10-Q

/

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2019

☐  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	04-3512883
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)

132 Turnpike Rd Southborough, Massachusetts (Address of principal executive offices) 01772 (Zip Code)

(508) 389-7300

(Telephone Number,

Including Area Code,)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $0.01 par value per share Trading Symbol(s) VRTU Name of each exchange on which registered
The NASDAQ Stock Market LLC

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large Accelerated Filer ☒	Accelerated Filer ☐
Non-Accelerated Filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of February 3, 2020:

Class	Number of Shares
Common Stock, par value $.01 per share	29,860,501

Virtusa Corporation and Subsidiaries

		Page
PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at December 31, 2019 and March 31, 2019	3
	Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended December 31, 2019 and 2018	5
	Consolidated Statements of Stockholder’s Equity for the Three and Nine Months Ended December 31, 2019 and 2018	6
	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2019 and 2018	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	49
PART II. OTHER INFORMATION		50
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 6.	Exhibits	52
SIGNATURES		53

2

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

Virtusa Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

	December 31, 2019		March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	217,387	$	189,676
Short-term investments		20,058		33,138
Accounts receivable, net of allowance of $1,637 and $2,253 at December 31, 2019 and March 31, 2019, respectively		149,800		162,396
Unbilled accounts receivable		106,716		113,431
Prepaid expenses		43,845		42,314
Restricted cash		1,735		351
Asset held for sale		8,749		8,978
Other current assets		32,308		29,967
Total current assets		580,598		580,251
Property and equipment, net		108,198		119,865
Operating lease right-of-use assets		50,894		—
Investments accounted for using equity method		1,429		1,446
Long-term investments		10		322
Deferred income taxes		31,136		28,770
Goodwill		276,089		279,543
Intangible assets, net		99,519		92,440
Other long-term assets		38,085		29,836
Total assets	$	1,185,958	$	1,132,473
Liabilities, Series A Convertible Preferred Stock, Redeemable noncontrolling interest and Stockholders’ equity
Current liabilities:
Accounts payable	$	30,548	$	46,471
Accrued employee compensation and benefits		78,524		74,801
Deferred revenue		6,592		6,421
Accrued expenses and other		65,675		70,050
Current portion of long-term debt		14,597		11,407
Operating lease liabilities		11,385		—
Income taxes payable		6,729		4,844
Total current liabilities		214,050		213,994
Deferred income taxes		14,873		15,824
Operating lease liabilities, noncurrent		44,009		—
Long-term debt, less current portion		375,164		351,320
Long-term liabilities		27,281		29,824
Total liabilities		675,377		610,962
Commitments and contingencies
Series A Convertible Preferred Stock: par value $0.01 per share, 108,000 shares authorized, 108,000 shares issued and outstanding at December 31, 2019 and March 31, 2019; redemption amount and liquidation preference of $108,000 at December 31, 2019 and March 31, 2019		107,285		107,161
Redeemable noncontrolling interest		—		23,576
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value; Authorized 5,000,000 shares at December 31, 2019 and March 31, 2019		—		—
Common stock, $0.01 par value; Authorized 120,000,000 shares at December 31, 2019 and March 31, 2019; issued 33,246,073 and 33,012,775 shares at December 31, 2019 and March 31, 2019, respectively; outstanding 29,860,509 and 30,132,776 shares at December 31, 2019 and March 31, 2019, respectively		332		330
Treasury stock, 3,385,564 and 2,879,999 common shares, at cost, at December 31, 2019 and March 31, 2019, respectively		(58,332)		(39,652)
Additional paid-in capital		256,152		239,204
Retained earnings		272,673		250,279
Accumulated other comprehensive loss		(67,529)		(59,387)
Total Virtusa stockholders’ equity		403,296		390,774
Noncontrolling interest in subsidiaries		—		—
Total Stockholders' equity		403,296		390,774
Total liabilities, Series A convertible preferred stock, redeemable noncontrolling interest and stockholders’ equity	$	1,185,958	$	1,132,473

See accompanying notes to unaudited consolidated financial statement

3

Virtusa Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Revenue	$	335,107	$	314,681	$	982,632	$	920,232
Costs of revenue		236,427		221,461		709,746		654,288
Gross profit		98,680		93,220		272,886		265,944
Operating expenses:
Selling, general and administrative expenses		68,270		73,935		209,813		218,716
Income from operations		30,410		19,285		63,073		47,228
Other income (expense):
Interest income		520		634		1,744		1,988
Interest expense		(4,873)		(4,597)		(14,616)		(13,365)
Foreign currency transaction gains (losses), net		(3,065)		8,319		(5,300)		(11,794)
Other, net		209		(444)		1,137		998
Total other income (expense)		(7,209)		3,912		(17,035)		(22,173)
Income before income tax expense		23,201		23,197		46,038		25,055
Income tax expense		10,363		10,400		19,932		15,863
Net income		12,838		12,797		26,106		9,192
Less: net income attributable to noncontrolling interests, net of tax		118		221		450		1,407
Net income available to Virtusa stockholders		12,720		12,576		25,656		7,785
Less: Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		3,262		3,262
Net income available to Virtusa common stockholders	$	11,633	$	11,489	$	22,394	$	4,523
Basic earnings per share available to Virtusa common stockholders	$	0.39	$	0.38	$	0.75	$	0.15
Diluted earnings per share available to Virtusa common stockholders	$	0.38	$	0.37	$	0.73	$	0.15

See accompanying notes to unaudited consolidated financial statements

4

Virtusa Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2019		2018		2019		2018
Net income	$	12,838	$	12,797	$	26,106	$	9,192
Other comprehensive income (loss):
Foreign currency translation adjustment		4,630		(2,477)		(2,106)		(20,201)
Pension plan adjustment		79		73		(606)		(23)
Unrealized gain (loss) on available-for-sale debt securities, net of tax effect		—		263		—		(51)
Unrealized gain (loss) on effective cash flow hedges, net of tax effect		(2,817)		6,067		(5,031)		(1,072)
Other comprehensive income (loss)	$	1,892	$	3,926	$	(7,743)	$	(21,347)
Comprehensive income (loss)		14,730		16,723		18,363		(12,155)
Less: comprehensive income attributable to noncontrolling interest, net of tax		484		669		849		134
Comprehensive income (loss) available to Virtusa stockholders	$	14,246	$	16,054	$	17,514	$	(12,289)

See accompanying notes to unaudited consolidated financial statements

5

Virtusa Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended December 31, 2019 and 2018

(Unaudited)

(In thousands, except share amounts)

											Accumulated		Total
							Additional				Other		Virtusa		Non		Total		Redeemable
	Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive		Stockholders’		Controlling		Stockholders’		Noncontrolling
	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity		Interest		Equity		Interest
Balance at March 31, 2019	33,012,775	$	330	(2,879,999)	$	(39,652)	$	239,204	$	250,279	$	(59,387)	$	390,774	$	—	$	390,774	$	23,576
Proceeds from the exercise of stock options	13,416		—	—		—		194		—		—		194		—		194		8
Restricted stock awards vested	96,763		1	—		—		(1)		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(2,011)		—		—		(2,011)		—		(2,011)		—
Share-based compensation	—		—	—		—		6,674		—		—		6,674		—		6,674		—
Adjustments of redeemable noncontrolling interest to redemption value	—		—	—		—		18		—		—		18		—		18		170
Purchase of redeemable noncontrolling interest related to Polaris	—		—	—		—		—		—		—		—		—		—		(5,549)
Foreign currency translation on redeemable noncontrolling interest	—		—	—		—		—		—		—		—		—		—		116
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,087)		—		(1,087)		—		(1,087)		—
Other comprehensive income (loss)	—		—	—		—		—		—		(1,194)		(1,194)		—		(1,194)		144
Net income	—		—	—		—		—		5,834		—		5,834		—		5,834		186
Balance at June 30, 2019	33,122,954	$	331	(2,879,999)	$	(39,652)	$	244,078	$	255,026	$	(60,581)	$	399,202	$	—	$	399,202	$	18,651
Restricted stock awards vested	101,178		1	—		—		(1)		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(1,647)		—		—		(1,647)		—		(1,647)		—
Share-based compensation	—		—	—		—		5,829		—		—		5,829		—		5,829		—
Repurchase of common stock	—		—	(505,565)		(18,680)		—		—		—		(18,680)		—		(18,680)		—
Adjustments of redeemable noncontrolling interest to redemption value	—		—	—		—		25		—		—		25		—		25		101
Purchase of redeemable noncontrolling interest related to Polaris	—		—	—		—		—		—		—		—		—		—		(3,126)
Foreign currency translation on redeemable noncontrolling interest	—		—	—		—		—		—		—		—		—		—		(533)
Reclassification of noncontrolling interest from temporary equity to permanent equity	—		—	—		—		—		—		—		—		15,093		15,093		(15,093)
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,088)		—		(1,088)		—		(1,088)		—
Other comprehensive income (loss)	—		—	—		—		—		—		(8,474)		(8,474)		(111)		(8,585)		—
Net income	—		—	—		—		—		7,102		—		7,102		146		7,248		—
Balance at September 30, 2019	33,224,132	$	332	(3,385,564)	$	(58,332)	$	248,284	$	261,040	$	(69,055)	$	382,269	$	15,128	$	397,397		—
Proceeds from the exercise of stock options	15,914		—	—		—		233		—		—		233		—		233		—
Restricted stock awards vested	6,027		—	—		—		—		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(126)		—		—		(126)		—		(126)		—
Share-based compensation	—		—	—		—		5,750		—		—		5,750		—		5,750		—
Reclassification of noncontrolling interest from permanent equity to liability	—		—	—		—		—		—		—		—		(13,564)		(13,564)		—
Adjustments for reclassification of noncontrolling interest	—		—	—		—		2,011		—		—		2,011		(2,048)		(37)		—
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,087)		—		(1,087)		—		(1,087)		—
Other comprehensive income (loss)	—		—	—		—		—		—		1,526		1,526		366		1,892		—
Net income	—		—	—		—		—		12,720		—		12,720		118		12,838		—
Balance at December 31, 2019	33,246,073		332	(3,385,564)		(58,332)		256,152		272,673		(67,529)		403,296		—		403,296		—

6

Virtusa Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended December 31, 2019 and 2018

(Unaudited)

(In thousands, except share amounts)

											Accumulated		Total
							Additional				Other		Virtusa		Non-		Total		Redeemable
	Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive		Stockholders’		controlling		Stockholders'		Noncontrolling
	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity		interest		equity		Interest
Balance at March 31, 2018	32,469,092	$	325	(2,879,999)	$	(39,652)	$	260,612	$	238,019	$	(40,681)	$	418,623	$	17,460	$	436,083	$	—
Proceeds from the exercise of stock options	33,173		—	—		—		294		—		—		294		—		294		—
Proceeds from the exercise of subsidiary stock options	—		—	—		—		196		—		—		196		—		196		—
Restricted stock awards vested	95,432		1	—		—		(1)		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(2,450)		—		—		(2,450)		—		(2,450)		—
Share-based compensation	—		—	—		—		7,908		—		—		7,908		—		7,908		—
Subsidiary share-based compensation	—		—	—		—		30		—		—		30		—		30		—
Cumulative effect of adopting ASC Topic 606, net of tax	—		—	—		—		—		464		—		464		—		464		—
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,087)		—		(1,087)		—		(1,087)		—
Other comprehensive income (loss0	—		—	—		—		—		—		(13,060)		(13,060)		(1,466)		(14,526)		—
Net income (loss)	—		—	—		—		—		(6,296)		—		(6,296)		731		(5,565)		—
Balance at June 30, 2018	32,597,697		326	(2,879,999)		(39,652)		266,589		231,100		(53,741)		404,622		16,725		421,347		—
Proceeds from the exercise of stock options	9,918		—	—		—		134		—		—		134		—		134		—
Proceeds from the exercise of subsidiary stock options	—		—	—		—		64		—		—		64		—		64		3
Restricted stock awards vested	162,090		2	—		—		(2)		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(5,152)		—		—		(5,152)		—		(5,152)		—
Share-based compensation	—		—	—		—		8,022		—		—		8,022		—		8,022		—
Reclassification of previously recognized stock compensation related to liabilities classified awards for Polaris to liabilities	—		—	—		—		(617)		—		—		(617)		—		(617)		—
Adjustments of redeemable noncontrolling interest to redemption value	—		—	—		—		(37,842)		—		—		(37,842)		(16,450)		(54,292)		54,850
Purchase of redeemable noncontrolling interest related to Polaris	—		—	—		—		—		—		—		—		—		—		(28,395)
Foreign currency translation on redeemable noncontrolling interest	—		—	—		—		—		—		—		—		—		—		(2,045)
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,088)		—		(1,088)		—		(1,088)		—
Other comprehensive income (loss)	—		—	—		—		—		—		(10,492)		(10,492)		—		(10,492)		(255)
Net income	—		—	—		—		—		1,505		—		1,505		—		1,505		456
Balance at September 30, 2018	32,769,705		328	(2,879,999)		(39,652)		231,196		231,517		(64,233)		359,156		275		359,431		24,614
Proceeds from the exercise of stock options	—		—	—		—		—		—		—		—		—		—		—
Proceeds from the exercise of subsidiary stock options	—		—	—		—		—		—		—		—		—		—		50
Restricted stock awards vested	11,669		—	—		—		—		—		—		—		—		—		—
Restricted stock awards withheld for tax	—		—	—		—		(226)		—		—		(226)		—		(226)		—
Share-based compensation	—		—	—		—		6,993		—		—		6,993		—		6,993		—
Subsidiary share-based compensation	—		—	—		—		6		—		—		6		—		6		—
Other	—		—	—		—		(115)		—		—		(115)		(290)		(405)		—
Adjustments of redeemable noncontrolling interest to redemption value	—		—	—		—		33		—		—		33		—		33		603
Payment of redeemable noncontrolling interest related to Polaris	—		—	—		—		—		—		—		—		—		—		(1,992)
Foreign currency translation on redeemable noncontrolling interest	—		—	—		—		—		—		—		—		—		—		995
Series A Convertible Preferred Stock dividends and accretion	—		—	—		—		—		(1,087)		—		(1,087)		—		(1,087)		—
Other comprehensive income (loss)	—		—	—		—		—		—		3,478		3,478		—		3,478		448
Net income	—		—	—		—		—		12,576		—		12,576		15		12,591		206
Balance at December 31, 2018	32,781,374		328	(2,879,999)		(39,652)		237,887		243,006		(60,755)		380,814		—		380,814		24,924

See accompanying notes to unaudited consolidated financial statements

7

Virtusa Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended
	December 31,
	2019		2018
Cash flows from operating activities:
Net income	$	26,106	$	9,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,672		21,696
Share-based compensation expense		18,285		24,104
Provision (recovery) for doubtful accounts		26		(549)
Gain on disposal of property and equipment		(403)		(115)
Impairment of investment		184		885
Foreign currency transaction losses, net		5,300		11,794
Amortization of discounts and premiums on investments		(6)		84
Amortization of debt issuance cost		863		819
Deferred income taxes, net		(970)		(6,225)
Net changes in operating assets and liabilities
Accounts receivable and unbilled receivable		19,129		4,780
Prepaid expenses and other current assets		(1,258)		(7,729)
Other long-term assets		(11,239)		(11,702)
Accounts payable		(12,730)		12,014
Accrued employee compensation and benefits		1,011		(9,041)
Accrued expenses and other current liabilities		5,495		13,135
Operating lease liabilities		172		—
Income taxes payable		2,537		2,975
Other long-term liabilities		(1,720)		3,705
Net cash provided by operating activities		74,454		69,822
Cash flows from investing activities:
Proceeds from sale of property and equipment		825		568
Purchase of short-term investments		(34,969)		(84,185)
Proceeds from sale or maturity of short-term investments		47,716		88,204
Payments for asset acquisitions		(9,192)		—
Payment of contingent consideration of asset acquisition		(942)		—
Business acquisition, net of cash acquired		—		(1,919)
Payment of deferred consideration related to business acquisition		(17,500)		—
Purchase of property and equipment		(10,865)		(24,715)
Net cash used in investing activities		(24,927)		(22,047)
Cash flows from financing activities:
Proceeds from exercise of common stock options		427		428
Proceeds from exercise of subsidiary stock options		93		531
Payment of debt issuance costs		(808)		—
Proceeds from revolving credit facility		36,000		32,000
Payment of debt		(9,141)		(9,375)
Repurchase of common stock		(18,680)		—
Payment of other noncontrolling interest		—		(373)
Payments of withholding taxes related to net share settlements of restricted stock		(3,783)		(7,828)
Purchase of redeemable noncontrolling interest related to Polaris		(8,675)		(30,387)
Payment of noncontrolling interest		(12,534)		—
Principal payments on capital lease obligation		(36)		(65)
Payment of contingent consideration related to acquisition		—		(100)
Payment of dividend on Series A Convertible Preferred Stock		(3,138)		(3,138)
Net cash used in financing activities		(20,275)		(18,307)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(131)		(13,530)
Net increase in cash and cash equivalents and restricted cash		29,121		15,938
Cash, cash equivalents and restricted cash, beginning of year		190,113		195,236
Cash, cash equivalents and restricted cash, end of period	$	219,234	$	211,174

8

Virtusa Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets:

	December 31, 2019		March 31, 2019
Balance sheet classification
Cash and cash equivalents	$	217,387	$	189,676
Restricted cash in current assets		1,735		351
Restricted cash in other long-term assets		112		86
Total restricted cash	$	1,847	$	437
Total cash, cash equivalents and restricted cash	$	219,234	$	190,113

See accompanying notes to unaudited consolidated financial statements

9

Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts)

(1) Nature of the Business

Virtusa Corporation (the “Company”, “Virtusa”, “we”, “us” or “our”) is a global provider of digital engineering and information technology (“IT”) outsourcing services that accelerate business outcomes for our clients. We support Forbes Global 2000 clients across large, consumer facing industries like banking, financial services, insurance, healthcare, communications, and media and entertainment, as these clients seek to improve their business performance through accelerating revenue growth, delivering compelling consumer experiences, improving operational efficiencies, and lowering overall IT costs. We provide services across the entire spectrum of the IT services lifecycle, from strategy and consulting to technology and user experience (“UX”) design, development of IT applications, systems integration, testing and business assurance, and maintenance and support services, including infrastructure and managed services. We help our clients solve critical business problems by leveraging a combination of our distinctive consulting approach, unique platforming methodology, and deep domain and technology expertise.

Our services enable our clients to accelerate business outcomes by consolidating, rationalizing and modernizing their core customer-facing processes into one or more core systems. We deliver cost-effective solutions through a global delivery model, applying advanced delivery methods such as Agile, an industry standard technique designed to accelerate application development. We also use our consulting methodology, which we refer to as Accelerated Solution Design (“ASD”), which is a collaborative decision-making and design process performed with the client to ensure our solutions meet the client’s specifications and requirements. Our industry leading business transformational solutions combine deep domain expertise with our strengths in software engineering and business consulting to support our clients’ business-imperative initiatives across business growth and IT operations.

Headquartered in Massachusetts, we have offices in the United States, Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, Austria, the United Arab Emirates, Hong Kong, Japan, Qatar, Mexico, Australia and New Zealand, with global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as near shore delivery centers in the United States.

(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, 2019 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May 24, 2019. 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.

Principles of Consolidation

The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of Virtusa Corporation and all of its subsidiaries that are directly or indirectly more than 50% owned or controlled. When the Company does not have a controlling interest in an entity, but exerts a significant influence on the entity, the Company

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applies the equity method of accounting. For those majority-owned subsidiaries that are not 100% owned by the Company, the interests of the minority owners are accounted for as noncontrolling interests.

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, intangible assets, 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 December 31, 2019 and March 31, 2019, the carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits, other accrued expenses and long-term debt, approximate their fair values due to the nature of the items. See Note 5 for a discussion of the fair value of the Company’s other financial instruments.

Recent accounting pronouncements

Recently Adopted Accounting Pronouncements

Unless otherwise discussed below, the adoption of new accounting standards did not have an impact on the consolidated financial statements.

In February 2016, the FASB issued an update (ASU 2016-02) to the standard on leases to increase transparency and comparability among organizations. The FASB subsequently issued ASU 2018-10 and ASU 2018-11 in July 2018, ASU 2018-20 in December 2018 and ASU 2019-01 in March 2019, which provide clarifications and improvements to this new standard. ASU 2018-11 also provides the optional transition method which allows companies to apply the new lease standard at the adoption date instead of at the earliest comparative period presented. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. The standard permits the use of either retrospective to each prior reporting period presented with the cumulative effect of adoption recognized at the beginning of the earliest period presented or retrospective to the beginning of the period of adoption through a cumulative-effect adjustment (the “Modified Retrospective Effective Date Method”).

The Company adopted this standard, (“ASC Topic 842”) effective April 1, 2019, using a Modified Retrospective Effective Date Method. The Company has elected the package of practical expedients which permits the Company to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company did not elect the use of hindsight practical expedient to reevaluate the lease term of existing contracts. Prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting policies. The impact of adoption primarily relates to the recognition of ROU operating lease assets and operating lease liabilities on the Company’s unaudited consolidated balance sheets for all operating leases with a term greater than twelve months. The adoption of this standard on April 1, 2019 resulted in the recognition of ROU assets for operating leases of $54,762 and operating lease liabilities of $59,157. The Company’s accounting for finance leases (formerly capital leases) remains

11

substantially unchanged. The adoption of this standard did not have an impact on the consolidated statements of income and comprehensive income (loss), consolidated statement of changes in stockholders’ equity or the consolidated statement of cash flows.

