging of material, known foreign currency exposures. Currently, the Company maintains three hedging programs, each with varying contract types, durations and purposes. The Company’s “Cash Flow Program” is designed to mitigate the impact of volatility in the U.S. dollar equivalent of the Company’s Indian rupee denominated expenses over a rolling 36-month period. The Cash Flow Program transactions currently meet the criteria for hedge accounting as cash flow hedges. The Company’s “Balance Sheet Program” involves the use of 30-day derivative instruments designed to mitigate the monthly impact of foreign exchange gains/losses on certain intercompany balances and payments. The Company’s “U.K. Revenue and Cost Program” involves the purchase of derivative instruments with maturities of up to 92 days designed to mitigate the impact of foreign exchange on U.K. pound sterling denominated revenue and costs in the quarter in which such instruments are purchased. The Company’s Balance Sheet Program and U.K. Revenue and Cost Program do not meet the criteria for hedge accounting and all gains and losses are recognized in consolidated statement of income under the same line item as the underlying exposure being hedged.

The Company evaluates all of its derivatives based on market observable inputs, including both forward and spot prices for currencies. Any significant change in the forward or spot prices for hedged currencies would have a significant impact on the value of the Company’s derivatives.  Changes in fair value of the designated cash flow hedges for the Company’s Cash Flow Program are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”), net of tax, until the forecasted hedged transactions occur and are then recognized in the consolidated statement of income in the same line item as the item being hedged. The Company evaluates hedge effectiveness at the time a contract is entered into, as well as on an ongoing basis.  If, and when, all or part of a hedge relationship is discontinued because the forecasted transaction is deemed probable of not occurring by the end of the originally specified period or within an additional two-month period of time thereafter, the contract, or the relative amount of the contract, is deemed “ineffective” and any related derivative amounts recorded in equity are reclassified to earnings. There were no gains (losses) that were reclassified from AOCI into earnings as a result of forecasted transactions that were considered probable of not occurring for the three month periods ended June 30, 2013 and 2012.

Changes in the fair value of the derivatives purchased under the Balance Sheet Program are reflected in the Company’s consolidated statement of income and are included in foreign currency transaction gains (losses) for each period.  Changes in the fair value of the derivatives purchased under the U.K. Revenue and Cost Program are also reflected in the Company’s consolidated statement of income and are included in the same line item as the underlying exposure being hedged for each period.

The U.S. dollar notional equivalent market value, which consists of the notional value and net unrealized gain or loss, of all outstanding foreign currency derivative contracts, was $109,426 and $96,630, at June 30, 2013 and March 31, 2013, respectively. Unrealized net losses related to these contracts which are expected to be reclassified from AOCI to earnings during the next 12 months were $4,672 at June 30, 2013. At June 30, 2013, the maximum outstanding term of any derivative instrument was 36 months.

The following table sets forth the fair value of derivative instruments included in the consolidated balance sheets at June 30, 2013 and March 31, 2013:

Derivatives designated as hedging instruments

	June 30, 2013		March 31, 2013
Foreign currency exchange contracts:
Other current assets	$	1	$	884
Other long-term assets	$	—	$	415
Accrued expenses and other current liabilities	$	4,673	$	2,142
Long-term liabilities	$	4,525	$	946

The following tables set forth the effect of the Company’s foreign currency exchange contracts on the consolidated financial statements of the Company for the three months ended June 30, 2013 and 2012:

	Amount of Gain (Loss) Recognized in AOCI on Derivatives(Effective Portion)
Derivatives Designated as Cash Flow	Three months June  30,
Hedging Relationships	2013			2012
Foreign currency exchange contracts	$	(8,387	)	$	(6,521	)

Location of Gain (Loss) Reclassified	Amount of Gain (Loss) Reclassified from AOCI into Income(Effective Portion)
from AOCI into Income (Effective	Three months ended June 30,
Portion)	2013			2012
Costs of revenue	$	(594	)	$	(1,296	)
Operating expenses	$	(385	)	$	(740	)

		Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives not Designated	Location of Gain or (Loss)	Three months ended June 30,
as Hedging Instrument	Recognized in Income on Derivatives	2013			2012
Foreign currency exchange contracts	Foreign currency transaction gains (losses)	$	(1,609	)	$	(1,236	)
	Revenue	$	(101	)	$	(17	)
	Costs of revenue	$	54		$	15
	Selling, general and administrative expenses	$	4		$	1

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Nature of Business

3 Months Ended

Jun. 30, 2013

Nature of Business

Nature of Business

(1) Nature of Business

Virtusa Corporation (the “Company” or “Virtusa”) is a global information technology services company. The Company uses an offshore delivery model to provide a broad range of information technology, or IT, services, including IT consulting, technology implementation and application outsourcing. Using its enhanced global delivery model, innovative platforming approach and industry expertise, the Company provides cost-effective services that enable its clients to accelerate time to market, improve service and enhance productivity. Headquartered in Massachusetts, Virtusa has offices in the United States, the United Kingdom, Germany, Austria and Singapore and global delivery centers in Hyderabad, Chennai and Bangalore, India, Colombo, Sri Lanka, Budapest, Hungary and Kuala Lumpur, Malaysia.

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Income Taxes (Details) (USD $)	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Mar. 31, 2013
Income Taxes
Effective tax rate (as a percent)	25.30%	24.30%
Income Taxes
Total liability for unrecognized tax benefits which would impact the annual effective rate, if realized	$ 4,799,000		$ 4,823,000
Increase (decrease) in unrecognized tax benefits	(24,000)	78,000
Unremitted earnings from foreign subsidiaries	137,200,000
Cash and short-term investments available for distribution if not indefinitely reinvested	$ 59,700,000
India
Income Taxes
Number of subsidiaries which is export oriented	1
Statutory tax rate (as a percent)	34.00%	32.50%
India | Indian operations in areas designated as a SEZ
Income Taxes
Income tax exemption period	15 years
Number of subsidiaries eligible for tax holiday on export income	2
India | Virtusa India
Income Taxes
Income tax exemption period	10 years
Number of STPs operated	2
India | Virtusa India | Chennai
Income Taxes
Number of STPs operated	1
India | Virtusa India | Hyderabad
Income Taxes
Number of STPs operated	1
Sri Lanka | Virtusa (Private) Limited
Income Taxes
Income tax exemption period	12 years

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Unaudited Interim Financial Information (Policies)

3 Months Ended

Jun. 30, 2013

Unaudited Interim Financial Information

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles and Article 10 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, and should be read in conjunction with the Company’s audited consolidated financial statements (and notes thereto) for the fiscal year ended March 31, 2013 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May 29, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of the accompanying unaudited consolidated financial statements have been included, and all material adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire fiscal year. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements reflect the accounts of the Company and its direct and indirect subsidiaries: Virtusa (India) Private Limited, Virtusa Consulting Services Private Limited and Virtusa Software Services Private Limited, each organized and located in India; Virtusa (Private) Limited, organized and located in Sri Lanka; Virtusa UK Limited, organized and located in the United Kingdom; Virtusa Securities Corporation, a Massachusetts securities corporation; InSource Holdings, Inc., a company incorporated in the State of Connecticut; InSource LLC, a Connecticut limited liability company located in Connecticut; Virtusa International, B.V., organized and located in the Netherlands, Virtusa Hungary Kft., incorporated and located in Hungary; Virtusa Germany GmbH, organized and located in Germany; Virtusa Singapore Private Limited, organized and located in Singapore; Virtusa Malaysia Private Limited, organized and located in Malaysia; and Virtusa Austria GmbH, organized and located in Austria. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Management re-evaluates these estimates on an ongoing basis. The most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities and valuation of financial instruments, including derivative contracts and investments. Management bases its estimates on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated financial statements.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

At June 30, 2013 and March 31, 2013, the carrying amounts of the Company’s financial instruments, which included cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits and other accrued expenses, approximate their fair values due to the nature of the items. In addition, investment securities and derivative instruments are also financial instruments. See Note 5 for a discussion of the fair value of the Company’s other financial instruments.