See Note 7 “Leases” for additional information regarding leases.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This standard requires customers to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The standard also requires the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement. For public companies, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company early adopted this standard, as of July 1, 2019, on a prospective basis for applicable implementation costs. The adoption of this standard did not have a material impact on the consolidated balance sheet, consolidated statements of income, consolidated statement of changes in stockholders’ equity or the consolidated statement of cash flows.

New Accounting Pronouncements

Unless otherwise discussed below, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. The FASB subsequently issued ASU 2019-04 in April 2019, ASU 2019-05 in May 2019 and ASU 2019-11 in November 2019 which provide clarifications and improvements to this new standard. The FASB also issued ASU 2019-10 in November 2019, which amends the mandatory effective date for all other than public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This standard update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This update is effective for public entities from fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The effect on the consolidated financial statements will largely depend on the composition and credit quality of our investment portfolio and the economic conditions and forecasts at the time of adoption. Based on the current composition of our investment portfolio, current market conditions, and historical credit loss activity, the impact on our consolidated financial statements and related disclosures is not expected to be material.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The standard will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of this new standard will have on its consolidated financial statements.

(3) Earnings per Share

Basic earnings per share available to Virtusa common stockholders (“EPS”) is computed by dividing net income, less any dividends and accretion of issuance cost on the Series A Convertible Preferred Stock by the weighted average

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number of shares of common stock outstanding for the period. In computing diluted EPS, the Company adjusts the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the Series A Convertible Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A Convertible Preferred Stock to its redemption price. The Company adjusts the denominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from the issuance of restricted stock units, unvested restricted stock and stock options along with the conversion of the Series A Convertible Preferred Stock to common stock. The following table sets forth the computation of basic and diluted EPS for the periods set forth below:

The components of basic earnings per share are as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Numerators:
Net income available to Virtusa stockholders	$	12,720	$	12,576	$	25,656	$	7,785
Less: Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		3,262		3,262
Net income available to Virtusa common stockholders	$	11,633	$	11,489	$	22,394	$	4,523
Denominators:
Basic weighted average common shares outstanding		29,849,368		29,893,220		30,041,740		29,764,507
Basic earnings per share available to Virtusa common stockholders	$	0.39	$	0.38	$	0.75	$	0.15

The components of diluted earnings per share are as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Numerators:
Net income available to Virtusa common stockholders	$	11,633	$	11,489	$	22,394	$	4,523
Add : Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		—		—
Net income available to Virtusa common stockholders and assumed conversion	$	12,720	$	12,576	$	22,394	$	4,523
Denominators:
Basic weighted average common shares outstanding		29,849,368		29,893,220		30,041,740		29,764,507
Dilutive effect of Series A Convertible Preferred Stock if converted		3,000,000		3,000,000		—		—
Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units		608,863		768,508		658,529		833,607
Weighted average shares—diluted		33,458,231		33,661,728		30,700,269		30,598,114
Diluted earnings per share available to Virtusa common stockholders	$	0.38	$	0.37	$	0.73	$	0.15

During the three months ended December 31, 2019 and 2018, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase 24,037 and 20,617 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.  For the three months ended December 31, 2019 and 2018, all of the 3,000,000 shares of Series A Convertible Preferred Stock were included in the calculations of diluted earnings per share as their effect was dilutive using the if-converted method.

During the nine months ended December 31, 2019 and 2018, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase 100,434 and 13,745 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive. For the nine months ended December 31, 2019 and 2018, all of the 3,000,000 shares of Series A Convertible Preferred Stock were

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excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

(4) Investment Securities

At December 31, 2019 and March 31, 2019, all of the Company’s investment securities were classified as available-for-sale debt securities and equity securities. These 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 for a discussion of the fair value of the Company’s other financial instruments).

The following is a summary of investment securities at December 31, 2019:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Available-for-sale debt securities:
Time Deposits:
Current	$	6,849	$	—		—	$	6,849
Equity securities:
Mutual funds:
Current		13,060		149		—		13,209
Equity Shares/ Options:
Non-current		1		9		—		10
Total available-for-sale debt securities and equity securities	$	19,910	$	158	$	—	$	20,068

The following is a summary of investment securities at March 31, 2019:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Available-for-sale debt securities:
Corporate bonds:
Current	$	2,779	$	1	$	(2)	$	2,778
Non-current		—		—		—		—
Preference shares:		188		—		—		188
Agency and short-term notes:
Current		1,492		1		—		1,493
Time deposits:
Current		15,861		—		—		15,861
Equity securities:
Mutual funds:
Current		12,912		94		—		13,006
Equity Shares/ Options:
Non-current		8		126		—		134
Total available-for-sale debt and equity securities	$	33,240	$	222	$	(2)	$	33,460

The Company evaluates investments with unrealized losses to determine if the losses are other than 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 that the Company will not be required to sell such investments prior to the recovery of their carrying value.

14

Proceeds from sales of available-for-sale debt and equity securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Proceeds from sales or maturities of available-for-sale debt securities and equity securities	$	9,476	$	27,633	$	47,716	$	88,204
Gross gains	$	123	$	253	$	563	$	639
Gross losses		—		—		—		(32)
Net realized gains on sales of available-for-sale debt securities and equity securities	$	123	$	253	$	563	$	607

(5) Fair Value of Financial Instruments

The Company carries certain assets and liabilities at fair value on a recurring basis on its consolidated balance sheets. The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2019:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sale debt securities—current	$	—	$	6,849	$	—	$	6,849
Equity securities—current		—		13,209		—		13,209
Available-for-sale debt securities—non-current		—		—		—		—
Equity securities—non-current		—		10		—		10
Derivative financial instruments:
Foreign currency derivative contracts		—		2,152		—		2,152
Interest rate swap contracts		—		288		—		288
Total assets	$	—	$	22,508	$	—	$	22,508
Liabilities:
Foreign currency derivative contracts		—		2,264		—		2,264
Interest rate swap contracts		—		5,836		—		5,836
Total liabilities	$	—	$	8,100	$	—	$	8,100

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2019:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sale debt securities—current	$	—	$	20,132		—	$	20,132
Equity securities—current		—		13,006		—		13,006
Available-for-sale debt securities—non-current		—		188		—		188
Equity securities—non-current		—		134		—		134
Derivative financial instruments:
Foreign currency derivative contracts		—		3,411		—		3,411
Interest rate swap contracts		—		1,349		—		1,349
Total assets	$	—	$	38,220	$	—	$	38,220
Liabilities:
Foreign currency derivative contracts	$	—		321	$	—		321
Interest rate swap contracts		—		3,633		—		3,633
Total liabilities	$	—	$	3,954	$	—	$	3,954

15

(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, consolidated statements of income and consolidated statement of cash flows from all foreign currencies, including most significantly the U.K. pound sterling and Indian rupee. The Company enters into hedging programs with highly rated financial institutions 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. There is no margin required, no cash collateral posted or received by us related to our foreign exchange forward contracts.

The U.S. dollar notional value of all outstanding foreign currency derivative contracts was $133,032 and $118,557 at December 31, 2019 and March 31, 2019, respectively. Unrealized net gains related to these contracts which are expected to be reclassified from accumulated other comprehensive income (loss) (“AOCI”) to earnings during the next 12 months are $52 at December 31, 2019. At December 31, 2019, the maximum outstanding term of any derivative instrument was 15 months.

The Company also uses interest rate swaps to mitigate the Company’s interest rate risk on the Company’s variable rate debt. The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the Credit Agreement (See Note 13), by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. The Company will recognize these transactions in accordance with ASC 815 "Derivatives and Hedging," and have designated the swaps as cash flow hedges.

The Company purchased interest rate swaps in July 2016 with an effective date of July 2017 and in November 2018.  The July 2016 interest rate swaps are at a blended weighted average of 1.025% and the Company will receive 1-month LIBOR on the same notional amounts. The November 2018 interest rate swaps were entered into to mitigate the interest rate risk associated with the Credit Agreement executed in February 2018 and subsequent additional borrowings. The November 2018 interest rate swaps are at a fixed rate of 2.85% and are designed to maintain a 50% coverage of our LIBOR debt, therefore the notional amount changes over the life of the swap to retain the 50% coverage target. At December 31, 2019, the total notional amounts of the interest rate swaps were $178,800 with remaining maturity of approximately 4 years. The unrealized losses associated with the swap agreements was $5,548 and $2,284 at December 31, 2019 and March 31, 2019, respectively, which represents the estimated amount that the Company would pay to the counterparties in the event of an early termination.

The following table sets forth the fair value of derivative instruments included in the consolidated balance sheets at December 31, 2019 and March 31, 2019:

Derivatives designated as hedging instruments

	December 31, 2019		March 31, 2019
Foreign currency exchange contracts:
Other current assets	$	2,058	$	3,264
Other long-term assets	$	94	$	147
Accrued expenses and other	$	2,006	$	318
Long-term liabilities	$	258	$	3

	December 31, 2019		March 31, 2019
Interest rate swap contracts:
Other long-term assets	$	288	$	1,349
Long-term liabilities	$	5,836	$	3,633

16

The following tables set forth the effect of the Company’s foreign currency exchange contracts and interest rate swap contracts on the consolidated financial statements of the Company for the three and nine months ended December 31, 2019 and 2018:

	Amount of Gain or (Loss) Recognized in AOCI on Derivatives
Derivatives Designated as	Three Months Ended December 31,				Nine Months Ended December 31,
Cash Flow Hedging Relationships	2019		2018		2019		2018
Foreign currency exchange contracts	$	(3,158)	$	9,398	$	148	$	(2,203)
Interest rate swaps	$	782	$	(2,776)	$	(3,054)	$	(2,310)

Location of Gain or (Loss) Reclassified	Amount of Gain or (Loss) Reclassified from AOCI into Income
from AOCI into Income (loss) (Effective	Three Months Ended December 31,				Nine Months Ended December 31,
Portion)	2019		2018		2019		2018
Revenue	$	—	$	(510)	$	(18)	$	(1,673)
Costs of revenue	$	827	$	(846)	$	2,351	$	(1,187)
Operating expenses	$	337	$	(405)	$	1,020	$	(578)
Interest Expenses	$	(100)	$	288	$	209	$	731

			Amount of Gain or (Loss) Recognized in Income
			(loss) on Derivatives
		Three Months Ended				Nine Months Ended
Derivatives not Designated	Location of Gain Or (Loss)	December 31,				December 31,
as Hedging Instruments	Recognized in Income (loss) on Derivatives	2019		2018		2019		2018
Foreign currency exchange contracts	Revenue	$	(1,449)	$	1,131	$	(205)	$	2,237
	Costs of revenue	$	1,105	$	(784)	$	380	$	(1,537)
	Selling, general and administrative expenses	$	114	$	(75)	$	29	$	(93)

(7) Leases

The Company’s leased assets primarily consist of operating leases for office space, equipment and vehicles. At the inception of a contract, the Company determines whether a contract contains a lease, and if a lease is identified, whether it is an operating or finance lease. In determining whether a contract contains a lease, the Company considers whether (1)  it has the right to obtain substantially all of the economic benefits from the use of the asset throughout the term of the contract, (2) it has the right to direct how and for what purpose the asset is used throughout the term of the contract and (3) it has the right to operate the asset throughout the term of the contract without the lessor having the right to change the terms of the contract.  The Company leases vehicles in certain locations primarily as an employee benefit and these leases are classified as either operating or finance leases. The Company does not have finance leases that are material to the Company’s consolidated financial statements. Some of the Company’s lease agreements contain both lease and non-lease components. The Company separates lease components from non-lease components for all the Company’s lease assets. The consideration in the lease contract is allocated to the lease and non-lease components based on the estimated standalone prices.

A portion of the leases for office space contain certain charges for additional rent expenses that are variable. Due to this variability, the cash flows associated with these charges are not included in the minimum lease payments used in determining the ROU lease assets and associated lease liabilities.

The Company’s ROU lease assets represent the Company’s right to use an underlying asset for the lease term and may include any advance lease payments made and any initial direct costs and exclude lease incentives. The Company’s lease liabilities represent the Company’s obligation to make lease payments arising from the contractual terms of the lease. ROU lease assets and lease liabilities are recognized at the commencement of the lease and are calculated using the present value of lease payments over the lease term. The Company’s operating lease agreements do not provide enough information to arrive at an implicit interest rate. Therefore, the Company uses its estimated incremental borrowing rate

17

based on information available at the commencement date of the lease to calculate the present value of the lease payments. The Company determines the incremental borrowing rate on a lease-by-lease basis by developing an estimated borrowing rate of the Company for a fully collateralized obligation with a term similar to the lease term, and adjusts the rate to reflect the incremental risk associated with the currency in which the lease is denominated.

The following table provides information on the components of the Company’s operating leases included in its unaudited consolidated balance sheets:

Leases	Location on Consolidated Balance Sheets	December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use of assets	$	50,894
Liabilities
Current
Operating lease liabilities	Operating lease liabilities	$	11,385
Noncurrent
Operating lease liabilities	Operating lease liabilities, noncurrent	$	44,009
	Total	$	55,394

The Company’s leases have remaining lease terms ranging from 1 year to 9 years. Certain lease agreements, mainly for office space, include options to extend or terminate the lease before the expiration date. The Company includes such options when determining the lease term when it is reasonably certain that the Company will exercise that option.

The following table provides the components of lease expense related to our operating leases:

		Three Months Ended		Nine Months Ended
	Location on Consolidated Statements of Income	December 31, 2019		December 31, 2019
Operating lease cost:
Operating lease cost	Selling, general and administrative expenses	$	3,789	$	11,403
Variable lease cost	Selling, general and administrative expenses	$	30	$	74
Short-term lease cost	Selling, general and administrative expenses	$	90	$	359
Less: Sublease income	Selling, general and administrative expenses	$	(353)	$	(870)
Total operating lease cost		$	3,556	$	10,966

The following table provides supplemental cash flow information related to our operating leases:

	Nine Months Ended
	December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	11,217
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	5,714

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The following table provides information on the weighted average remaining lease term and weighted average discount rate related to our operating leases:

	December 31, 2019
Weighted average remaining lease term, in years:
Operating leases		5.56
Weighted average discount rate:
Operating leases		7.49	%

There were no lease agreements that contained restrictive covenants or material residual value guarantees as of December 31, 2019.

The following table provides the schedule of maturities of the Company’s operating lease liabilities, under ASC Topic 842, as of December 31, 2019:

	Operating leases
	December 31, 2019
2020-remainder of year	$	3,784
2021		14,901
2022		13,663
2023		10,927
2024		6,975
2025 and thereafter		17,110
Total lease payments	$	67,360
Interest		(11,966)
Total lease liabilities	$	55,394

The following table provides the schedule of the Company’s future minimum payments on its operating leases at March 31, 2019, which were accounted for in accordance with its historic accounting policies under ASC Topic 840.

	Operating leases
	March 31, 2019
2020	$	14,685
2021		13,895
2022		12,663
2023		9,879
2024		5,686
2025 and thereafter		16,761
Total lease payments	$	73,569

As of December 31, 2019, the Company had committed to payments of $320 related to operating leases that had yet to commence and therefore are not included in consolidated balance sheets.  These leases will commence on various dates in the calendar year 2020 and have lease terms ranging from two years to three years..

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(8) Revenues

Disaggregation of Revenue

The table below presents disaggregated revenues from the Company’s contracts with customers by geography, industry groups, service offerings and contract-type. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by industry, market and other economic factors.

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by geography:	2019		2018		2019		2018
North America	$	251,229	$	224,143	$	724,005	$	652,076
Europe		55,154		65,046		175,258		192,175
Rest of World		28,724		25,492		83,369		75,981
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by customer’s industry groups	2019		2018		2019		2018
Banking financial services insurance	$	187,312	$	197,329	$	570,620	$	578,138
Communications and Technology		119,558		89,159		332,465		257,527
Media & Information and Other		28,237		28,193		79,547		84,567
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by service offerings	2019		2018		2019		2018
Application outsourcing	$	183,777	$	165,986	$	547,303	$	488,584
Consulting		151,330		148,695		435,329		431,648
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by contract type	2019		2018		2019		2018
Time-and-materials	$	190,423	$	189,134	$	579,657	$	552,530
Fixed-price*		144,684		125,547		402,975		367,702
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

*Fixed-price includes both retainer-billing basis and fixed-price progress towards completion

Receivables and Contract Balances

The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). The Company presents such receivables in accounts receivable or unbilled accounts receivable, in its consolidated statements of financial position at their net estimated realizable value.

Contract assets included in unbilled accounts receivable are recorded when services have been provided but the Company does not have an unconditional right to receive consideration. Contract assets are primarily related to unbilled amounts on fixed-price contracts utilizing the input method of revenue recognition. The timing between services rendered and timing of payment is less than one year. The Company recognizes an impairment loss when the contract carrying amount is greater than the remaining consideration receivable, less directly related costs to be incurred.  

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The table below shows movements during the nine months ended December 31, 2019 and 2018 in contract assets:

	December 31, 2019		December 31, 2018
Beginning balance	$	18,538	$	15,998
Revenues recognized during the period but not yet billed		67,594		92,564
Amounts billed		(68,314)		(95,457)
Other		(20)		(507)
Ending balance	$	17,798	$	12,598

Contract liabilities comprise of amounts billed to customers for revenues not yet earned. Such amounts are anticipated to be recorded as revenues when services are performed in subsequent periods.

The table below shows movements in the deferred revenue balances during the nine months ended December 31, 2019 and 2018:

	December 31, 2019		December 31, 2018
Beginning balance	$	6,421	$	7,908
Amounts billed but not yet recognized as revenues		5,342		5,310
Revenues recognized related to the opening balance of deferred revenue		(5,017)		(6,761)
Other		(154)		(337)
Ending balance	$	6,592	$	6,120

Remaining performance obligation

ASC Topic 606 - Revenue from Contracts with Customers requires that the Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2019. This disclosure is not required for:

(1) contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty,

(2) contracts for which the Company recognizes revenues based on the right to invoice for services performed,

(3) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or

(4) variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.

Many of the Company’s performance obligations meet one or more of these exemptions. As of December 31, 2019, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $41,582 and will be recognized as revenue within 5 years.

From time to time, the Company enters into arrangements to deliver IT services that include upfront payments to its clients. As of December 31, 2019, the total unamortized upfront payments related to these services were $34,420 and are recorded in prepaid expenses and other long-term assets in the consolidated balance sheet. These upfront payments are expected to be amortized as a reduction to revenue over a benefit period of 5 years.

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(9) Series A Convertible Preferred Stock

On May 3, 2017, the Company entered into an investment agreement with The Orogen Group (‘‘Orogen’’) pursuant to which Orogen purchased 108,000 shares of the Company’s newly issued Series A Convertible Preferred Stock, initially convertible into 3,000,000 shares of common stock, for an aggregate purchase price of $108,000 with an initial conversion price of $36.00 (the ‘‘Orogen Preferred Stock Financing’’). Under the terms of the investment, the Series A Convertible Preferred Stock has a 3.875% dividend per annum, payable quarterly in additional shares of common stock and/or cash at the Company’s option. If any shares of Series A Convertible Preferred Stock have not been converted into common stock prior to May 3, 2024, the Company will be required to repurchase such shares at a repurchase price equal to the liquidation preference of the repurchased shares plus the amount of accumulated and unpaid dividends thereon. If the Company fails to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of May 3, 2024 during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum.

In connection with the issuance of the Series A Convertible Preferred Stock, the Company incurred direct and incremental expenses of $1,154, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. These issuance costs are recorded as a reduction to the proceeds received from issuance of Series A Convertible Preferred Stock. These direct and incremental expenses reduced the Series A Convertible Preferred Stock, and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, May 3, 2024. During the three and nine months ended December 31, 2019 and 2018, the Company recorded accretions to the Series A Convertible Preferred Stock related to its issuance cost. Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 3.875% per annum, payable quarterly in arrears. During the nine months ended December 31, 2019 and 2018, the Company has paid $3,138 as cash dividend on Series A Convertible Preferred Stock. As of December 31, 2019 and 2018, the Company had declared and accrued dividends of $686 associated with the Series A Convertible Preferred Stock.

(10) Goodwill and Intangible Assets

Goodwill:

The Company has one operating segment. The following are details of the changes in goodwill balance at December 31, 2019:

	December 31, 2019
Balance at April 1, 2019	$	279,543
Foreign currency translation adjustments		(3,454)
Balance at December 31, 2019	$	276,089

The acquisition costs and goodwill balance deductible for our business acquisitions for tax purposes are $145,658. The acquisition costs and goodwill balance not deductible for tax purposes are $143,334.

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Intangible Assets:

The following are details of the Company’s intangible asset carrying amounts acquired and amortization at December 31, 2019:

	December 31, 2019
	Weighted	Gross				Net
	Average	Carrying		Accumulated		Carrying
	Useful Life	Amount		Amortization		Amount
Amortizable intangible assets:
Customer relationships	12.3	$	141,267	$	42,979	$	98,288
Trademark	2.0		900		804		96
Technology	5.0		500		467		33
Other	5.0		1,233		131		1,102
	12.1	$	143,900	$	44,381	$	99,519

During the three months ended December 31, 2019, the Company acquired certain assets of a small consulting company located in the United States. The purchase price was approximately $1,400 in cash and an additional earn-out consideration of up to $1,400 payable within one year based on achievement of certain revenue targets. The probable and estimable value of the contingent consideration as of December 31, 2019 is $1,381.

During the three months ended September 30, 2019, the Company’s U.S. subsidiary, eTouch Systems Corp., acquired certain assets of a small consulting company located in the United States. The purchase price was approximately $4,000 in cash and an additional earn-out consideration of up to $4,000 payable within one year based on achievement of certain revenue targets. During the three months ended December 31, 2019, the Company paid $942 towards earn-out consideration based on achievement of revenue targets for the first measurement period. The remaining probable and estimable value of the contingent consideration as of December 31, 2019 is $2,645.

During the three months ended June 30, 2019, the Company acquired certain assets of a small consulting company located in the United States. The purchase price was approximately $4,251 in cash paid at closing and an additional earn-out consideration of up to $4,453, payable within one year based on achievement of certain revenue targets. The probable and estimable value of the contingent consideration as of December 31, 2019 is $3,078.

The following are the details of the Company’s intangible asset carrying amounts acquired, and amortization at March 31, 2019:

	March 31, 2019
	Weighted	Gross				Net
	Average	Carrying		Accumulated		Carrying
	Useful Life	Amount		Amortization		Amount
Amortizable intangible assets:
Customer relationships	13.0	$	125,520	$	33,679	$	91,841
Trademark	2.0		900		431		469
Technology	5.0		500		370		130
	12.9	$	126,920	$	34,480	$	92,440

The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

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(11) Income Taxes

The Company applies an estimated annual effective tax rate to its year-to-date operating results to determine the interim provision (benefit) for income tax expense. The Company’s effective tax rate was 44.7% and 43.3% for the three and nine months ended December 31, 2019, as compared to an effective tax rate of 44.8% and 63.3% for the three and nine months ended December 31, 2018. The Company’s effective tax rate for the three and nine months ended December 31, 2019 was impacted by executive stock compensation limitations and Base Erosion Alternative Tax “BEAT” enacted in the Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017 by the U.S. government. The Company’s reported effective tax rate is also impacted by jurisdictional mix of profits and losses in which the Company operates, foreign statutory tax rates in effect, unusual or infrequent discrete items requiring a provision during the period and certain exemptions or tax holidays applicable to the Company.

During the fiscal year ended March 31, 2019, the Company elected to treat several foreign entities as disregarded entities. The earnings of these subsidiaries will be subject to U.S. taxation as well as local taxation with a corresponding foreign tax credit, at the election of the Company. During the three and nine months ended December 31, 2019, the Company has elected to deduct the foreign taxes in computing the income tax expense. The Company’s income tax provision for the three and nine months ended December 31, 2019 includes the impact of Global Intangible Low-taxed Income (“GILTI”) and other provisions of the Tax Act and earnings of disregarded entities. The Company’s aggregate income tax rate in foreign jurisdictions is comparable to its income tax rate in the United States as a result of the Tax Act, other than in jurisdictions in which the Company has tax holiday benefits.

A valuation allowance is required if, based on available evidence, it is more likely than not that all or some portion of the asset will not be realized due to the inability of the Company to generate sufficient taxable income in a specific jurisdiction. The Company has $25,685 and $2,183 of net deferred tax assets in the United States and the United Kingdom, respectively, at December 31, 2019. The Company has not recorded a valuation allowance as management has concluded it is more likely than not that the deferred tax assets will be utilized before expiration. The Company expects sufficient taxable income in future periods related to the impact of the GILTI and the election to treat several foreign entities as disregarded entities.

The Company’s Indian subsidiaries operate several development centers in areas designated as a special economic zone, or SEZ, under the SEZ Act of 2005. In particular, the Company was approved as an SEZ Co-developer and has built a campus on a 6.3 acre parcel of land in Hyderabad, India that has been designated as an SEZ. As an SEZ Co-developer, the Company is entitled to certain tax benefits for any consecutive period of 10 years during the 15 year period starting in fiscal year 2008. The Company has elected to claim SEZ co-developer income tax benefits starting in the fiscal year ended March 31, 2013. The Company has other units at various stages of tax holiday benefit.

On September 20, 2019, the Indian government issued Ordinance 2019 making certain amendments in the Income-tax Act 1961, which substantially reduces tax rates. The effective rate of tax on India-based companies was reduced from 34.9% to 25.17%, effective for fiscal years beginning April 1, 2019. The new rates require the surrendering of any tax holidays and other attributes of which the Company may be currently taking advantage and is able to be elected once the tax holidays have concluded.  The Company continues to apply the old tax rates and applicable holidays. The Company will continue to analyze and elect this Ordinance 2019 when it is most beneficial to the Company.  

In addition, the Company’s Sri Lankan subsidiary, Virtusa (Private) Limited, was operating under a 12-year income tax holiday arrangement until March 31, 2019 and required Virtusa (Private) Limited to retain certain job creation and investment criteria through the expiration of the holiday period. During the fiscal year ended March 31, 2019, the Company believes it has fulfilled its hiring and investment commitments and is eligible for tax holiday through March 2019. The 12-year income tax holiday arrangement expired as of March 31, 2019 and therefore during the nine months ended December 31, 2019, the Company recorded tax expense on all the earnings in its Sri Lankan subsidiary at the statutory rate.

The Company has been under income tax examination in India, the U.K, Singapore and the United States. The Indian taxing authorities issued an assessment order with respect to their examination of the various tax returns for the fiscal years ended March 31, 2005 to March 31, 2017 of the Company’s Indian subsidiary, Virtusa (India) Private Ltd,

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now merged with and into Virtusa Consulting Services Private Limited (collectively referred to as “Virtusa India”). At issue were several matters, the most significant of which was the redetermination of the arm’s-length profit which should be recorded by Virtusa India on the intercompany transactions with its affiliates. These matters are currently at different level of appeals. During the fiscal year ended March 31, 2011, the Company entered into a competent authority settlement and settled the uncertain tax position for the fiscal years ended March 31, 2004 and 2005. However, the redetermination of arm’s-length profit on transactions with respect to the Company’s subsidiaries and Virtusa UK Limited has not been resolved and remains under appeal for the fiscal year ended March 31, 2005. In the United Kingdom, the Company is currently under examination for transfer pricing and research benefits for the years ended March 31, 2014 to March 31, 2018. In Singapore, the Inland Revenue Authority is confirming the appropriateness of the Company’s deductions for the year ended March 31, 2017. In the United States, the Internal Revenue Service has concluded an examination of fiscal years ended March 31, 2015 and March 31, 2017 with a non-material impact on cash and earnings, while certain employment tax matters remain open.

Unrecognized tax benefits represent uncertain tax positions for which the Company has established reserves. At December 31, 2019 and March 31, 2019, the total liability for unrecognized tax benefits was $6,905 and $6,744, respectively. Unrecognized tax benefits may be adjusted upon the closing of the statute of limitations for income tax returns filed in various jurisdictions. During the nine months ended December 31, 2019 and 2018, the unrecognized tax benefits increased by $161 and decreased by $531, respectively. The increase in unrecognized tax benefits in the nine months ended December 31, 2019 was predominantly due to increase in liability related to the UK audit, settlement of a state tax matter, foreign currency movements and incremental interest accrued on existing uncertain tax 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 and is currently or has been historically 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 indefinitely reinvested. The Company does not provide for U.S. income taxes on foreign currency translation or applicable withholding tax until a distribution is declared. At December 31, 2019, the Company had approximately $198,020 of cash, cash equivalents, short-term and long-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested. If required, such cash and investments could be repatriated to the United States. 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.

(12) Concentration of Revenue and Assets

Total revenue is attributed to geographic areas based on the 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				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Customer revenue:
United States of America	$	237,754	$	213,542	$	685,023	$	623,224
United Kingdom		42,902		52,248		137,795		154,813
Rest of World		54,451		48,891		159,814		142,195
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

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	December 31,		March 31,
	2019		2019
Long-lived assets, net of accumulated depreciation and amortization:
United States of America	$	224,670	$	216,279
India		240,000		251,722
Rest of World		19,136		23,847
Consolidated long-lived assets, net	$	483,806	$	491,848

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

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Customer A	16.4	%	18.0	%	15.9	%	17.7	%

(13) Debt

On February 6, 2018, the Company entered into a credit agreement (the “Credit Agreement”) dated as of February 6, 2018, by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Credit Agreement replaced the prior $300,000 credit agreement with J.P. Morgan Securities and Merrill Lynch, Pierce, Fenner & Smith Incorporated and provides for a $200,000 revolving credit facility and a $180,000 term loan and a $70,000 delayed-draw term loan. The Company drew down $180,000 under the term loan of the Credit Agreement and $55,000 under the revolving credit facility under the Credit Agreement to repay in full the amount outstanding under the prior credit agreement and fund the Polaris delisting transaction (See Note 14 for additional information). On March 12, 2018, the Company drew down the $70,000 delayed draw to fund the eTouch Systems Corp. acquisition.

On October 15, 2019, the Company entered into Amendment No. 2 to Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and the lenders party thereto (the “Credit Agreement Amendment”), which amends the Company’s Amended and Restated Credit Agreement, dated as of February 6, 2018, with such parties (the “Credit Agreement”) to, among other things, increase the revolving commitments available to the Company under the Credit Agreement from $200,000 to $275,000,  reduce the interest rate margins applicable to term loans and revolving loans outstanding under the Credit Agreement from time to time and reduce the commitment fee payable by the Company to the lenders in respect of unused revolving commitments under the Credit Agreement. The Company executed the Credit Agreement Amendment to provide additional lending capacity which the Company could use to fund the completion of the Polaris delisting transaction, as well as to provide excess lending capacity in the event of future opportunistic, strategic, investment opportunities. The Credit Agreement Amendment contains customary terms for amendments of this type, including representations, warranties and covenants. Interest under this new credit facility accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to EBITDA. For the fiscal year ending March 31, 2020, the Company is required to make principal payments of $2,891 per quarter. The term of the Credit Agreement is five years ending February 6, 2023. During the nine months ended December 31, 2019, the Company drew down $36,000 from the credit facility to fund the eTouch 18-month anniversary payment of $17,500 and to fund opportunistic, strategic, investment opportunities. At December 31, 2019, the interest rate on the term loan and line of credit was 3.99%.

At December 31, 2019, the Company was in compliance with its debt covenants and has provided a quarterly certification to its lenders to that effect. The Company believes that it currently meets all conditions set forth in the Credit Agreement to borrow thereunder and it is not aware of any conditions that would prevent it from borrowing part or all of the remaining available capacity under the existing revolving credit facility at December 31, 2019 and through the date of this filing.

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Current portion of long-term debt

The following summarizes our short-term debt balances as of:

	December 31, 2019		March 31, 2019
Term loan- current maturities		15,898		12,500
Less: deferred financing costs, current		(1,301)		(1,093)
Total	$	14,597	$	11,407

Long-term debt, less current portion

The following summarizes our long-term debt balance as of:

	December 31, 2019		March 31, 2019
Term loan	$	228,359	$	237,500
Borrowings under revolving credit facility		165,500		129,500
Less:
Current maturities		(15,898)		(12,500)
Deferred financing costs, long-term		(2,797)		(3,180)
Total	$	375,164	$	351,320

In July 2016 and November 2018, the Company entered into interest rate swap transactions to mitigate Company’s interest rate risk on Company’s variable rate debt (See Note 6).

Beginning in fiscal 2009, the Company’s U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse or continuing involvement, certain of its European-based accounts receivable balances from one client to such third party financial institution. During the nine months ended December 31, 2019, $21,311 of receivables were sold under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the nine months ended December 31, 2019. No amounts were due as of December 31, 2019, 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 utilized in the future.

(14) Noncontrolling interest

On March 3, 2016, the Company’s Indian subsidiary, Virtusa Consulting Services Private Limited (“Virtusa India”), acquired approximately 51.7% of the fully diluted shares of Polaris Consulting & Services Limited (“Polaris”) for approximately $168,257 in cash (the “Polaris Transaction”) pursuant to a share purchase agreement dated as of November 5, 2015, by and among Virtusa India, Polaris and the promoter sellers named therein. Through a series of transactions and in compliance with the applicable Indian rules on takeovers and SEBI Delisting Regulations, Virtusa increased its ownership interest in Polaris from 51.7% to 93.0% by February 12, 2018, when Virtusa consummated its Polaris delisting offer with respect to the public shareholders of Polaris. The delisting offer resulted in an accepted exit price of INR 480 per share (“Exit Price”), for an aggregate consideration of approximately $145,000, exclusive of transaction and closing costs. On July 11, 2018, the stock exchanges on which Polaris common shares are listed notified Polaris that trading in equity shares of Polaris would be discontinued and delisted effective on August 1, 2018. For a period of one year following the date of delisting, Virtusa India has, in compliance with SEBI Delisting Regulations, permitted the public shareholders of Polaris to tender their shares for sale to Virtusa India at the Exit Price.

In connection with the Polaris delisting offer, during the six months ended September 30, 2019, Virtusa India purchased 1,263,117 shares, or approximately 1.2% of Polaris common stock from shareholders for an aggregate purchase price of approximately $8,675. As of September 30, 2019, the number of shares of Polaris common stock held by noncontrolling interest shareholders was 2,009,365 or approximately 1.95% of Polaris’ basic shares of common stock outstanding.

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Further to the Polaris delisting, in order to acquire the remaining noncontrolling interest, the Company filed an application for approval and authorization to purchase the remaining outstanding Polaris shares held by the Polaris shareholders (“the Polaris Repurchase”) as well as final approval of the merger of Polaris with and into Virtusa India (“Merger”). On December 9, 2019, the Company received a Common Order (“Court Order”) to move forward with the Polaris Repurchase and certain conditional approvals for the Merger.  

In connection with the Polaris Repurchase under the Court Order, on December 20, 2019, upon the Company filing the required documents, all the outstanding equity shares of Polaris held by public shareholders were deemed cancelled, but converted to the right to receive payment for these shares from the Company. Within 30 days from December 20, 2019, the Company is required to pay consideration of INR 480 per share for each cancelled share held by these former Polaris shareholders.

At December 20, 2019, the total amount payable by the Company to the remaining Polaris public shareholders was $13,564.  During the three months ended December 31, 2019, the Company paid $12,534 to the public shareholders. The remaining balance at December 31, 2019 of $1,030 is presented in accrued expense and other and in restricted cash in the consolidated balance sheet.

In connection with the Merger, the conditional approvals required were approved by the respective authorities on January 2, 2020 and the Merger is effective, with an effective date as of April 1, 2018.  

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(15) Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) by component were as follows for the three and nine months ended December 31, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Investment securities
Beginning balance	$	12	$	(225)	$	12	$	69
Other comprehensive income (loss) (OCI) before reclassifications, net of tax of $0, $0, $0 and $(52)		—		(8)		—		(176)
Reclassifications from OCI to other income, net of tax of $0, $0, $0 and $12		—		271				125
Less: Noncontrolling interests, net of tax of $0, $(5), $0 and $7		—		(8)		—		12
Comprehensive income (loss) on investment securities, net of tax of $0, $(5), $0 and $(33)		—		255		—		(39)
Closing balance	$	12	$	30	$	12	$	30
Currency translation adjustments
Beginning balance	$	(64,116)	$	(57,318)	$	(57,354)	$	(41,207)
OCI before reclassifications		4,630		(2,477)		(2,106)		(20,201)
Less: Noncontrolling interests		(363)		(396)		(389)		1,217
Comprehensive income (loss) on currency translation adjustments		4,267		(2,873)		(2,495)		(18,984)
Closing balance	$	(59,849)	$	(60,191)	$	(59,849)	$	(60,191)
Cash flow hedges
Beginning balance	$	(2,175)	$	(5,179)	$	39	$	1,881
OCI before reclassifications net of tax of $(386), $1,608, $(666) and $(1,582)		(1,993)		5,014		(2,240)		(2,931)
Reclassifications from OCI to
—Revenue, net of tax of $0, $178, $7 and $586		—		332		11		1,087
—Costs of revenue, net of tax of $(188), $214, $(504) and $303		(639)		632		(1,847)		884
—Selling, general and administrative expenses, net of tax of $(77), $102, $(220) and $147		(260)		303		(800)		431
—Interest expenses, net of tax of $26, $(74), $(54) and $(188)		75		(214)		(155)		(543)
Less: Noncontrolling interests, net of tax of $0, $(23), $0 and $17		—		(44)		—		35
Comprehensive income (loss) on cash flow hedges, net of tax of $(625), $2,005, $(1,437) and $(717)		(2,817)		6,023		(5,031)		(1,037)
Closing balance	$	(4,992)	$	844	$	(4,992)	$	844
Benefit plans
Beginning balance	$	(2,776)	$	(1,511)	$	(2,084)	$	(1,424)
OCI before reclassifications net of tax of $0, $0, $0 and $348		—		3		(911)		(349)
Reclassifications from OCI for prior service credit (cost) to:
Other income (expense), net of tax of $0 for all periods		6		14		19		42
Reclassifications from net actuarial gain (loss) amortization to:
Other income (expense), net of tax of $0 for all periods		70		36		210		113
Other adjustments		3		20		76		171
(Less): Noncontrolling interests, net of tax $0 for all periods		(3)		—		(10)		9
Comprehensive income (loss) on benefit plans, net of tax of $0, $0, $0 and $348		76		73		(616)		(14)
Closing balance		(2,700)	$	(1,438)		(2,700)	$	(1,438)
Accumulated other comprehensive loss	$	(67,529)	$	(60,755)	$	(67,529)	$	(60,755)

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(16) Treasury Stock

On August 5, 2019, the Company's board of directors authorized a share repurchase program of up to $30,000 of the Company's common stock over 12 months from the approval date, subject to certain price and other trading restrictions as established by the Company. During the nine months ended December 31, 2019, the Company repurchased 505,565 shares of the Company’s common stock at a weighted average price of $36.93 per share for an aggregate purchase price of $18,680.

(17) Commitments and Contingencies

From time to time the Company is involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. Although the Company cannot predict the outcome of such matters, the Company has no reason to believe the disposition of any current matter, other than the specific matters described below, could reasonably be expected to have a material adverse impact on the Company’s balance sheets, income of operations and cash flows or the ability to carry on any of its business activities. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.

Recently, one of the Company’s larger clients made a demand for damages related to a project in which the Company was performing services.  The client alleges breaches of certain representations and warranties regarding the Company’s performance and is seeking indemnification for damages from those alleged breaches.  No litigation has been filed.  The Company believes that it has defenses against the claims described in the demand, and intends to zealously defend against those claims.  However, the Company cannot provide any assurance that the Company will prevail in the dispute or even partially prevail.  Further, if the Company is unsuccessful in any settlement discussions, the Company also cannot provide any assurance that the client will not use set off rights in the contract, even if the Company disputes the claims or amount of damages alleged.  In the event the Company does not fully prevail in this dispute, the Company may have to pay damages in amounts for which it may not have reserved or which may or may not be covered by the Company’s insurance policies; further, even if the damages are covered, depending on the outcome, the Company’s insurance may not cover or be adequate to pay the entire claim.  In addition, the Company cannot guarantee that the Company will not lose future business with such client as a result of such dispute.

On February 28, 2019, the Supreme Court of India issued a ruling interpreting certain statutory defined contribution obligations of employees and employers, which altered historical understandings of such obligations, extending them to cover additional portions of employee income. As a result, contributions by our employees and the Company will increase in future periods. There is uncertainty as to whether the Indian government will apply the Supreme Court's ruling on a retroactive basis and if so, how this liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. As such, the ultimate amount of our obligation is difficult to quantify. If the Indian government were to apply the Supreme Court ruling retroactively, without assessing interest and penalties, the impact would be a charge of approximately $7,500 to the Company’s income from operations and cash flows.

The Company is currently involved in an open examination by tax authorities in the United States related to the employment tax treatment of certain payments made to employees in the ordinary course of business. The Company cannot predict the outcome of the dispute, but it is in the process of evaluating the merits of a recent notice of proposed wage adjustment and is preparing a timely and appropriate response.  At this time, it is premature to predict whether resolution of the dispute could reasonably be expected to have a material adverse impact on the Company’s income from operations and cash flows.

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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, 2019 (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, or the Exchange Act) 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,” “seek,” “intends,” “plans,” “estimates,” “projects,” “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, costs of attracting and retaining IT professionals, contract percentage completions, capital expenditures, plans for repatriation of cash to the United States, the effect of new accounting pronouncements, 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 and those factors referred to or discussed in or incorporated by reference into the section titled “Risk Factors” included in Item 1A of Part II of this Quarterly Report on Form 10-Q. 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 provider of digital engineering and information technology (“IT”) outsourcing services that accelerate business outcomes for our clients. We support Forbes Global 2000 clients across large, consumer facing industries like banking, financial services, insurance, healthcare, communications, technology, and media and entertainment, as these clients seek to improve their business performance through accelerating revenue growth, delivering compelling consumer experiences, improving operational efficiencies, and lowering overall IT costs. We provide services across the entire spectrum of the IT services lifecycle, from consulting, to technology and user experience (“UX”) design, development of IT applications, systems integration, testing and business assurance, and maintenance and support services, including infrastructure and managed services. We help our clients solve critical business problems by leveraging a combination of our distinctive consulting approach, unique platforming methodology, and deep domain and technology expertise.