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Debt

3 Months Ended

Jun. 30, 2013

Debt

Debt

(9) Debt

On July 30, 2010, the Company entered into a $3,000 credit agreement with J.P. Morgan Chase Bank, N.A. (“JPMC”) which had an expiration date of July 31, 2013. The primary purpose of this credit agreement is to support the Company’s foreign currency hedging programs. The credit agreement contains financial and reporting covenants and limitations. The Company is currently in compliance with all covenants contained in the credit agreement and believes that the credit agreement provides sufficient flexibility to enable continued compliance with its terms. Advances under the credit agreement accrue interest at an annual rate equal to LIBOR plus 2.5% or Prime Rate plus 2.5%.   On July 31, 2013, the Company entered into an amendment to its $3,000 credit agreement with JPMC to extend the expiration date until July 31, 2016 (See Note 12 below).

Beginning in fiscal 2009, the Company’s U.K. subsidiary entered into an agreement with a financial institution to sell, without recourse, certain of its Europe-based accounts receivable balances to the financial institution. During the three months ended June 30, 2013, $5,837 of receivables was sold under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the three months ended June 30, 2013. No amounts were outstanding under the financing agreement at June 30, 2013, but the Company may elect to use this program again in future periods. However, the Company cannot provide any assurances that this or any other financing facilities will be available or used in the future.

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Jun. 30, 2013

Fair Value of Financial Instruments

Schedule of financial assets and liabilities measured at fair value on a recurring basis

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2013:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sales securities—current	$	—	$	30,568	$	—	$	30,568
Available-for-sales securities—non-current	—		7,828		298		8,126
Foreign currency derivative contracts	—		1		—		1
Total assets	$	—	$	38,397	$	298	$	38,695
Liabilities:
Foreign currency derivative contracts	$	—	$	9,198	$	—	$	9,198
Total liabilities	$	—	$	9,198	$	—	$	9,198

Schedule of changes in fair value of Level 3 financial assets

	Level 3 Assets
Balance at April 1, 2013	$	893
Auction-rate securities redeemed at par	(600		)
Total unrealized gains:
Included in accumulated other comprehensive income	5
Balance at June 30, 2013	$	298

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Net Income per Share (Tables)

3 Months Ended

Jun. 30, 2013

Net Income per Share

Schedule of computation of basic and diluted net income per share

	Three Months Ended June 30,
	2013		2012
Numerators:
Net income	$	7,522	$	6,139
Denominators:
Weighted average common shares outstanding	25,293,101		24,805,636
Dilutive effect of employee stock options and unvested restricted stock	841,511		660,141
Dilutive effect of stock appreciation rights	16,469		20,171
Weighted average shares-diluted	26,151,081		25,485,948
Net income per share-basic	$	0.30	$	0.25
Net income per share-diluted	$	0.29	$	0.24

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Document and Entity Information	3 Months Ended
	Jun. 30, 2013	Jul. 29, 2013
Document and Entity Information
Entity Registrant Name	VIRTUSA CORP
Entity Central Index Key	0001207074
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		26,213,476
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1

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Investment Securities (Tables)

3 Months Ended

Jun. 30, 2013

Investment Securities

Schedule of investment securities

The following is a summary of investment securities at June 30, 2013:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current	$	8,261	$	3	$	(5	)	$	8,259
Non-current	6,831		—		(23		)	6,808
Auction-rate securities:
Non-current	300		—		(2		)	298
Agency and short-term notes:
Current	158		1		—			159
Non-current	1,020		—		—			1,020
Time deposits:
Current	22,150		—		—			22,150
Total available-for-sale securities	$	38,720	$	4	$	(30	)	$	38,694

The following is a summary of investment securities at March 31, 2013:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current	$	6,846	$	4	$	(2	)	$	6,848
Non-current	6,246		3		(7		)	6,242
Auction-rate securities:
Non-current	900		—		(7		)	893
Agency and short-term notes:
Non-current	1,184		—		—			1,184
Time deposits:
Current	22,604		—		—			22,604
Total available-for-sale securities	$	37,780	$	7	$	(16	)	$	37,771