Our services enable our clients to accelerate business outcomes by consolidating, rationalizing and modernizing their core customer-facing processes into one or more core systems. We deliver cost-effective solutions through a global delivery model, applying advanced methods such as Agile, an industry standard technique designed to accelerate application development. We also use our consulting methodology, which we refer to as Accelerated Solution Design (“ASD”), which is a collaborative decision-making and design process performed with the client to ensure our solutions meet the client’s specifications and requirements. Our industry leading business transformational solutions combine deep domain expertise with our strengths in software engineering and business consulting to support our clients’ business imperative initiatives across business growth and IT operations.

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Headquartered in Massachusetts, we have offices in the United States, Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, Austria, the United Arab Emirates, Hong Kong, Japan, Qatar, Mexico, Australia and New Zealand, with global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as multiple near shore delivery centers in the United States. At December 31, 2019, we had 22,267 employees, or team members.

Financial overview

In the three months ended December 31, 2019, our revenue increased by 6.5% to $335.1 million, compared to $314.7 million in the three months ended December 31, 2018. In the nine months ended December 31, 2019, our revenue increased by 6.8% to $982.6 million, compared to $920.2 million in the nine months ended December 31, 2018.

In the three months ended December 31, 2019, our income from operations increased by 57.7% to $30.4 million, compared to $19.3 million in the three months ended December 31, 2018. In the nine months ended December 31, 2019, our income from operations increased by 33.6% to $63.1 million, compared to $47.2 million in the nine months ended December 31, 2018.

In the three months ended December 31, 2019, net income available to Virtusa common stockholders increased by 1.3% to a net income of $11.6 million, as compared to $11.5 million in the three months ended December 31, 2018. Net income increased by 395.1% to a net income $22.4 million in the nine months ended December 31, 2019, compared to a net income of $4.5 million in the nine months ended December 31, 2018.

The increase in revenue for the three and nine months ended December 31, 2019, as compared to the three and nine months ended December 31, 2018, primarily resulted from:

● Growth, led by several of our top ten clients, primarily in our communication and technology (“C&T”) industry group, including revenue from customer contracts acquired from third parties through asset acquisitions

● Revenue growth in North America

partially offset by:

● Decline in revenue from Europe, primarily driven by one of our large European banking clients

● Decrease in revenue in our banking and financial services industry group

The key drivers of the increase in our net income for the three and nine months ended December 31, 2019, as compared to the three and nine months ended December 31, 2018, were as follows:

● Higher revenue particularly in several of our top ten clients, primarily in our C&T industry group

● Decrease in operating expense as a percentage of revenue, reflecting a larger revenue base and cost reduction initiatives

● In the case of nine months ended December 31, 2019, substantial decrease in foreign currency transaction losses, primarily related to the revaluation of Indian rupee denominated intercompany note, primarily due to a substantial appreciation of the Indian rupee against the U.S. dollar

partially offset by:

● Increase in interest expense related to an increase in our outstanding debt under our credit facility

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● In the case of three months ended December 31, 2019, substantial increase in foreign currency transaction losses, primarily related to the revaluation of Indian rupee denominated intercompany note, primarily due to a substantial depreciation of the Indian rupee against the U.S. dollar and an increase in tax expense due to improved results of operations

High repeat business and client concentration are common in our industry. During the three months ended December 31, 2019 and 2018, 96% and 88%, respectively, of our revenue was derived from clients who had been using our services for more than one year, including clients acquired from eTouch Systems Corp. in March 2018. During the nine months ended December 31, 2019 and 2018, 97% and 89%, respectively, of our revenue was derived from clients who had been using our services for more than one year, including clients acquired from eTouch Systems Corp. in March 2018. 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 also have a dedicated business development team focused on generating engagements with new clients to continue to expand our client base and, over time, reduce client concentration.

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 December 31, 2019, our application outsourcing and consulting revenue represented 55% and 45%, respectively, of our total revenue as compared to 53% and 47%, respectively, for the three months ended December 31, 2018. For the nine months ended December 31, 2019, our application outsourcing and consulting revenue represented 56% and 44%, respectively, of our total revenue as compared to 53% and 47%, respectively, for the nine months ended December 31, 2018.

In the three months ended December 31, 2019, our North America revenue increased by 12.1%, or $27.1 million, to $251.2 million, or 75.0% of total revenue, from $224.1 million, or 71% of total revenue, in the three months ended December 31, 2018. In the nine months ended December 31, 2019, our North America revenue increased by 11.0%, or $71.9 million, to $724.0 million, or 73.7% of total revenue, from $652.1 million, or 71% of total revenue in the nine months ended December 31, 2018. The increase in North America revenue for the three and nine months ended December 31, 2019 was primarily due to the increase in revenue from clients in the C&T industry group, including customer contracts with certain existing customers acquired from third parties.

In the three months ended December 31, 2019, our European revenue decreased by 15.2%, or $9.9 million, to $55.2 million, or 16.5% of total revenue, from $65.0 million, or 21% of total revenue in the three months ended December 31, 2018. In the nine months ended December 31, 2019, our European revenue decreased by 8.8%, or $16.9 million, to $175.3 million, or 17.8% of total revenue, from $192.2 million, or 21% of total revenue in the nine months ended December 31, 2018. The decrease in European revenue for the three and nine months ended December 31, 2019 was primarily due to a decline in revenue from one of our large banking clients.

Our gross profit increased by $5.5 million to $98.7 million for the three months ended December 31, 2019, as compared to $93.2 million for the three months ended December 31, 2018. Our gross profit increased by $7.0 million to $272.9 million for the nine months ended December 31, 2019 as compared to $265.9 million in the nine months ended December 31, 2018. The increase in gross profit during the three and nine months ended December 31, 2019, as compared to the three and nine months ended December 31, 2018, was primarily due to higher revenue partially offset by higher onsite effort and subcontractor costs. As a percentage of revenue, gross margin was 29.4% and 29.6% in the three months ended December 31, 2019 and 2018, respectively. During the nine months ended December 31, 2019 and 2018, gross margin, as a percentage of revenue, was 27.8% and 28.9%, respectively. The decrease in gross margin during the three and nine months ended December 31, 2019 was primarily due to an increase in subcontractors cost, higher onsite effort, and lower utilization.

We perform our services under both time-and-materials and fixed-price contracts. Revenue from fixed-price contracts represented 43% and 40% of total revenue, and revenue from time-and-materials contracts represented 57% and 60% of total revenue for the three months ended December 31, 2019 and 2018, respectively. Revenue from fixed-price contracts represented 41% and 40% of total revenue and revenue from time-and-materials contracts represented 59% and

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60% for the nine months ended December 31, 2019 and 2018, respectively. The revenue earned from fixed-price contracts in the three and nine months ended December 31, 2019 primarily reflects our client preferences.

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 December 31, 2019, our attrition rate for the trailing 12 months, which reflects voluntary and involuntary attrition as part of our cost reduction initiatives, was approximately 25.7%. Our attrition rate at December 31, 2019 reflects a higher rate of attrition as compared to the corresponding prior year period. The majority of our attrition occurs in India and Sri Lanka, and is weighted towards the more junior members of our staff. In response to higher attrition and as part of our retention strategies, we have experienced increases in compensation and benefit costs, which may continue in the future. However, we try to absorb such cost increases through price increases or cost management strategies such as managing discretionary costs, the mix of professional staff and utilization levels and achieving other operating efficiencies. 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 against the U.S. dollar and the GBP, as well as the euro, the Canadian dollar, the Australian dollar and the GBP against the U.S. dollar, when consolidated into U.S. dollars. 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, GBP and euro exchange rates, they not only reduce the negative impact of a stronger Indian rupee, weaker GBP, euro, Canadian dollar and Australian dollar but also could reduce the positive impact of a weaker Indian rupee on our Indian rupee expenses or reduce the impact of a stronger GBP, euro, Canadian dollar and Australian dollar on our GBP, euro, Canadian dollar and Australian dollar denominated revenues.

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, intangible assets 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.

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Results of operations

Three months ended December 31, 2019 compared to the three months ended December 31, 2018

The following table presents an overview of our results of operations for the three months ended December 31, 2019 and 2018:

		Three Months Ended
		December 31,
		2019		2018		$ Change		% Change
	(Dollars in thousands)
Revenue		$	335,107	$	314,681	$	20,426	6.5	%
Costs of revenue			236,427		221,461		14,966	6.8	%
Gross profit			98,680		93,220		5,460	5.9	%
Operating expenses			68,270		73,935		(5,665)	(7.7)	%
Income from operations			30,410		19,285		11,125	57.7	%
Other income (expense)			(7,209)		3,912		(11,121)	(284.3)	%
Income before income tax expense			23,201		23,197		4	0.0	%
Income tax expense			10,363		10,400		(37)	(0.4)	%
Net income			12,838		12,797		41	0.3	%
Less: net income attributable to noncontrolling interests, net of tax			118		221		(103)	(46.6)	%
Net income available to Virtusa stockholders			12,720		12,576		144	1.1	%
Less: Series A Convertible Preferred Stock dividends and accretion			1,087		1,087		—	—	%
Net income attributable to Virtusa common stockholders		$	11,633	$	11,489	$	144	1.3	%

Revenue

Revenue increased by 6.5%, or $20.4 million, from $314.7 million during the three months ended December 31, 2018 to $335.1 million in the three months ended December 31, 2019. The increase in revenue was primarily driven by an increase in revenue from several of our top ten clients, primarily in our C&T industry group, including $6.4 million of revenue from customer contracts acquired from third parties through asset acquisitions, partially offset by a decline in one of our large European banking clients and a decrease in our banking and financial services industry group. Revenue from North American clients in the three months ended December 31, 2019 increased by $27.1 million, or 12.1%, as compared to the three months ended December 31, 2018, particularly due to the increase in revenue from clients in the C&T industry group. Revenue from European clients decreased by $9.9 million, or 15.2%, as compared to the three months ended December 31, 2018, primarily due to decline in revenue from one of our large banking clients. We had 216 active clients at December 31, 2019 and 2018.

Cost of revenue

Costs of revenue increased from $221.5 million in the three months ended December 31, 2018 to $236.4 million in the three months ended December 31, 2019, an increase of $14.9 million, or 6.8%. The increase in cost of revenue was primarily due to an increase in subcontractor costs of $12.9 million and an increase in the number of IT professionals and related compensation and benefit costs of $2.8 million, partially offset by a decrease in travel expense of $1.1 million. At December 31, 2019, we had 20,075 IT professionals as compared to 19,266 at December 31, 2018. As a percentage of revenue, cost of revenue increased from 70.4% for the three months ended December 31, 2018 to 70.6% for three months ended December 31, 2019.

Gross profit

Our gross profit increased by $5.5 million, or 5.9%, to $98.7 million for the three months ended December 31, 2019, as compared to $93.2 million for the three months ended December 31, 2018, primarily due to higher revenue, partially offset by subcontractor costs and higher onsite effort. As a percentage of revenue, gross margin is 29.6% in the three months ended December 31, 2018 and 29.4% in the three months ended December 31, 2019. The decrease in gross

35

margin during the three months ended December 31, 2019, was primarily driven by an increase in subcontractor costs, higher onsite effort, and lower utilization.

Operating expenses

Operating expenses decreased from $73.9 million in the three months ended December 31, 2018 to $68.3 million in the three months ended December 31, 2019, a decrease of $5.6 million, or 7.7%. The decrease in operating expenses was primarily due to a decrease in compensation related to non-IT professionals of $4.9 million, which reflects our cost reduction initiatives, a decrease in professional services of $1.8 million and a decrease in travel expense of $0.4 million, partially offset by an increase in facilities costs of $0.5 million and an increase in amortization of intangible assets of $0.6 million. As a percentage of revenue, our operating expenses decreased from 23.5% in the three months ended December 31, 2018 to 20.4% in the three months ended December 31, 2019.

Income from operations

Income from operations increased by 57.7%, from $19.3 million in the three months ended December 31, 2018 to $30.4 million in the three months ended December 31, 2019. As a percentage of revenue, income from operations increased from 6.1% in the three months ended December 31, 2018 to 9.1% in the three months ended December 31, 2019, primarily due to a decrease in operating expenses as a percentage of revenue.

Other income (expense)

Other expense increased by $11.1 million, from an income of $3.9 million in the three months ended December 31, 2018 to an expense of $7.2 million in the three months ended December 31, 2019, primarily due to net increase in foreign currency transaction losses related to the revaluation of a $300 million Indian rupee denominated intercompany note, primarily due to a substantial depreciation of the Indian rupee against the U.S. dollar, partially offset by an increase in interest expense related to our term loan.

Income tax expense

Income tax expense in the three months ended December 31, 2019 remains unchanged compared to $10.4 million in the three months ended December 31, 2018. Our effective tax rate decreased from 44.8% for the three months ended December 31, 2018 to 44.7% for the three months ended December 31, 2019. The decrease in the effective tax rate for the three months ended December 31, 2019, was primarily due to a Base Erosion Alternative Tax (“BEAT”) expense offset by certain discrete benefits during the three months ended December 31, 2019.

Noncontrolling interests

In connection with the Polaris acquisition, for the three months ended December 31, 2019 and 2018, we recorded a noncontrolling interest of $0.1 million and $0.2 million, respectively, representing a 1.71% and 3.46%, respectively, share of profits of Polaris held by parties other than Virtusa.

Net income available to Virtusa stockholders

Net income available to Virtusa stockholders increased by $0.1 million or 1.1%, from $12.6 million in the three months ended December 31, 2018 to $12.7 million in the three months ended December 31, 2019. The increase in net income in the three months ended December 31, 2019 was primarily due to an increase in income from operations offset by an increase in net foreign currency transaction losses related to the revaluation of a $300 million Indian rupee denominated intercompany note, primarily due to a substantial depreciation of the Indian rupee against the U.S. dollar.

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Series A Convertible Preferred Stock dividends and accretion

In connection with the preferred stock financing transaction with the Orogen Group, we accrued dividends and accreted issuance costs of $1.1 million at a rate of 3.875% per annum during the three months ended December 31, 2019 and 2018.

Net income available to Virtusa common stockholders

Net income available to Virtusa common stockholders increased by $0.1 million or 1.3%, from $11.5 million in the three months ended December 31, 2018 to $11.6 million in the three months ended December 31, 2019. The increase in net income in the three months ended December 31, 2019 was primarily due to an increase in income from operations offset by an increase in net foreign currency transaction losses related to the revaluation of a $300 million Indian rupee denominated intercompany note, primarily due to a substantial depreciation of the Indian rupee against the U.S. dollar.

Nine months ended December 31, 2019 compared to the nine months ended December 31, 2018

The following table presents an overview of our results of operations for the nine months ended December 31, 2019 and 2018:

	Nine Months Ended
	December 31,
	2019		2018		$ Change		% Change
	(Dollars in thousands)
Revenue	$	982,632	$	920,232	$	62,400	6.8	%
Costs of revenue		709,746		654,288		55,458	8.5	%
Gross profit		272,886		265,944		6,942	2.6	%
Operating expenses		209,813		218,716		(8,903)	(4.1)	%
Income from operations		63,073		47,228		15,845	33.6	%
Other expense		(17,035)		(22,173)		5,138	(23.2)	%
Income before income tax expense		46,038		25,055		20,983	83.7	%
Income tax expense		19,932		15,863		4,069	25.7	%
Net income		26,106		9,192		16,914	184.0	%
Less: net income attributable to noncontrolling interests		450		1,407		(957)	(68.0)	%
Net income available to Virtusa stockholders		25,656		7,785		17,871	229.6	%
Less: Series A Convertible Preferred Stock dividends and accretion		3,262		3,262		—		%
Net income attributable to Virtusa common stockholders	$	22,394	$	4,523	$	17,871	395.1	%

Revenue

Revenue increased by 6.8%, or $62.4 million, from $920.2 million during the nine months ended December 31, 2018 to $982.6 million in the nine months ended December 31, 2019. The increase in revenue was primarily driven by an increase in revenue from several of our top ten clients, primarily in our C&T industry group, including $21.8 million of revenue from customer contracts acquired from third parties through asset acquisitions, partially offset by a decline in one of our large European banking clients and a decrease in our banking and financial services and media information and other industry groups. Revenue from North American clients in the nine months ended December 31, 2019 increased by $71.9 million, or 11.0%, as compared to the nine months ended December 31, 2018, particularly due to the increase in revenue from clients in the C&T industry group. Revenue from European clients decreased by $16.9 million, or 8.8%, as compared to the nine months ended December 31, 2018, primarily due to a decline in revenue from one of our large banking clients. We had 216 active clients at December 31, 2019 and 2018.

Cost of revenue

Costs of revenue increased from $654.3 million in the nine months ended December 31, 2018 to $709.7 million in the nine months ended December 31, 2019, an increase of $55.5 million, or 8.5%. The increase in cost of revenue was

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primarily due to an increase in subcontractor costs of $41.0 million and an increase in the number of IT professionals and related compensation and benefit costs of $19.5 million, partially offset by a decrease in travel expense of $5.4 million. At December 31, 2019, we had 20,075 IT professionals as compared to 19,266 at December 31, 2018. As a percentage of revenue, cost of revenue increased from 71.1% for the nine months ended December 31, 2018 to 72.2% for the nine months ended December 31, 2019.

Gross profit

Our gross profit increased by $7.0 million, or 2.6%, to $272.9 million for the nine months ended December 31, 2019, as compared to $265.9 million for the nine months ended December 31, 2018, primarily due to higher revenue, partially offset by increase in subcontractor costs and higher onsite effort. As a percentage of revenue, gross margin decreased from 28.9% in the nine months ended December 31, 2018 to 27.8% in the nine months ended December 31, 2019. The decrease in the gross margin in the nine months ended December 31, 2019, was primarily driven by an increase in subcontractor costs, higher onsite effort, and lower utilization partially offset by depreciation of the Indian rupee against the U.S. dollar.  

Operating expenses

Operating expenses decreased from $218.7 million in the nine months ended December 31, 2018 to $209.8 million in the nine months ended December 31, 2019, a decrease of $8.9 million, or 4.1%. The decrease in operating expenses was primarily due to a decrease in compensation related to non-IT professionals of $13.2 million, which reflects our cost reduction initiatives and a decrease in travel expense of $2.2 million, partially offset by an increase of $3.9 million in facilities costs, an increase in amortization of intangible assets of $1.5 million and an increase in professional services of $0.5 million. As a percentage of revenue, our operating expenses decreased from 23.8% in the nine months ended December 31, 2018 to 21.4% in the nine months ended December 31, 2019.

Income from operations

Income from operations increased by 33.6%, from $47.2 million in the nine months ended December 31, 2018 to $63.1 million in the nine months ended December 31, 2019. As a percentage of revenue, income from operations increased from 5.1% in the nine months ended December 31, 2018 to 6.4% in the nine months ended December 31, 2019, primarily due to a decrease in operating expenses as a percentage of revenue.

Other expense

Other expense decreased by $5.2 million, from $22.2 million in the nine months ended December 31, 2018 to $17.0 million in the nine months ended December 31, 2019, primarily due to a net decrease in foreign currency transaction losses related to the revaluation of a $300 million Indian rupee denominated intercompany note, primarily due to a substantial appreciation of the Indian rupee against the U.S. dollar, partially offset by an increase in interest expense related to our term loan.

Income tax expense

Income tax expense increased by $4.0 million, from $15.9 million in the nine months ended December 31, 2018 to $19.9 million in the nine months ended December 31, 2019. Our effective tax rate decreased from 63.3% for the nine months ended December 31, 2018 to 43.3% for the nine months ended December 31, 2019. The increase in tax expense for the nine months ended December 31, 2019, was primarily due to improved results of operations, an increase in BEAT expense offset by a decrease in tax expense related to disregarded entities during the nine months ended December 31, 2019. The decrease in the effective tax rate in the nine months ended December 31, 2019 is primarily due to improved results of operations offset by a decrease in tax expense related to disregarded entities.

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Noncontrolling interests

In connection with the Polaris Consulting & Services Limited (“Polaris”) acquisition, for the nine months ended December 31, 2019 and 2018, we recorded a noncontrolling interest of $0.5 million and $1.4 million, respectively, representing a 2.3% and 5.6%, respectively, share of profits of Polaris held by parties other than Virtusa.

Net income available to Virtusa stockholders

Net income available to Virtusa stockholders increased by 229.6%, from $7.8 million in the nine months ended December 31, 2018 to a net income of $25.7 million in the nine months ended December 31, 2019. The increase in net income in the nine months ended December 31, 2019 was primarily due to an increase in income from operations and a decrease in net foreign currency transaction losses related to the revaluation of a $300 million Indian rupee denominated intercompany note, primarily due to a substantial appreciation of the Indian rupee against the U.S. dollar partially offset by an increase in income tax expense.

Series A Convertible Preferred Stock dividends and accretion

In connection with the preferred stock financing transaction with the Orogen Group, we accrued dividends and accreted issuance costs of $3.3 million at a rate of 3.875% per annum during the nine months ended December 31, 2019 and 2018.

Net income available to Virtusa common stockholder

Net income available to Virtusa common stockholders increased by 395.1%, from $4.5 million in the nine months ended December 31, 2018 to $22.4 million in the nine months ended December 31, 2019. The increase in net income in the nine months ended December 31, 2019 was primarily due to an increase in income from operations and a decrease in net foreign currency transaction losses related to the revaluation of a $300 million Indian rupee denominated intercompany note, primarily due to a substantial appreciation of the Indian rupee against the U.S. dollar partially offset by an increase in income tax expense.

Non-GAAP Measures

We include certain non-GAAP financial measures as defined by Regulation G by the Securities and Exchange Commission. These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures should be read in conjunction with our financial statements prepared in accordance with GAAP.

We consider the total measure of cash, cash equivalents, short-term and long-term investments to be an important indicator of our overall liquidity. All of our investments are classified as either equity or available-for-sale debt securities, including our long-term investments which consist of fixed income securities, including government agency bonds and corporate bonds, which meet the credit rating and diversification requirements of our investment policy as approved by our audit committee and board of directors.

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The following table provides the reconciliation from cash and cash equivalents to total cash and cash equivalents, short-term investments and long-term investments:

	At December 31,		At March 31,
	2019		2019
Cash and cash equivalents	$	217,387	$	189,676
Short-term investments		20,058		33,138
Long-term investments		10		322
Total cash and cash equivalents, short-term and long-term investments	$	237,455	$	223,136

We believe the following financial measures will provide additional insights to measure the operational performance of our business.

● We present  consolidated statements of income measures that exclude, when applicable, stock-based compensation expense, acquisition-related charges, restructuring charges, foreign currency transaction gains and losses, impairment of investments, impairment of long-lived assets, non-recurring third party financing costs, the tax impact of dividends received from foreign subsidiaries, the initial impact of our election to treat certain subsidiaries as disregarded entities for U.S. tax purposes and the impact from the U.S. government enacted comprehensive tax legislation (“Tax Act”) to provide further insights into the comparison of our operating results among periods.

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The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three and nine months ended December 30:

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2019			2018			2019			2018
							in thousands, except per share amounts)
GAAP income from operations	$	30,410		$	19,285		$	63,073		$	47,228
Add: Stock-based compensation expense		5,775			7,042			18,285			24,104
Add: Acquisition-related charges and restructuring charges (1)		4,345			6,378			12,741			17,872
Non-GAAP income from operations	$	40,530		$	32,705		$	94,099		$	89,204
GAAP operating margin		9.1	%		6.1	%		6.4	%		5.1	%
Effect of above adjustments to income from operations		3.0	%		4.3	%		3.2	%		4.6	%
Non‑GAAP operating margin		12.1	%		10.4	%		9.6	%		9.7	%
GAAP net income available to Virtusa common stockholders	$	11,633		$	11,489		$	22,394		$	4,523
Add: Stock-based compensation expense		5,775			7,042			18,285			24,104
Add: Acquisition-related charges and restructuring charges (1)		4,345			6,852			13,008			19,279
Add: Impairment of investment (9)		184			885			184			885
Add: Foreign currency transaction gains (losses) (2)		3,065			(8,319)			5,300			11,794
Add: Impact from the Tax Act (8)		—			(1,628)			—			(1,628)
Tax adjustments (3)		161			3,370			(4,153)			(6,573)
Less: Noncontrolling interest, net of taxes (4)		(16)			(103)			(44)			76
Non-GAAP net income available to Virtusa common stockholders	$	25,147		$	19,588		$	54,974		$	52,460
GAAP diluted earnings per share (6)	$	0.38		$	0.37		$	0.73		$	0.15
Effect of stock-based compensation expense (7)		0.17			0.21			0.54			0.72
Effect of acquisition-related charges and restructuring charges (1) (7)		0.13			0.20			0.38			0.57
Effect of impairment of investment (9) (7)		0.01			0.03			—			0.03
Effect of foreign currency transaction gains (losses) (2) (7)		0.09			(0.25)			0.16			0.35
Effect of impact from the Tax Act (7) (8)		—			(0.05)			—			(0.05)
Tax adjustments (3) (7)		—			0.10			(0.12)			(0.20)
Effect of dividend on Series A Convertible Preferred Stock (6) (7)		—			—			0.10			0.10
Effect of change in dilutive shares for non-GAAP (6)		—			—			(0.06)			(0.01)
Non-GAAP diluted earnings per share (5) (7)	$	0.78		$	0.61		$	1.73		$	1.66

(1) Acquisition-related charges include, when applicable, amortization of purchased intangibles, external deal costs, transaction-related professional fees,  acquisition-related retention bonuses, changes in the fair value of contingent consideration liabilities, accreted interest related to deferred acquisition payments, charges for impairment of acquired intangible assets and other acquisition-related costs including integration expenses consisting of outside professional and consulting services and direct and incremental travel costs.  Restructuring charges, when applicable, include

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termination benefits, facility exit costs as well as certain professional fees related to restructuring. The following table provides the details of the acquisition-related charges and restructuring charges:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Amortization of intangible assets	$	3,496	$	2,860	$	10,157	$	8,629
Acquisition and integration costs		849		3,518		2,584		9,243
Acquisition-related charges included in costs of revenue and operating expense		4,345		6,378		12,741		17,872
Accreted interest related to deferred acquisition payments		—		474		267		1,407
Total acquisition-related charges and restructuring charges	$	4,345	$	6,852	$	13,008	$	19,279

(2) Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes.

(3) Tax adjustments reflect the tax effect of the non-GAAP adjustments using the tax rates at which these adjustments are expected to be realized for the respective periods, excluding the initial impact of our election to treat certain subsidiaries as disregarded entities for U.S. tax purposes and for fiscal year 2020, excluding BEAT tax impact in contemplation of a reorganization of our Indian legal entities. Tax adjustments also assumes application of foreign tax credit benefits in the United States.

(4) Noncontrolling interest represents the minority shareholders interest of Polaris.

(5) Non-GAAP diluted earnings per share is subject to rounding.

(6) During the three months ended December 31, 2019 and 2018, all of the 3,000,000 shares of Series A Convertible Preferred Stock were included in the calculations of GAAP diluted earnings per share as their effect was dilutive using the if-converted method. During the nine months ended December 31, 2019 and 2018, all of the 3,000,000 shares of Series A Convertible Preferred Stock were excluded from the calculations of GAAP diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

The following table provides the non-GAAP net income available to Virtusa common stockholders and non-GAAP dilutive weighted average shares outstanding using the if-converted method to calculate the non-GAAP diluted earnings per share for the three and nine months ended December 31, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Non-GAAP net income available to Virtusa common stockholders	$	25,147	$	19,588	$	54,974	$	52,460
Add: Dividends and accretion on Series A Convertible Preferred Stock		1,087		1,087		3,262		3,262
Non-GAAP net income available to Virtusa common stockholders and assumed conversion	$	26,234	$	20,675	$	58,236	$	55,722
GAAP dilutive weighted average shares outstanding		33,458,231		33,661,728		30,700,269		30,598,114
Add: Incremental dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units		—		—		—		—
Add: Incremental effect of Series A Convertible Preferred Stock as converted		—		—		3,000,000		3,000,000
Non-GAAP dilutive weighted average shares outstanding		33,458,231		33,661,728		33,700,269		33,598,114

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(7) To the extent the Series A Convertible Preferred Stock is dilutive using the if-converted method, the Series A Convertible Preferred Stock is included in the weighted average shares outstanding to determine non-GAAP diluted earnings per share.

(8) Impact from the U.S. government enacted comprehensive tax legislation (“Tax Act”).

(9) Other-than-temporary impairment of available-for-sale securities recognized in earnings.

Liquidity and capital resources

We have financed our operations primarily from sales of shares of common stock, cash from operations, debt financing and from sales of shares of Series A Convertible Preferred Stock. Our ability to expand and grow our business to execute our strategic objectives will depend on many factors, including our willingness to make opportunistic acquisitions, strategic investments and partnerships.  To the extent that existing cash from operations is insufficient for fund these activities, we may raise additional funds through debt or equity financing.  We cannot be certain that additional financing, if required, will be available on favorable terms or at all.  We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements including capital expenditures, working capital requirements, potential acquisitions, strategic investments and other liquidity requirements through at least the next 12 months.

We do not believe the deemed repatriation tax on accumulated foreign earnings related to the Tax Act will have a significant impact on our cash flows in any individual fiscal year.

On October 15, 2019, we entered into Amendment No. 2 to Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and the lenders party thereto (the “Credit Agreement Amendment”), which amends the Company’s Amended and Restated Credit Agreement, dated as of February 6, 2018, with such parties (the “Credit Agreement”) to, among other things, increase the revolving commitments available to us under the Credit Agreement from $200.0 million to $275.0 million, reduce the interest rate margins applicable to term loans and revolving loans outstanding under the Credit Agreement from time to time and reduce the commitment fee payable by us to the lenders in respect of unused revolving commitments under the Credit Agreement. We executed the Credit Agreement Amendment to provide additional lending capacity which we could use to fund the completion of the Polaris delisting transaction, as well as to provide excess lending capacity in the event of future opportunistic, strategic, investment opportunities. The Credit Agreement Amendment contains customary terms for amendments of this type, including representations, warranties and covenants. Interest under this new credit facility accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to EBITDA. For the fiscal year ending March 31, 2020, the Company is required to make principal payments of $2.9 million per quarter. The term of the Credit Agreement is five years ending February 6, 2023. During the nine months ended December 31, 2019, the Company drew down $36.0 million from the credit facility to fund the eTouch 18-month anniversary payment of $17.5 million and to fund opportunistic, strategic, investment opportunities. As of December 31, 2019, the outstanding amount under the Credit Agreement was $393.9 million. At December 31, 2019, the interest rate on the term loan and line of credit was 3.99%.

The credit facility is secured by substantially all of the Company’s assets, including all intellectual property and all securities in domestic subsidiaries (other than certain domestic subsidiaries where the material assets of such subsidiaries are equity in foreign subsidiaries), subject to customary exceptions and exclusions from the collateral. All obligations under the Credit Agreement are unconditionally guaranteed by substantially all of the Company’s material direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.

At December 31, 2019, the Company was in compliance with its debt covenants and has provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the Credit Agreement to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the existing revolving credit facility at December 31, 2019 and through the date of this filing.

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On August 5, 2019, our board of directors authorized a share repurchase program of up to $30 million of our common stock over 12 months from the approval date, subject to certain price and other trading restrictions as established by the Company. During the nine months ended December 31, 2019, we repurchased 505,565 shares of the Company’s common stock at a weighted average price of $36.93 per share for an aggregate purchase price of $18.7 million.

To strengthen our digital engineering capabilities and establish a solid base in Silicon Valley, on March 12, 2018, we acquired all of the outstanding shares of eTouch Systems Corp (“eTouch US”), and its Indian subsidiary, eTouch Systems (India) Pvt. Ltd (“eTouch India,” together with eTouch US, “eTouch”) for approximately $140.0 million in cash, subject to certain adjustments. As part of the acquisition, we set aside up to an additional $15.0 million for retention bonuses to be paid to eTouch management and key employees, in equal installments on the first and second anniversary of the transaction. We agreed to pay the purchase price in three tranches, with $80.0 million paid at closing, $42.5 million on the 12-month anniversary of the close of the transaction, and $17.5 million on the 18-month anniversary of the close of the transaction, subject in each case to certain adjustments. During the three months ended March 31, 2019, we paid the 12-month anniversary purchase price payment of $42.5 million and the retention bonus amount of $7.0 million to the eTouch management and key employees.  During the three months ended September 30, 2019, we paid the 18-month anniversary purchase price payment of $17.5 million.

On March 3, 2016, our Indian subsidiary, Virtusa Consulting Services Private Limited (“Virtusa India”) acquired approximately 51.7% of the fully diluted shares of Polaris Consulting & Services Limited (“Polaris”) for approximately $168.3 million in cash (the “Polaris Transaction”) pursuant to a share purchase agreement dated as of November 5, 2015, by and among Virtusa India, Polaris and the promoter sellers named therein. Through a series of transactions and in compliance with the applicable Indian rules on takeovers and SEBI Delisting Regulations, Virtusa increased its ownership interest in Polaris from 51.7% to 93.0% by February 12, 2018 when Virtusa consummated its Polaris delisting offer with respect to the public shareholders of Polaris. The delisting offer resulted in an accepted exit price of INR 480 per share (“Exit Price”), for an aggregate consideration of approximately $145.0 million, exclusive of transaction and closing costs. On July 11, 2018, the stock exchanges on which Polaris common shares are listed notified Polaris that trading in equity shares of Polaris would be discontinued and delisted effective on August 1, 2018. For a period of one year following the date of delisting, Virtusa India has, in compliance with SEBI Delisting Regulations, permitted the public shareholders of Polaris to tender their shares for sale to Virtusa India at the Exit Price. In connection with the Polaris delisting offer, during the six months ended September 30, 2019 Virtusa India purchased 1,263,117 shares, or 1.2%, of Polaris common stock from Polaris public shareholders for an aggregate purchase price of approximately $8.7 million.

Further to the Polaris delisting, in order to acquire the remaining noncontrolling interest, the Company filed an application for approval and authorization to purchase the remaining outstanding Polaris shares held by the Polaris shareholders (“the Polaris Repurchase”) as well as final approval of the merger of Polaris with and into Virtusa India (“Merger”). On December 9, 2019, the Company received a Common Order (“Court Order”) to move forward with the Polaris Repurchase and certain conditional approvals for the Merger.  

In connection with the Polaris Repurchase under the Court Order, on December 20, 2019, upon the Company filing the required documents, all the outstanding equity shares of Polaris held by public shareholders were deemed cancelled, but converted to the right to receive payment for these shares. Within 30 days from December 20, 2019, the Company is required to pay consideration of INR 480 per share for each cancelled share held by these former Polaris shareholders. At December 20, 2019, the total amount payable to the remaining Polaris public shareholders was $13.6 million.  During the three months ended December 31, 2019, the Company paid $12.5 million to the public shareholders.

In connection with the Merger, the conditional approvals required were approved by the respective authorities on January 2, 2020 and the Merger is effective as of that date.  

In connection with, and as part of the Polaris acquisition, on November 5, 2015, we entered into an amendment with Citigroup Technology, Inc. (“Citi”) and Polaris, which became effective upon the closing of the Polaris Transaction, pursuant to which Virtusa was added as a party to the master services agreement with Citi and Citi agreed to appoint the Company and Polaris as a preferred vendor.

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On December 31, 2019, in connection with a request for proposal (“RFP”) and vendor consolidation process conducted by Citi, and as part of the Company being one of the vendors selected to continue preferred vendor status at Citi and have the opportunity to compete for additional vendor consolidation work, the Company and Citi entered into Amendment No. 5 to the Master Professional Services Agreement, by and between the Company and Citi, dated as of July 1, 2015, as amended (the “Amendment”). Pursuant to the Amendment, (i) Citi agreed to maintain the Company as a preferred vendor under the Resource Management Organization (“RMO”) for the provision of IT services to Citi on an enterprise wide basis, (ii) the Company agreed to provide certain savings to Citi for the period from April 1, 2020 to December 31, 2020 (“Savings Period”), which savings can be achieved through productivity and efficiency measures and associated reduced spend; provided that if these productivity and efficiency measures do not achieve the projected savings amounts, the Company is required to provide certain discounts to Citi for the Savings Period to achieve the savings commitments; and (iii) to the extent that Citi awards the Company additional or new work in addition to the services covered by the RFP, the Company agreed to provide Citi with a certain percentage of savings (whether achieved through productivity measures, efficiencies, discounts or otherwise) as a condition to performing such services.

On May 3, 2017, we entered into an investment agreement with The Orogen Group (“Orogen”) pursuant to which Orogen purchased 108,000 shares of the Company’s newly issued Series A Convertible Preferred Stock, initially convertible into 3,000,000 shares of common stock, for an aggregate purchase price of $108 million with an initial conversion price of $36.00 (the “Orogen Preferred Stock Financing”). In connection with the investment, Vikram S. Pandit, the former CEO of Citigroup, was appointed to Virtusa’s Board of Directors. Orogen is a new operating company that was created by Vikram Pandit and Atairos Group, Inc., an independent private company focused on supporting growth-oriented businesses, to leverage the opportunities created by the evolution of the financial services landscape and to identify and invest in financial services companies and related businesses with proven business models.

Under the terms of the investment, the Series A Convertible Preferred Stock has a 3.875% dividend per annum, payable quarterly in additional shares of common stock and/or cash at our option. If any shares of Series A Convertible Preferred Stock have not been converted into common stock prior to May 3, 2024, we will be required to repurchase such shares at a repurchase price equal to the liquidation preference of the repurchased shares plus the amount of accumulated and unpaid dividends thereon. If we fail to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of May 3, 2024 during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum. During the nine months ended December 31, 2019, the Company paid $3.1 million as a cash dividend on its Series A Convertible Preferred Stock.

The Company also uses interest rate swaps to mitigate the Company’s interest rate risk on the Company’s variable rate debt. The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the Credit Agreement (See Note 13 to the consolidated financial statements), by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. The Company purchased interest rate swaps in July 2016 with an effective date of July 2017 and November 2018.  The July 2016 interest rate swaps are at a blended weighted average of 1.025% and the Company will receive 1-month LIBOR on the same notional amounts.  The November 2018 interest rate swaps are at a fixed rate of 2.85% and are designed to maintain a 50% coverage of our LIBOR debt, therefore the notional amount changes over the life of the swap to retain the 50% coverage target. 

The counterparties to the interest rate swap agreements could demand an early termination of the June 2016 and November 2018 swap agreements if we are in default under the Credit Agreement, or any agreement that amends or replaces the Credit Agreement in which the counterparty is a member, and we are unable to cure the default. An event of default under the Credit Agreement includes customary events of default and failure to comply with financial covenants, including a maximum consolidated leverage ratio commencing on December 31, 2018, of not more than 3.50 to 1.00 for periods ending prior to December 31, 2019, of not more than 3.25 to 1.00 commencing December 31, 2019 and for periods ending prior to September 30, 2020, and 3.00 to 1.00 thereafter and a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00. As of December 31, 2019, we were in compliance with these covenants. The net unrealized loss associated with interest rate swap Agreement was $5.5 million as of December 31, 2019, which represents the estimated amount that we would pay to the counterparties in the event of an early termination.

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At December 31, 2019, we had approximately $237.5 million of cash, cash equivalents, short term investments and long term investments, of which we hold approximately $198.0 million of cash, cash equivalents, short term investments and long-term investments in non-U.S. locations, particularly in India, Sri Lanka and the United Kingdom. Cash in these non-U.S. locations may not otherwise be available for potential investments or operations in the United States or certain other geographies where needed, as we have stated that this cash is indefinitely reinvested in these non-U.S. locations. We do not currently plan to repatriate this cash to the United States. However, if our intent were to change and we elected to repatriate this cash back to the United States, or this cash was deemed no longer permanently invested, this cash would be subject to additional taxes and the change in such intent could have an adverse effect on our cash balances as well as our overall statement of income. Due to various methods by which cash could be repatriated to the United States in the future, the amount of taxes attributable to the cash is dependent on circumstances existing if and when remittance occurs. In addition, some countries could have tight restrictions on the movement and exchange of foreign currencies which could further limit our ability to use such funds for global operations or capital or other strategic investments. Due to the various methods by which such earnings could be repatriated in the future, it is not practicable to determine the amount of applicable taxes that would result from such repatriation.

From time to time, the Company enters into arrangements to deliver IT services that include upfront payments to our clients. As of December 31, 2019, the total unamortized upfront payments related to these services were $34.4 million and are expected to be amortized as a reduction to revenue over a benefit period of 5 years.

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 nine months ended December 31, 2019, we sold $21.3 million of receivables under the terms of the financing agreement. Fees paid pursuant to this agreement were not material during the nine months ended December 31, 2019. No amounts were due under the financing agreement at December 31, 2019, 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.

During the three months ended March 31, 2019, we have recorded an impairment loss of $4.0 million relating to the reclassification of land acquired in the Polaris acquisition to held for sale. The decision to sell this land was made during the three months ended March 31, 2019 as part of our annual planning process where we evaluated strategic alternatives to maximize return on our cash and assets. As part of the assessment process, we considered projected headcount growth in this region, as well as ongoing compliance costs associated with holding the land, and concluded that our cash, including cash from the sale of this asset, would generate a higher return elsewhere. The reclassification to held for sale triggered a reduction in value to $8.7 million, which represents the lower of net book value and market value at December 31, 2019.  We are actively marketing this land for sale and expect to complete a transaction over the next 12 months.

On February 28, 2019, the Supreme Court of India issued a ruling interpreting certain statutory defined contribution obligations of employees and employers, which altered historical understandings of such obligations, extending them to cover additional portions of employee income. As a result, contributions by our employees and the Company will increase in future periods. There is uncertainty as to whether the Indian government will apply the Supreme Court's ruling on a retroactive basis and if so, how this liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. As such, the ultimate amount of our obligation is difficult to quantify. If the Indian Government were to apply the Supreme Court ruling retroactively, without assessing interest and penalties, the impact would be a charge of approximately $7.5 million to our income from operations and cash flows.

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Cash flows

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

	Nine Months Ended
	December 31,
	2019		2018
	(In thousands)
Net cash provided by operating activities	$	74,454	$	69,822
Net cash used in investing activities		(24,927)		(22,047)
Net cash used in financing activities		(20,275)		(18,307)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(131)		(13,530)
Net increase in cash and cash equivalents and restricted cash		29,121		15,938
Cash, cash equivalents and restricted cash, beginning of year		190,113		195,236
Cash, cash equivalents and restricted cash, end of period	$	219,234	$	211,174

Operating activities

Net cash provided by operating activities increased in the nine months ended December 31, 2019 compared to the nine months ended December 31, 2018, primarily due to increase in the net income adjusted for non-cash expenses and an increase in the working capital during the nine months ended December 31, 2019.

Investing activities

Net cash used in investing activities increased in the nine months ended December 31, 2019 compared to nine months ended December 31, 2018. The increase in net cash used in investing activities was primarily due to payments for asset acquisitions and a payment for deferred consideration related to the acquisition of eTouch made during the nine months ended December 31, 2019, partially offset by the decrease in the purchase of property and equipment and a net decrease in the purchase of investments.

Financing activities

Net cash used in financing activities increased in the nine months ended December 31, 2019 compared to nine months ended December 31, 2018. The increase in net cash used in financing activities during the nine months ended December 31, 2019 was primarily due to repurchase of common stock partially offset by to a decrease in payment of redeemable noncontrolling interest, a decrease in payment of withholding taxes related to restricted stock and an increase in proceeds from debt.

Commitments and Contingencies

See Note 17 to our consolidated financial statements for additional information.

Off-balance sheet arrangements

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

We have entered into foreign currency derivative contracts with the objective of limiting our exposure to changes in the Indian rupee, the GBP, the euro, the Canadian dollar, the Australian dollar and the Swedish Krona as described below and in “Quantitative and Qualitative Disclosures about Market Risk.”

We maintain a foreign currency cash flow hedging program designed to further mitigate the risks of volatility in the Indian rupee against the U.S. dollar and GBP as described below in “Quantitative and Qualitative Disclosures about Market Risk.” From time to time, we may also purchase multiple foreign currency forward contracts designed to hedge

47

fluctuation in foreign currencies, such as the GBP, euro, the Canadian dollar, the Australian dollar and Swedish Krona against the U.S. dollar to minimize the impact of foreign currency fluctuations on foreign currency denominated revenue and expenses. 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

See Note 2 to our consolidated financial statements for additional information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks, and the ways we manage them, are summarized in Part II, Item 7A of the Annual Report. There have been no material changes in the nine months ended December 31, 2019 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 revenue and 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 consolidated 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, statement of income and operating cash flows from all foreign currencies, including most significantly the GBP and the Indian rupee.

We have an 18 month rolling hedge program comprised of a series of foreign exchange forward contracts that are designated as cash flow hedges. This program is designed to mitigate the impact of volatility in the U.S. dollar equivalent of our Indian rupee denominated expenses. While these hedges are achieving the designed objective, upon consolidation they may cause volatility in revenue. The U.S. dollar equivalent notional value of all outstanding foreign currency derivative contracts at December 31, 2019 was $133.0 million. There is no assurance that the hedging program or hedging contracts will be effective. As these foreign currency hedging programs are designed to reduce volatility in the Indian rupee, they not only reduce the negative impact of a stronger Indian rupee but also reduce the positive impact of a weaker Indian rupee on our Indian rupee expenses.

The GBP, the euro, the Canadian dollar and the Australian dollar exchange fluctuations can have an unpredictable impact on our GBP and the euro revenues generated and costs incurred. In response to this volatility, we have an economic hedge program under which we have entered into hedging transactions designed to hedge our forecasted revenue and expenses denominated in the GBP, the euro, the Canadian dollar and the Australian dollar. These derivative contracts have maximum duration of 92 days and do not meet the criteria for hedge accounting. Such hedges may not be effective in mitigating this currency volatility. These hedges are designed to reduce the negative impact of a weaker GBP, euro, Canadian dollar and Australian dollar, however they also reduce the positive impact of a stronger GBP or the euro on the respective revenues.

Interest Rate Risk

Interest under our credit facility accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to EBITDA. In the event that LIBOR is discontinued as expected in 2021, we expect the interest rates for our debt following such event will be based on either alternate base rates or an agreed upon replacement reference rates. While we do not expect a LIBOR discontinuation would affect our ability to borrow or maintain already

48

outstanding borrowings, it could result in higher interest rates. We entered into interest rate swap agreements to minimize interest rate exposure. The Credit Agreement for our credit facility includes maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years, ending February 6, 2023. At December 31, 2019, the interest rate on the term loan and line of credit was 3.99%. At December 31, 2019, the outstanding amount under the Credit Agreement was $393.9 million.

At December 31, 2019, we had $237.5 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 money market mutual funds and preference shares. Our investments are classified as either equity or available-for-sale debt securities. These investments are recorded at fair value. Our 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 credit rating minimums 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 as we invest with highly-rated financial institutions and, accordingly, do not require collateral. Credit losses and write-offs of accounts receivable balances have historically not been material to our consolidated 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 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 December 31, 2019, 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.

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

49

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Except as indicated below, we are not presently a party to any legal proceedings that if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows.

Recently, one of our larger clients made a demand for damages related to a project in which we were performing services.  The client alleges breaches of certain representations and warranties regarding our performance and is seeking indemnification for damages from those alleged breaches.  No litigation has been filed.  We believe that we have defenses against the claims described in the demand, and intend to zealously defend against those claims.  However, we cannot provide any assurance that we will prevail in the dispute or even partially prevail. Further, if we are unsuccessful in any settlement discussions, we also cannot provide any assurance that the client will not use set off rights in our contract, even if we dispute the claims or amount of damages alleged.   In the event we do not fully prevail in this dispute, we may have to pay damages in amounts for which we may not have reserved or which may or may not be covered by our insurance policies; further, even if the damages are covered, depending on the outcome, our insurance may not cover or be adequate to pay the entire claim.  In addition, we cannot guarantee that we will not lose future business with such client as a result of such dispute.  

From time to time, we are subject to audit from immigration authorities to ensure we are in compliance with applicable immigration law. In August 2019, one of our UK subsidiaries, Virtusa UK Limited, was subject to audit and was notified that the audit was unsatisfactory and, as such, UK Visas and Immigration took the decision to suspend the sponsor license which allows our UK subsidiary to sponsor the Tier 2 visas of non- European Economic Area skilled workers visas and work permits for workers located in non-UK locations such as India and Sri Lanka. The suspension was in effect until such time as we could adequately respond to the questions raised in the audit and requests for additional documentation. In September 2019, we successfully responded to the UK Visas and Immigration audit such that UK Visas and Immigration reinstated and restored our sponsor license with immediate effect, allowing Virtusa UK Limited again to sponsor visas and work permits. Although our sponsorship license was restored, we can give no assurance that our UK subsidiaries will not be subject to future audits or that such future audits will not result in future sponsorship license suspensions. If our sponsor license was suspended, our key project personnel may not be able to obtain necessary visas or work permits which could delay or prevent our fulfillment of certain client projects in the United Kingdom, which could hamper our growth and cause our revenue to decline. Any delays in staffing or inability to obtain proper resources for a project can result in project postponement, delays or cancellation, which could result in lost revenue and decreased profitability and have a material adverse effect on our business, revenue, profitability and utilization rates.

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 the Annual Report, which could materially affect our business, financial condition or future results.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

Under the terms of our 2007 Stock Option and Incentive Plan (“2007 Plan”) and 2015 Stock Option and Incentive Plan (“2015 Plan”), we have issued shares of restricted stock to our employees. On the date that these restricted shares vest, we automatically withhold, via a net exercise provision pursuant to our applicable restricted stock agreements and the 2007 Plan and 2015 Plan, as the case may be, the number of vested shares (based on the closing price of our common stock on such vesting date) equal to tax liability owed by such grantee. The shares withheld from the grantees under the 2007 Plan or the 2015 Plan, as the case may be, to settle their tax liability are reallocated to the number of shares available for issuance under the 2015 Plan. For the three months period ended December 31, 2019, we withheld an aggregate of 2,803 shares of restricted stock at a weighted average price of $44.70 per share.

50

On August 5, 2019, our board of directors authorized a share repurchase program of up to $30 million of shares of our common stock on or prior to August 5, 2020. There were no stock repurchase under this program for the three months ended December 31, 2019.

51

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*+	Amendment #5 to Master Professional Services Agreement, dated December 31, 2019 by and between Virtusa Corporation and Citigroup Technology, Inc.
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. INS*	XBRL Instance Document – The instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 *	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*     Filed herewith.

+ Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit.

**   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 Securities Exchange Act of 1934.

52

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: February 6, 2020	By:	/s/ Kris Canekeratne
		Kris Canekeratne,
		Chairman and Chief Executive Officer
		(Principal Executive Officer)
Date: February 6, 2020	By:	/s/ Ranjan Kalia
		Ranjan Kalia,
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

53

EX-10.1

[***] Certain information in this document has been omitted from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

Exhibit 10.1

Amendment 5 to

MASTER PROFESSIONAL SERVICES AGREEMENT

Amendment No.:	SS2012201901
Amendment Effective Date:	20th Dec 2019

	SUPPLIER	CITI
Name:	Polaris Consulting & Services Ltd	Citigroup Technology, Inc.
Address:	“Polaris House” 244 Anna Salai Chennai 600006, Tamilnadu, India	111 Wall Street, 7th Floor New York, NY 10005
Incorporation:	India	Delaware

THIS AMENDMENT No. 5 (this “Amendment”) is entered into by and between the Supplier and Citi as designated above, for the purpose of memorializing the terms and conditions of certain savings applicable to Services to be provided by Supplier in connection with the Citi Vendor Consolidation RFP (“RFP”) under the Master Professional Services Agreement dated as of July 1st, 2015, by and between the Parties, as amended by that letter agreement dated November 5, 2015, by and among Polaris Consulting & Services Ltd., Virtusa Corporation and Citigroup Technology, Inc., with such amendment having an effective date of March 3, 2016 (such agreement, as further amended to date, the “Agreement”).   

Supplier and Citi agree as follows:

1. Capitalized Terms.  All capitalized terms used and not defined in this Amendment have the meanings specified in the Agreement.

2. Savings. 

a. Subject to the conditions set forth in Section 3 below, during the period from April 1, 2020 to December 31, 2020 (the “Savings Period”), Supplier will provide Citi with (i) the Run Rate Savings (as defined below); and (ii) the Transitioned Work Savings (as defined below). 

b. “Run Rate Savings” means [***************************************] for the Savings Period [**********************************************************************], which represents the aggregate savings to be [*****************************************************************************] through the application of the various “Saving Levers” [*******************************************************************************] for Services provided during the Savings Period. [****************************************************************************]. 

c. “Transitioned Work Savings” means [***] savings on net-new Transitioned Work, in each case subject to execution of a mutually agreed Work Order between Citi and Supplier covering such Transitioned Work.  [**************************************************]. 

[***] Certain information in this document has been omitted from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

3. Conditions. Provision of the Run Rate Savings and the Transitioned Work Savings is subject to the following conditions:

a. [* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *].

b. [* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *].

c. The Run Rate Savings and Transitioned Work Savings shall only be calculated during the Savings Period and not any other period during calendar year 2020.

d. The Run Rate Savings and the Transitioned Work Savings shall count towards the productivity savings described in Section 4.16 (Continuous Improvement) of the Agreement.

4. Complete Understanding. Except as expressly specified in this Amendment, the Work Order and the Agreement remain unchanged and in full effect.  In the event of a conflict between this Amendment and the Agreement, this Amendment takes precedence.

[***] Certain information in this document has been omitted from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

IN WITNESS WHEREOF, the Parties to this Amendment, each acting with proper authority, have signed this Amendment either by manual signature or by electronic signature (as evidenced below) as of the Effective Date designated above.

By Manual Signature:

SUPPLIER:		CITI:
By:	/s/ Srinivasan Jayaraman	By:	/s/ Stuart Smith
Name:	Srinivasan Jayaraman	Name:	Stuart Smith
Title:	EVP	Title:	Director
Date:	December 30, 2019	Date:	December 31, 2019

By Electronic Signature Binding:

[***] Certain information in this document has been omitted from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

For Supplier:  By selecting the "I Accept" button below, I am representing that I am an authorized representative of Supplier and am the individual identified in the signature block immediately following this paragraph under the reference to Supplier and that I am entitled and authorized to legally bind Supplier to this Amendment.  Supplier agrees that use of a key pad, mouse or other device by its authorized representative to select the “I Accept” button below will be deemed to be a valid and due execution of this Amendment by Supplier with the same force and effect as if Supplier had manually signed this Amendment.  If Supplier does not agree that its electronic selection of the “I Accept” button below will bind Supplier to the terms and conditions of this Amendment as it exists on the date hereof, then do not select the “I Accept” button below. For Citi:  By selecting the "I Accept" button below, I am representing that I am an authorized representative of Citi and am the individual identified in the signature block immediately following this paragraph under the reference to Citi and that I am entitled and authorized to legally bind Citi to this Amendment.  Citi agrees that use of a key pad, mouse or other device by its authorized representative to select the “I Accept” button below shall be deemed to be a valid and due execution of this Amendment by Citi with the same force and effect as if Citi had manually signed this Amendment.  If Citi does not agree that its electronic selection of the “I Accept” button below will bind Citi to the terms and conditions of this Amendment as it exists on the date hereof, then do not select the “I Accept” button below.

I Accept : {{*[]_es_:signer1}}	I Accept: {{*[]_es_:signer2}}
Supplier:	Citi:
eSign: {{_es_:signer1:signature                     }}	eSign: {{_es_:signer2:signature                          }}
Name: {{_es_:signer1:fullname                       }}	Name: {{_es_:signer2:fullname                           }}
Email: {{_es_:signer1:email                            }}	Email: {{_es_:signer2:email                                }}
Date: {{_es_:signer1:date                                }}	Date: {{_es_:signer2:date                                   }}

[***] Certain information in this document has been omitted from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

Exhibit A

[*****].

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: February 6, 2020	/s/ Kris Canekeratne
	Kris Canekeratne
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

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.

e
Date: February 6, 2020	/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 December 31, 2019 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 to my knowledge:

(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: February 6, 2020	/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 December 31, 2019 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 to my knowledge:

(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: February 6, 2020	/s/ Ranjan Kalia
	Ranjan Kalia
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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Investment Securities

9 Months Ended

Dec. 31, 2019

Investment Securities.

Investment Securities

(4) Investment Securities

At December 31, 2019 and March 31, 2019, all of the Company’s investment securities were classified as available-for-sale debt securities and equity securities. These 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 for a discussion of the fair value of the Company’s other financial instruments).

The following is a summary of investment securities at December 31, 2019:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Available-for-sale debt securities:
Time Deposits:
Current	$	6,849	$	—		—	$	6,849
Equity securities:
Mutual funds:
Current		13,060		149		—		13,209
Equity Shares/ Options:
Non-current		1		9		—		10
Total available-for-sale debt securities and equity securities	$	19,910	$	158	$	—	$	20,068

The following is a summary of investment securities at March 31, 2019:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Available-for-sale debt securities:
Corporate bonds:
Current	$	2,779	$	1	$	(2)	$	2,778
Non-current		—		—		—		—
Preference shares:		188		—		—		188
Agency and short-term notes:
Current		1,492		1		—		1,493
Time deposits:
Current		15,861		—		—		15,861
Equity securities:
Mutual funds:
Current		12,912		94		—		13,006
Equity Shares/ Options:
Non-current		8		126		—		134
Total available-for-sale debt and equity securities	$	33,240	$	222	$	(2)	$	33,460

The Company evaluates investments with unrealized losses to determine if the losses are other than 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 that the Company will not be required to sell such investments prior to the recovery of their carrying value.

Proceeds from sales of available-for-sale debt and equity securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Proceeds from sales or maturities of available-for-sale debt securities and equity securities	$	9,476	$	27,633	$	47,716	$	88,204
Gross gains	$	123	$	253	$	563	$	639
Gross losses		—		—		—		(32)
Net realized gains on sales of available-for-sale debt securities and equity securities	$	123	$	253	$	563	$	607

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Revenues

9 Months Ended

Dec. 31, 2019

Revenues

Revenues

(8) Revenues

Disaggregation of Revenue

The table below presents disaggregated revenues from the Company’s contracts with customers by geography, industry groups, service offerings and contract-type. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by industry, market and other economic factors.

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by geography:	2019		2018		2019		2018
North America	$	251,229	$	224,143	$	724,005	$	652,076
Europe		55,154		65,046		175,258		192,175
Rest of World		28,724		25,492		83,369		75,981
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by customer’s industry groups	2019		2018		2019		2018
Banking financial services insurance	$	187,312	$	197,329	$	570,620	$	578,138
Communications and Technology		119,558		89,159		332,465		257,527
Media & Information and Other		28,237		28,193		79,547		84,567
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by service offerings	2019		2018		2019		2018
Application outsourcing	$	183,777	$	165,986	$	547,303	$	488,584
Consulting		151,330		148,695		435,329		431,648
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by contract type	2019		2018		2019		2018
Time-and-materials	$	190,423	$	189,134	$	579,657	$	552,530
Fixed-price*		144,684		125,547		402,975		367,702
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

*Fixed-price includes both retainer-billing basis and fixed-price progress towards completion

Receivables and Contract Balances

The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). The Company presents such receivables in accounts receivable or unbilled accounts receivable, in its consolidated statements of financial position at their net estimated realizable value.

Contract assets included in unbilled accounts receivable are recorded when services have been provided but the Company does not have an unconditional right to receive consideration. Contract assets are primarily related to unbilled amounts on fixed-price contracts utilizing the input method of revenue recognition. The timing between services rendered and timing of payment is less than one year. The Company recognizes an impairment loss when the contract carrying amount is greater than the remaining consideration receivable, less directly related costs to be incurred.  

The table below shows movements during the nine months ended December 31, 2019 and 2018 in contract assets:

	December 31, 2019		December 31, 2018
Beginning balance	$	18,538	$	15,998
Revenues recognized during the period but not yet billed		67,594		92,564
Amounts billed		(68,314)		(95,457)
Other		(20)		(507)
Ending balance	$	17,798	$	12,598

Contract liabilities comprise of amounts billed to customers for revenues not yet earned. Such amounts are anticipated to be recorded as revenues when services are performed in subsequent periods.

The table below shows movements in the deferred revenue balances during the nine months ended December 31, 2019 and 2018:

	December 31, 2019		December 31, 2018
Beginning balance	$	6,421	$	7,908
Amounts billed but not yet recognized as revenues		5,342		5,310
Revenues recognized related to the opening balance of deferred revenue		(5,017)		(6,761)
Other		(154)		(337)
Ending balance	$	6,592	$	6,120

Remaining performance obligation

ASC Topic 606 - Revenue from Contracts with Customers requires that the Company discloses the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2019. This disclosure is not required for:

(1) contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty,

(2) contracts for which the Company recognizes revenues based on the right to invoice for services performed,

(3) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or

(4) variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.

Many of the Company’s performance obligations meet one or more of these exemptions. As of December 31, 2019, the aggregate amount of transaction price allocated to remaining performance obligations, other than those meeting the exclusion criteria above, was $41,582 and will be recognized as revenue within 5 years.

From time to time, the Company enters into arrangements to deliver IT services that include upfront payments to its clients. As of December 31, 2019, the total unamortized upfront payments related to these services were $34,420 and are recorded in prepaid expenses and other long-term assets in the consolidated balance sheet. These upfront payments are expected to be amortized as a reduction to revenue over a benefit period of 5 years.

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Earnings per Share - Diluted earnings per share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Numerator:
Net income available to Virtusa common stockholders	$ 11,633	$ 11,489	$ 22,394	$ 4,523
Add: Series A Convertible Preferred Stock dividends and accretion	1,087	1,087
Net income available to Virtusa common stockholders and assumed conversion	$ 12,720	$ 12,576	$ 22,394	$ 4,523
Denominator:
Basic weighted average common shares outstanding (in shares)	29,849,368	29,893,220	30,041,740	29,764,507
Dilutive effect of Series A Convertible Preferred Stock if converted	3,000,000	3,000,000
Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units (in shares)	608,863	768,508	658,529	833,607
Weighted average shares-diluted (in shares)	33,458,231	33,661,728	30,700,269	30,598,114
Diluted earnings per share available to Virtusa common stockholders (in dollars per share)	$ 0.38	$ 0.37	$ 0.73	$ 0.15

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Debt (Tables)

9 Months Ended

Dec. 31, 2019

Debt

Summary of short-term debt balances

	December 31, 2019		March 31, 2019
Term loan- current maturities		15,898		12,500
Less: deferred financing costs, current		(1,301)		(1,093)
Total	$	14,597	$	11,407

Summary of long-term debt balances

	December 31, 2019		March 31, 2019
Term loan	$	228,359	$	237,500
Borrowings under revolving credit facility		165,500		129,500
Less:
Current maturities		(15,898)		(12,500)
Deferred financing costs, long-term		(2,797)		(3,180)
Total	$	375,164	$	351,320

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Leases (Tables)

9 Months Ended

Dec. 31, 2019

Leases

Components of operating leases

Leases	Location on Consolidated Balance Sheets	December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use of assets	$	50,894
Liabilities
Current
Operating lease liabilities	Operating lease liabilities	$	11,385
Noncurrent
Operating lease liabilities	Operating lease liabilities, noncurrent	$	44,009
	Total	$	55,394

Components of lease expense related to operating leases

		Three Months Ended		Nine Months Ended
	Location on Consolidated Statements of Income	December 31, 2019		December 31, 2019
Operating lease cost:
Operating lease cost	Selling, general and administrative expenses	$	3,789	$	11,403
Variable lease cost	Selling, general and administrative expenses	$	30	$	74
Short-term lease cost	Selling, general and administrative expenses	$	90	$	359
Less: Sublease income	Selling, general and administrative expenses	$	(353)	$	(870)
Total operating lease cost		$	3,556	$	10,966

Summary of supplemental cash flow information

	Nine Months Ended
	December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	11,217
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	5,714

Summary of weighted average remaining lease term and weighted average discount rate

	December 31, 2019
Weighted average remaining lease term, in years:
Operating leases		5.56
Weighted average discount rate:
Operating leases		7.49	%

Schedule of maturities of the Company's operating lease liabilities, under ASC Topic 842, as of December 31, 2019:

The following table provides the schedule of maturities of the Company’s operating lease liabilities, under ASC Topic 842, as of December 31, 2019:

	Operating leases
	December 31, 2019
2020-remainder of year	$	3,784
2021		14,901
2022		13,663
2023		10,927
2024		6,975
2025 and thereafter		17,110
Total lease payments	$	67,360
Interest		(11,966)
Total lease liabilities	$	55,394

Schedule of the Company's future minimum payments on its operating leases at March 31, 2019, which were accounted for in accordance with its historic accounting policies under ASC Topic 840

	Operating leases
	March 31, 2019
2020	$	14,685
2021		13,895
2022		12,663
2023		9,879
2024		5,686
2025 and thereafter		16,761
Total lease payments	$	73,569

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Leases - Lease maturities (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Leases
Amount of operating lease that has yet to commence	$ 320
Operating Leases maturities:
2020- remainder of year	3,784
2021	14,901
2022	13,663
2023	10,927
2024	6,975
2025 and thereafter	17,110
Total lease payments	67,360
Interest	(11,966)
Total lease liabilities	$ 55,394

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Revenues - Receivable and Contract Balances (Details) - USD ($) $ in Thousands	9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Significant movements in contract assets
Beginning balance	$ 18,538	$ 15,998
Revenues recognized during the period but not yet billed	67,594	92,564
Amounts billed	(68,314)	(95,457)
Other	(20)	(507)
Ending balance	17,798	12,598
Significant movements in deferred revenue balances
Beginning balance	6,421	7,908
Amounts billed but not yet recognized as revenues	5,342	5,310
Revenues recognized related to the opening balance of deferred revenue	(5,017)	(6,761)
Other	(154)	(337)
Ending balance	$ 6,592	$ 6,120

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Goodwill and Intangible Assets - Intangible assets (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Dec. 31, 2019	Mar. 31, 2019
Intangible Assets
Weighted Average Useful Life	12 years 1 month 6 days	12 years 10 months 24 days
Gross Carrying Amount	$ 143,900	$ 126,920
Accumulated Amortization	44,381	34,480
Net Carrying Amount	$ 99,519	$ 92,440
Customer Relationships
Intangible Assets
Weighted Average Useful Life	12 years 3 months 18 days	13 years
Gross Carrying Amount	$ 141,267	$ 125,520
Accumulated Amortization	42,979	33,679
Net Carrying Amount	$ 98,288	$ 91,841
Trademarks
Intangible Assets
Weighted Average Useful Life	2 years	2 years
Gross Carrying Amount	$ 900	$ 900
Accumulated Amortization	804	431
Net Carrying Amount	$ 96	$ 469
Technology
Intangible Assets
Weighted Average Useful Life	5 years	5 years
Gross Carrying Amount	$ 500	$ 500
Accumulated Amortization	467	370
Net Carrying Amount	$ 33	$ 130
Other
Intangible Assets
Weighted Average Useful Life	5 years
Gross Carrying Amount	$ 1,233
Accumulated Amortization	131
Net Carrying Amount	$ 1,102

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Commitments and Contingencies and Guarantees (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Commitments and Contingencies.
Estimated amount of liability	$ 7,500

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Leases - Lease terms and discount rates (Details)	Dec. 31, 2019 agreement
Leases
Weighted average remaining lease term (Years) - Operating leases	5 years 6 months 21 days
Weighted average discount rate - Operating) - Operating leases	7.49%
Number of lease agreements that contained restrictive covenants or material residual guarantees	0

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Derivative Financial Instruments - Effect of foreign currency exchange and interest rate swap contracts (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Designated As Hedging Instrument | Cash flow hedges. | Revenue
Derivative Financial Instruments
Amount of Gain or (Loss) Reclassified from AOCI into Income (loss)		$ (510)	$ (18)	$ (1,673)
Designated As Hedging Instrument | Cash flow hedges. | Costs of revenue
Derivative Financial Instruments
Amount of Gain or (Loss) Reclassified from AOCI into Income (loss)	$ 827	(846)	2,351	(1,187)
Designated As Hedging Instrument | Cash flow hedges. | Operating Expense
Derivative Financial Instruments
Amount of Gain or (Loss) Reclassified from AOCI into Income (loss)	337	(405)	1,020	(578)
Designated As Hedging Instrument | Cash flow hedges. | Interest expenses
Derivative Financial Instruments
Amount of Gain or (Loss) Reclassified from AOCI into Income (loss)	(100)	288	209	731
Designated As Hedging Instrument | Cash flow hedges. | Foreign Exchange Contract
Derivative Financial Instruments
Amount of Gain or (Loss) Recognized in AOCI on Derivatives	(3,158)	9,398	148	(2,203)
Designated As Hedging Instrument | Cash flow hedges. | Interest rate swaps
Derivative Financial Instruments
Amount of Gain or (Loss) Recognized in AOCI on Derivatives	782	(2,776)	(3,054)	(2,310)
Nondesignated | Foreign Exchange Contract | Revenue
Derivative Financial Instruments
Amount of Gain or (Loss) Recognized in Income (loss) on Derivatives	(1,449)	1,131	(205)	2,237
Nondesignated | Foreign Exchange Contract | Costs of revenue
Derivative Financial Instruments
Amount of Gain or (Loss) Recognized in Income (loss) on Derivatives	1,105	(784)	380	(1,537)
Nondesignated | Foreign Exchange Contract | Selling General And Administrative Expenses
Derivative Financial Instruments
Amount of Gain or (Loss) Recognized in Income (loss) on Derivatives	$ 114	$ (75)	$ 29	$ (93)

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Investment Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Mar. 31, 2019
Total available-for-sale debt securities and equity securities
Amortized Cost	$ 19,910		$ 19,910		$ 33,240
Gross Unrealized Gains	158		158		222
Gross Unrealized Losses					(2)
Fair Value	20,068		20,068		33,460
Proceeds from sales or maturities of available-for-sale investment and equity securities
Proceeds from sales or maturities of available-for-sale investment securities and equity securities	9,476	$ 27,633	47,716	$ 88,204
Gross gains	123	253	563	639
Gross losses				(32)
Net realized gains on sales of available-for-sale investment securities and equity securities	123	$ 253	563	$ 607
Corporate Debt Securities | Current
Available-for-sale debt securities
Amortized Cost					2,779
Gross Unrealized Gains					1
Gross Unrealized Losses					(2)
Fair Value					2,778
Preference shares | Noncurrent
Available-for-sale debt securities
Amortized Cost					188
Fair Value					188
Agency And Short Term Notes | Current
Available-for-sale debt securities
Amortized Cost					1,492
Gross Unrealized Gains					1
Fair Value					1,493
Time Deposits | Current
Available-for-sale debt securities
Amortized Cost	6,849		6,849		15,861
Fair Value	6,849		6,849		15,861
Mutual funds | Current
Equity securities
Amortized Cost	13,060		13,060		12,912
Gross Unrealized Gains	149		149		94
Fair Value	13,209		13,209		13,006
Equity Shares/ Options | Noncurrent
Equity securities
Amortized Cost	1		1		8
Gross Unrealized Gains	9		9		126
Fair Value	$ 10		$ 10		$ 134

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Concentration of Revenue and Assets - Geographic concentration (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Mar. 31, 2019
Concentration of Revenue and Assets
Revenue	$ 335,107	$ 314,681	$ 982,632	$ 920,232
Long-lived assets, net	483,806		483,806		$ 491,848
United States of America
Concentration of Revenue and Assets
Revenue	237,754	213,542	685,023	623,224
Long-lived assets, net	224,670		224,670		216,279
United Kingdom
Concentration of Revenue and Assets
Revenue	42,902	52,248	137,795	154,813
India
Concentration of Revenue and Assets
Long-lived assets, net	240,000		240,000		251,722
Rest Of World
Concentration of Revenue and Assets
Revenue	54,451	$ 48,891	159,814	$ 142,195
Long-lived assets, net	$ 19,136		$ 19,136		$ 23,847

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Debt - Long-term debt, less current portion (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Less:
Total	$ 375,164	$ 351,320
JPM
Less:
Current maturities	(15,898)	(12,500)
Deferred financing costs, long-term	(2,797)	(3,180)
Total	375,164	351,320
Delayed-draw term loan | JPM
Long-term debt, less current portion
Term loan and borrowings under revolving credit facility	228,359	237,500
Revolving credit facility | JPM
Long-term debt, less current portion
Term loan and borrowings under revolving credit facility	$ 165,500	$ 129,500

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Concentration of Revenue and Assets

9 Months Ended

Dec. 31, 2019

Concentration of Revenue and Assets

Concentration of Revenue and Assets

(12) Concentration of Revenue and Assets

Total revenue is attributed to geographic areas based on the 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				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Customer revenue:
United States of America	$	237,754	$	213,542	$	685,023	$	623,224
United Kingdom		42,902		52,248		137,795		154,813
Rest of World		54,451		48,891		159,814		142,195
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	December 31,		March 31,
	2019		2019
Long-lived assets, net of accumulated depreciation and amortization:
United States of America	$	224,670	$	216,279
India		240,000		251,722
Rest of World		19,136		23,847
Consolidated long-lived assets, net	$	483,806	$	491,848

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

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Customer A	16.4	%	18.0	%	15.9	%	17.7	%

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Treasury Stock

9 Months Ended

Dec. 31, 2019

Treasury Stock.

Treasury Stock

(16) Treasury Stock

On August 5, 2019, the Company's board of directors authorized a share repurchase program of up to $30,000 of the Company's common stock over 12 months from the approval date, subject to certain price and other trading restrictions as established by the Company. During the nine months ended December 31, 2019, the Company repurchased 505,565 shares of the Company’s common stock at a weighted average price of $36.93 per share for an aggregate purchase price of $18,680.

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Consolidated Balance Sheets
Accounts receivable, allowance (in dollars)	$ 1,637	$ 2,253
Series A convertible preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Series A convertible preferred stock, shares authorized	108,000	108,000
Series A convertible preferred stock, shares issued	108,000	108,000
Series A convertible preferred stock, shares outstanding	108,000	108,000
Series A convertible preferred stock, redemption amount	$ 108,000	$ 108,000
Series A convertible preferred stock, liquidation preference	$ 108,000	$ 108,000
Undesignated preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Undesignated preferred stock, shares authorized	5,000,000	5,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	120,000,000	120,000,000
Common stock, shares issued	33,246,073	33,012,775
Common stock, shares outstanding	29,860,509	30,132,776
Treasury stock, common shares	3,385,564	2,879,999

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Investment Securities (Tables)

9 Months Ended

Dec. 31, 2019

Investment Securities.

Summary of investment securities

The following is a summary of investment securities at December 31, 2019:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Available-for-sale debt securities:
Time Deposits:
Current	$	6,849	$	—		—	$	6,849
Equity securities:
Mutual funds:
Current		13,060		149		—		13,209
Equity Shares/ Options:
Non-current		1		9		—		10
Total available-for-sale debt securities and equity securities	$	19,910	$	158	$	—	$	20,068

The following is a summary of investment securities at March 31, 2019:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Available-for-sale debt securities:
Corporate bonds:
Current	$	2,779	$	1	$	(2)	$	2,778
Non-current		—		—		—		—
Preference shares:		188		—		—		188
Agency and short-term notes:
Current		1,492		1		—		1,493
Time deposits:
Current		15,861		—		—		15,861
Equity securities:
Mutual funds:
Current		12,912		94		—		13,006
Equity Shares/ Options:
Non-current		8		126		—		134
Total available-for-sale debt and equity securities	$	33,240	$	222	$	(2)	$	33,460

Schedule of proceeds from sales of available-for-sale debt and equity securities and the gross gains and losses included in earnings as a result

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Proceeds from sales or maturities of available-for-sale debt securities and equity securities	$	9,476	$	27,633	$	47,716	$	88,204
Gross gains	$	123	$	253	$	563	$	639
Gross losses		—		—		—		(32)
Net realized gains on sales of available-for-sale debt securities and equity securities	$	123	$	253	$	563	$	607

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Cash flows from operating activities:
Net income	$ 26,106	$ 9,192
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	23,672	21,696
Share-based compensation expense	18,285	24,104
Provision (recovery) for doubtful accounts	26	(549)
Gain on disposal of property and equipment	(403)	(115)
Impairment of investment	184	885
Foreign currency transaction losses, net	5,300	11,794
Amortization of discounts and premiums on investments	(6)	84
Amortization of debt issuance cost	863	819
Deferred income taxes, net	(970)	(6,225)
Net changes in operating assets and liabilities
Accounts receivable and unbilled receivable	19,129	4,780
Prepaid expenses and other current assets	(1,258)	(7,729)
Other long-term assets	(11,239)	(11,702)
Accounts payable	(12,730)	12,014
Accrued employee compensation and benefits	1,011	(9,041)
Accrued expenses and other current liabilities	5,495	13,135
Operating lease liabilities	172
Income taxes payable	2,537	2,975
Other long-term liabilities	(1,720)	3,705
Net cash provided by operating activities	74,454	69,822
Cash flows from investing activities:
Proceeds from sale of property and equipment	825	568
Purchase of short-term investments	(34,969)	(84,185)
Proceeds from sale or maturity of short-term investments	47,716	88,204
Payments for asset acquisitions	(9,192)
Payment of contigent consideration of asset acquisition	(942)
Business acquisition, net of cash acquired		(1,919)
Payment of deferred consideration related to business acquisition	(17,500)
Purchase of property and equipment	(10,865)	(24,715)
Net cash used in investing activities	(24,927)	(22,047)
Cash flows from financing activities:
Payment of debt issuance costs	(808)
Proceeds from revolving credit facility	36,000	32,000
Payment of debt	(9,141)	(9,375)
Repurchase of common stock	(18,680)
Payment of other noncontrolling interest		(373)
Payments of withholding taxes related to net share settlements of restricted stock	(3,783)	(7,828)
Purchase of redeemable noncontrolling interest related to Polaris	(8,675)	(30,387)
Payment of noncontrolling interest	(12,534)
Principal payments on capital lease obligation	(36)	(65)
Payment of contingent consideration related to acquisitions		(100)
Payment of dividend on Series A Convertible Preferred Stock	(3,138)	(3,138)
Net cash used in financing activities	(20,275)	(18,307)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(131)	(13,530)
Net increase in cash and cash equivalents and restricted cash	29,121	15,938
Cash, cash equivalents and restricted cash, beginning of year	190,113	195,236
Cash, cash equivalents and restricted cash, end of period	219,234	211,174
Parent
Cash flows from financing activities:
Proceeds from exercise of common stock options	427	428
Subsidiaries
Cash flows from financing activities:
Proceeds from exercise of common stock options	$ 93	$ 531

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Derivative Financial Instruments - Derivatives designated as hedging instruments (Details) - Designated As Hedging Instrument - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Foreign Exchange Contract
Foreign currency exchange and interest rate swap contracts
Other current assets	$ 2,058	$ 3,264
Other long-term assets	94	147
Accrued expenses and other	2,006	318
Long-term liabilities	258	3
Interest rate swaps
Foreign currency exchange and interest rate swap contracts
Other long-term assets	288	1,349
Long-term liabilities	$ 5,836	$ 3,633

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Earnings per Share - Anti-dilutive securities (Details) - shares	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Anti-dilutive securities
Dilutive effect of Series A Convertible Preferred Stock if converted	3,000,000	3,000,000
Employee stock options and unvested restricted stock awards and restricted stock units
Anti-dilutive securities
Shares excluded from computation of earnings (loss) per share	24,037	20,617	100,434	13,745
Series A Convertible Preferred Stock
Anti-dilutive securities
Shares excluded from computation of earnings (loss) per share			3,000,000	3,000,000

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Leases - Supplemental cash flow information (Details) $ in Thousands	9 Months Ended
	Dec. 31, 2019 USD ($)
Leases
Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases	$ 11,217
Right-of-use assets obtained in exchange for lease obligations - Operating leases	$ 5,714

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Concentration of Revenue and Assets - Revenue percentage (Details)	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Customer Concentration Risk | Sales Revenue Net | Customer One
Concentration of Revenue and Assets
Revenue from significant clients as a percentage of consolidated revenue	16.40%	18.00%	15.90%	17.70%

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Debt - Sale of accounts receivable (Details) - U.K. Subsidiary $ in Thousands	9 Months Ended
	Dec. 31, 2019 USD ($)
Debt
Receivables sold under the terms of the financing agreement	$ 21,311
Amounts due related to a financing agreement to sell certain accounts receivable balances	$ 0

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Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Current assets:
Cash and cash equivalents	$ 217,387	$ 189,676
Short-term investments	20,058	33,138
Accounts receivable, net of allowance of $1,637 and $2,253 at December 31, 2019 and March 31, 2019, respectively	149,800	162,396
Unbilled accounts receivable	106,716	113,431
Prepaid expenses	43,845	42,314
Restricted cash	1,735	351
Asset held for sale	8,749	8,978
Other current assets	32,308	29,967
Total current assets	580,598	580,251
Property and equipment, net	108,198	119,865
Operating lease right-of-use assets	50,894
Investments accounted for using equity method	1,429	1,446
Long-term investments	10	322
Deferred income taxes	31,136	28,770
Goodwill	276,089	279,543
Intangible assets, net	99,519	92,440
Other long-term assets	38,085	29,836
Total assets	1,185,958	1,132,473
Current liabilities:
Accounts payable	30,548	46,471
Accrued employee compensation and benefits	78,524	74,801
Deferred revenue	6,592	6,421
Accrued expenses and other	65,675	70,050
Current portion of long-term debt	14,597	11,407
Operating lease liabilities	11,385
Income taxes payable	6,729	4,844
Total current liabilities	214,050	213,994
Deferred income taxes	14,873	15,824
Operating lease liabilities, noncurrent	44,009
Long-term debt, less current portion	375,164	351,320
Long-term liabilities	27,281	29,824
Total liabilities	675,377	610,962
Commitments and contingencies
Series A Convertible Preferred Stock: par value $0.01 per share, 108,000 shares authorized, 108,000 shares issued and outstanding at December 31, 2019 and March 31, 2019; redemption amount and liquidation preference of $108,000 at December 31, 2019 and March 31, 2019	107,285	107,161
Redeemable noncontrolling interest		23,576
Stockholders' equity:
Undesignated preferred stock, $0.01 par value; Authorized 5,000,000 shares at December 31, 2019 and March 31, 2019
Common stock, $0.01 par value; Authorized 120,000,000 shares at December 31, 2019 and March 31, 2019; issued 33,246,073 and 33,012,775 shares at December 31, 2019 and March 31, 2019, respectively; outstanding 29,860,509 and 30,132,776 shares at December 31, 2019 and March 31, 2019, respectively	332	330
Treasury stock, 3,385,564 and 2,879,999 common shares, at cost, at December 31, 2019 and March 31, 2019, respectively	(58,332)	(39,652)
Additional paid-in capital	256,152	239,204
Retained earnings	272,673	250,279
Accumulated other comprehensive loss	(67,529)	(59,387)
Total Virtusa stockholders' equity	403,296	390,774
Noncontrolling interest in subsidiaries
Total Stockholders' equity	403,296	390,774
Total liabilities, Series A convertible preferred stock, redeemable noncontrolling interest and stockholders' equity	$ 1,185,958	$ 1,132,473

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Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total Virtusa Stockholders' Equity	Common Stock	Treasury Stock	Additional Paid In Capital	Retained Earnings	Accumulated Other Comprehensive Income	Non-controlling interest	Redeemable Noncontrolling Interest	Total
Balance at Mar. 31, 2018	$ 418,623	$ 325	$ (39,652)	$ 260,612	$ 238,019	$ (40,681)	$ 17,460		$ 436,083
Balance (in shares) at Mar. 31, 2018		32,469,092	(2,879,999)
Increase (Decrease) in Stockholders' Equity
Proceeds from the exercise of stock options	294			294					294
Proceeds from the exercise of stock options (in shares)		33,173
Proceeds from the exercise of subsidiary stock options	196			196					196
Restricted stock awards vested		$ 1		(1)
Restricted stock awards vested (in shares)		95,432
Restricted stock awards withheld for tax	(2,450)			(2,450)					(2,450)
Share-based compensation	7,908			7,908					7,908
Subsidiary share-based compensation	30			30					30
Cumulative effect of adopting ASC Topic 606, net of tax	464				464				464
Series A Convertible Preferred Stock dividends and accretion	(1,087)				(1,087)				(1,087)
Other comprehensive income (loss)	(13,060)
Other comprehensive income (loss)						(13,060)	(1,466)		(14,526)
Net income (loss)	(6,296)				(6,296)
Net income							731
Net income (loss)									(5,565)
Balance at Jun. 30, 2018	404,622	$ 326	$ (39,652)	266,589	231,100	(53,741)	16,725		421,347
Balance (in shares) at Jun. 30, 2018		32,597,697	(2,879,999)
Balance at Mar. 31, 2018	418,623	$ 325	$ (39,652)	260,612	238,019	(40,681)	17,460		436,083
Balance (in shares) at Mar. 31, 2018		32,469,092	(2,879,999)
Increase (Decrease) in Stockholders' Equity
Purchase of redeemable noncontrolling interest related to Polaris									30,387
Net income (loss)									7,785
Net income									(1,407)
Balance at Dec. 31, 2018	380,814	$ 328	$ (39,652)	237,887	243,006	(60,755)		$ 24,924	380,814
Balance (in shares) at Dec. 31, 2018		32,781,374	(2,879,999)
Balance at Jun. 30, 2018	404,622	$ 326	$ (39,652)	266,589	231,100	(53,741)	16,725		421,347
Balance (in shares) at Jun. 30, 2018		32,597,697	(2,879,999)
Increase (Decrease) in Stockholders' Equity
Proceeds from the exercise of stock options	134			134					134
Proceeds from the exercise of stock options (in shares)		9,918
Proceeds from the exercise of subsidiary stock options	64			64				3	64
Restricted stock awards vested		$ 2		(2)
Restricted stock awards vested (in shares)		162,090
Restricted stock awards withheld for tax	(5,152)			(5,152)					(5,152)
Share-based compensation	8,022			8,022					8,022
Reclassification of previously recognized stock compensation related to liabilities classified awards for Polaris to liabilities	(617)			(617)					(617)
Adjustments of redeemable noncontrolling interest to redemption value	(37,842)			(37,842)			(16,450)	54,850	(54,292)
Purchase of redeemable noncontrolling interest related to Polaris								(28,395)
Foreign currency translation on redeemable noncontrolling interest								(2,045)
Series A Convertible Preferred Stock dividends and accretion	(1,088)				(1,088)				(1,088)
Other comprehensive income (loss)	(10,492)					(10,492)			(10,492)
Other comprehensive income (loss)								(255)
Net income (loss)	1,505				1,505				1,505
Net income								456
Balance at Sep. 30, 2018	359,156	$ 328	$ (39,652)	231,196	231,517	(64,233)	275	24,614	359,431
Balance (in shares) at Sep. 30, 2018		32,769,705	(2,879,999)
Increase (Decrease) in Stockholders' Equity
Proceeds from the exercise of subsidiary stock options								50
Restricted stock awards vested (in shares)		11,669
Restricted stock awards withheld for tax	(226)			(226)					(226)
Share-based compensation	6,993			6,993					6,993
Subsidiary share-based compensation	6			6					6
Other	(115)			(115)			(290)		(405)
Adjustments of redeemable noncontrolling interest to redemption value	33			33				603	33
Purchase of redeemable noncontrolling interest related to Polaris								(1,992)
Foreign currency translation on noncontrolling interest								995
Series A Convertible Preferred Stock dividends and accretion	(1,087)				(1,087)				(1,087)
Other comprehensive income (loss)	3,478					3,478		448	3,478
Net income (loss)	12,576				12,576				12,576
Net income							15	206	(221)
Net income (loss)									12,591
Balance at Dec. 31, 2018	380,814	$ 328	$ (39,652)	237,887	243,006	(60,755)		24,924	380,814
Balance (in shares) at Dec. 31, 2018		32,781,374	(2,879,999)
Balance at Mar. 31, 2019	390,774	$ 330	$ (39,652)	239,204	250,279	(59,387)		23,576	$ 390,774
Balance (in shares) at Mar. 31, 2019		33,012,775	(2,879,999)						30,132,776
Increase (Decrease) in Stockholders' Equity
Proceeds from the exercise of stock options	194			194				8	$ 194
Proceeds from the exercise of stock options (in shares)		13,416
Restricted stock awards vested		$ 1		(1)
Restricted stock awards vested (in shares)		96,763
Restricted stock awards withheld for tax	(2,011)			(2,011)					(2,011)
Share-based compensation	6,674			6,674					6,674
Adjustments of redeemable noncontrolling interest to redemption value	18			18				170	18
Purchase of redeemable noncontrolling interest related to Polaris								(5,549)
Foreign currency translation on redeemable noncontrolling interest								116
Series A Convertible Preferred Stock dividends and accretion	(1,087)				(1,087)				(1,087)
Other comprehensive income (loss)	(1,194)					(1,194)		144	(1,194)
Net income (loss)	5,834				5,834				5,834
Net income								186
Balance at Jun. 30, 2019	399,202	$ 331	$ (39,652)	244,078	255,026	(60,581)		18,651	399,202
Balance (in shares) at Jun. 30, 2019		33,122,954	(2,879,999)
Balance at Mar. 31, 2019	390,774	$ 330	$ (39,652)	239,204	250,279	(59,387)		23,576	$ 390,774
Balance (in shares) at Mar. 31, 2019		33,012,775	(2,879,999)						30,132,776
Balance at Sep. 30, 2019	382,269	$ 332	$ (58,332)	248,284	261,040	(69,055)	15,128		$ 397,397
Balance (in shares) at Sep. 30, 2019		33,224,132	(3,385,564)
Balance at Mar. 31, 2019	390,774	$ 330	$ (39,652)	239,204	250,279	(59,387)		23,576	$ 390,774
Balance (in shares) at Mar. 31, 2019		33,012,775	(2,879,999)						30,132,776
Increase (Decrease) in Stockholders' Equity
Repurchase of common stock (in shares)									(505,565)
Purchase of redeemable noncontrolling interest related to Polaris									$ 8,675
Net income (loss)									25,656
Net income									(450)
Balance at Dec. 31, 2019	403,296	$ 332	$ (58,332)	256,152	272,673	(67,529)			$ 403,296
Balance (in shares) at Dec. 31, 2019		33,246,073	(3,385,564)						29,860,509
Balance at Jun. 30, 2019	399,202	$ 331	$ (39,652)	244,078	255,026	(60,581)		18,651	$ 399,202
Balance (in shares) at Jun. 30, 2019		33,122,954	(2,879,999)
Increase (Decrease) in Stockholders' Equity
Restricted stock awards vested		$ 1		(1)
Restricted stock awards vested (in shares)		101,178
Restricted stock awards withheld for tax	(1,647)			(1,647)					(1,647)
Share-based compensation	5,829			5,829					5,829
Repurchase of common stock	(18,680)		$ (18,680)						(18,680)
Repurchase of common stock (in shares)			(505,565)
Adjustments of redeemable noncontrolling interest to redemption value	25			25				101	25
Purchase of redeemable noncontrolling interest related to Polaris								(3,126)
Foreign currency translation on redeemable noncontrolling interest								(533)
Reclassification of noncontrolling interest from temporary equity to permanent equity							15,093	$ (15,093)	15,093
Series A Convertible Preferred Stock dividends and accretion	(1,088)				(1,088)				(1,088)
Other comprehensive income (loss)	(8,474)					(8,474)	(111)		(8,585)
Net income (loss)	7,102				7,102
Net income							146
Net income (loss)									7,248
Balance at Sep. 30, 2019	382,269	$ 332	$ (58,332)	248,284	261,040	(69,055)	15,128		397,397
Balance (in shares) at Sep. 30, 2019		33,224,132	(3,385,564)
Increase (Decrease) in Stockholders' Equity
Proceeds from the exercise of stock options	233			233					233
Proceeds from the exercise of stock options (in shares)		15,914
Restricted stock awards vested (in shares)		6,027
Restricted stock awards withheld for tax	(126)			(126)					(126)
Share-based compensation	5,750			5,750					5,750
Reclassification of noncontrolling interest from permanet equity to liability.							(13,564)		(13,564)
Adjustments for reclassification of noncontrolling interest	2,011			2,011			(2,048)		(37)
Series A Convertible Preferred Stock dividends and accretion	(1,087)				(1,087)				(1,087)
Other comprehensive income (loss)	1,526					1,526	366		1,892
Net income (loss)	12,720				12,720				12,720
Net income							$ 118		(118)
Net income (loss)									12,838
Balance at Dec. 31, 2019	$ 403,296	$ 332	$ (58,332)	$ 256,152	$ 272,673	$ (67,529)			$ 403,296
Balance (in shares) at Dec. 31, 2019		33,246,073	(3,385,564)						29,860,509

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Dec. 31, 2019

Fair Value of Financial Instruments

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

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sale debt securities—current	$	—	$	6,849	$	—	$	6,849
Equity securities—current		—		13,209		—		13,209
Available-for-sale debt securities—non-current		—		—		—		—
Equity securities—non-current		—		10		—		10
Derivative financial instruments:
Foreign currency derivative contracts		—		2,152		—		2,152
Interest rate swap contracts		—		288		—		288
Total assets	$	—	$	22,508	$	—	$	22,508
Liabilities:
Foreign currency derivative contracts		—		2,264		—		2,264
Interest rate swap contracts		—		5,836		—		5,836
Total liabilities	$	—	$	8,100	$	—	$	8,100

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2019:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sale debt securities—current	$	—	$	20,132		—	$	20,132
Equity securities—current		—		13,006		—		13,006
Available-for-sale debt securities—non-current		—		188		—		188
Equity securities—non-current		—		134		—		134
Derivative financial instruments:
Foreign currency derivative contracts		—		3,411		—		3,411
Interest rate swap contracts		—		1,349		—		1,349
Total assets	$	—	$	38,220	$	—	$	38,220
Liabilities:
Foreign currency derivative contracts	$	—		321	$	—		321
Interest rate swap contracts		—		3,633		—		3,633
Total liabilities	$	—	$	3,954	$	—	$	3,954

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Debt

9 Months Ended

Dec. 31, 2019

Debt

Debt

(13) Debt

On February 6, 2018, the Company entered into a credit agreement (the “Credit Agreement”) dated as of February 6, 2018, by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Credit Agreement replaced the prior $300,000 credit agreement with J.P. Morgan Securities and Merrill Lynch, Pierce, Fenner & Smith Incorporated and provides for a $200,000 revolving credit facility and a $180,000 term loan and a $70,000 delayed-draw term loan. The Company drew down $180,000 under the term loan of the Credit Agreement and $55,000 under the revolving credit facility under the Credit Agreement to repay in full the amount outstanding under the prior credit agreement and fund the Polaris delisting transaction (See Note 14 for additional information). On March 12, 2018, the Company drew down the $70,000 delayed draw to fund the eTouch Systems Corp. acquisition.

On October 15, 2019, the Company entered into Amendment No. 2 to Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and the lenders party thereto (the “Credit Agreement Amendment”), which amends the Company’s Amended and Restated Credit Agreement, dated as of February 6, 2018, with such parties (the “Credit Agreement”) to, among other things, increase the revolving commitments available to the Company under the Credit Agreement from $200,000 to $275,000,  reduce the interest rate margins applicable to term loans and revolving loans outstanding under the Credit Agreement from time to time and reduce the commitment fee payable by the Company to the lenders in respect of unused revolving commitments under the Credit Agreement. The Company executed the Credit Agreement Amendment to provide additional lending capacity which the Company could use to fund the completion of the Polaris delisting transaction, as well as to provide excess lending capacity in the event of future opportunistic, strategic, investment opportunities. The Credit Agreement Amendment contains customary terms for amendments of this type, including representations, warranties and covenants. Interest under this new credit facility accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to EBITDA. For the fiscal year ending March 31, 2020, the Company is required to make principal payments of $2,891 per quarter. The term of the Credit Agreement is five years ending February 6, 2023. During the nine months ended December 31, 2019, the Company drew down $36,000 from the credit facility to fund the eTouch 18-month anniversary payment of $17,500 and to fund opportunistic, strategic, investment opportunities. At December 31, 2019, the interest rate on the term loan and line of credit was 3.99%.

At December 31, 2019, the Company was in compliance with its debt covenants and has provided a quarterly certification to its lenders to that effect. The Company believes that it currently meets all conditions set forth in the Credit Agreement to borrow thereunder and it is not aware of any conditions that would prevent it from borrowing part or all of the remaining available capacity under the existing revolving credit facility at December 31, 2019 and through the date of this filing.

Current portion of long-term debt

The following summarizes our short-term debt balances as of:

	December 31, 2019		March 31, 2019
Term loan- current maturities		15,898		12,500
Less: deferred financing costs, current		(1,301)		(1,093)
Total	$	14,597	$	11,407

Long-term debt, less current portion

The following summarizes our long-term debt balance as of:

	December 31, 2019		March 31, 2019
Term loan	$	228,359	$	237,500
Borrowings under revolving credit facility		165,500		129,500
Less:
Current maturities		(15,898)		(12,500)
Deferred financing costs, long-term		(2,797)		(3,180)
Total	$	375,164	$	351,320

In July 2016 and November 2018, the Company entered into interest rate swap transactions to mitigate Company’s interest rate risk on Company’s variable rate debt (See Note 6).

Beginning in fiscal 2009, the Company’s U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse or continuing involvement, certain of its European-based accounts receivable balances from one client to such third party financial institution. During the nine months ended December 31, 2019, $21,311 of receivables were sold under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the nine months ended December 31, 2019. No amounts were due as of December 31, 2019, 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 utilized in the future.

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Commitments and Contingencies

9 Months Ended

Dec. 31, 2019

Commitments and Contingencies.

Commitments and Contingencies

(17) Commitments and Contingencies

From time to time the Company is involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. Although the Company cannot predict the outcome of such matters, the Company has no reason to believe the disposition of any current matter, other than the specific matters described below, could reasonably be expected to have a material adverse impact on the Company’s balance sheets, income of operations and cash flows or the ability to carry on any of its business activities. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.

Recently, one of the Company’s larger clients made a demand for damages related to a project in which the Company was performing services.  The client alleges breaches of certain representations and warranties regarding the Company’s performance and is seeking indemnification for damages from those alleged breaches.  No litigation has been filed.  The Company believes that it has defenses against the claims described in the demand, and intends to zealously defend against those claims.  However, the Company cannot provide any assurance that the Company will prevail in the dispute or even partially prevail.  Further, if the Company is unsuccessful in any settlement discussions, the Company also cannot provide any assurance that the client will not use set off rights in the contract, even if the Company disputes the claims or amount of damages alleged.  In the event the Company does not fully prevail in this dispute, the Company may have to pay damages in amounts for which it may not have reserved or which may or may not be covered by the Company’s insurance policies; further, even if the damages are covered, depending on the outcome, the Company’s insurance may not cover or be adequate to pay the entire claim.  In addition, the Company cannot guarantee that the Company will not lose future business with such client as a result of such dispute.

On February 28, 2019, the Supreme Court of India issued a ruling interpreting certain statutory defined contribution obligations of employees and employers, which altered historical understandings of such obligations, extending them to cover additional portions of employee income. As a result, contributions by our employees and the Company will increase in future periods. There is uncertainty as to whether the Indian government will apply the Supreme Court's ruling on a retroactive basis and if so, how this liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. As such, the ultimate amount of our obligation is difficult to quantify. If the Indian government were to apply the Supreme Court ruling retroactively, without assessing interest and penalties, the impact would be a charge of approximately $7,500 to the Company’s income from operations and cash flows.

The Company is currently involved in an open examination by tax authorities in the United States related to the employment tax treatment of certain payments made to employees in the ordinary course of business. The Company cannot predict the outcome of the dispute, but it is in the process of evaluating the merits of a recent notice of proposed wage adjustment and is preparing a timely and appropriate response.  At this time, it is premature to predict whether resolution of the dispute could reasonably be expected to have a material adverse impact on the Company’s income from operations and cash flows.

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Fair Value of Financial Instruments

9 Months Ended

Dec. 31, 2019

Fair Value of Financial Instruments

Fair Value of Financial Instruments

(5) Fair Value of Financial Instruments

The Company carries certain assets and liabilities at fair value on a recurring basis on its consolidated balance sheets. The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2019:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sale debt securities—current	$	—	$	6,849	$	—	$	6,849
Equity securities—current		—		13,209		—		13,209
Available-for-sale debt securities—non-current		—		—		—		—
Equity securities—non-current		—		10		—		10
Derivative financial instruments:
Foreign currency derivative contracts		—		2,152		—		2,152
Interest rate swap contracts		—		288		—		288
Total assets	$	—	$	22,508	$	—	$	22,508
Liabilities:
Foreign currency derivative contracts		—		2,264		—		2,264
Interest rate swap contracts		—		5,836		—		5,836
Total liabilities	$	—	$	8,100	$	—	$	8,100

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2019:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sale debt securities—current	$	—	$	20,132		—	$	20,132
Equity securities—current		—		13,006		—		13,006
Available-for-sale debt securities—non-current		—		188		—		188
Equity securities—non-current		—		134		—		134
Derivative financial instruments:
Foreign currency derivative contracts		—		3,411		—		3,411
Interest rate swap contracts		—		1,349		—		1,349
Total assets	$	—	$	38,220	$	—	$	38,220
Liabilities:
Foreign currency derivative contracts	$	—		321	$	—		321
Interest rate swap contracts		—		3,633		—		3,633
Total liabilities	$	—	$	3,954	$	—	$	3,954

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Series A Convertible Preferred Stock

9 Months Ended

Dec. 31, 2019

Series A Convertible Preferred Stock.

Series A Convertible Preferred Stock

(9) Series A Convertible Preferred Stock

On May 3, 2017, the Company entered into an investment agreement with The Orogen Group (‘‘Orogen’’) pursuant to which Orogen purchased 108,000 shares of the Company’s newly issued Series A Convertible Preferred Stock, initially convertible into 3,000,000 shares of common stock, for an aggregate purchase price of $108,000 with an initial conversion price of $36.00 (the ‘‘Orogen Preferred Stock Financing’’). Under the terms of the investment, the Series A Convertible Preferred Stock has a 3.875% dividend per annum, payable quarterly in additional shares of common stock and/or cash at the Company’s option. If any shares of Series A Convertible Preferred Stock have not been converted into common stock prior to May 3, 2024, the Company will be required to repurchase such shares at a repurchase price equal to the liquidation preference of the repurchased shares plus the amount of accumulated and unpaid dividends thereon. If the Company fails to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of May 3, 2024 during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum.

In connection with the issuance of the Series A Convertible Preferred Stock, the Company incurred direct and incremental expenses of $1,154, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. These issuance costs are recorded as a reduction to the proceeds received from issuance of Series A Convertible Preferred Stock. These direct and incremental expenses reduced the Series A Convertible Preferred Stock, and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, May 3, 2024. During the three and nine months ended December 31, 2019 and 2018, the Company recorded accretions to the Series A Convertible Preferred Stock related to its issuance cost. Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 3.875% per annum, payable quarterly in arrears. During the nine months ended December 31, 2019 and 2018, the Company has paid $3,138 as cash dividend on Series A Convertible Preferred Stock. As of December 31, 2019 and 2018, the Company had declared and accrued dividends of $686 associated with the Series A Convertible Preferred Stock.

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Concentration of Revenue and Assets (Tables)

9 Months Ended

Dec. 31, 2019

Concentration of Revenue and Assets

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

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Customer revenue:
United States of America	$	237,754	$	213,542	$	685,023	$	623,224
United Kingdom		42,902		52,248		137,795		154,813
Rest of World		54,451		48,891		159,814		142,195
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

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

	December 31,		March 31,
	2019		2019
Long-lived assets, net of accumulated depreciation and amortization:
United States of America	$	224,670	$	216,279
India		240,000		251,722
Rest of World		19,136		23,847
Consolidated long-lived assets, net	$	483,806	$	491,848

Schedule of revenue from significant clients as a percentage of Company's consolidated revenue

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Customer A	16.4	%	18.0	%	15.9	%	17.7	%

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Derivative Financial Instruments (Tables)

9 Months Ended

Dec. 31, 2019

Derivative Financial Instruments

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

Derivatives designated as hedging instruments

	December 31, 2019		March 31, 2019
Foreign currency exchange contracts:
Other current assets	$	2,058	$	3,264
Other long-term assets	$	94	$	147
Accrued expenses and other	$	2,006	$	318
Long-term liabilities	$	258	$	3

	December 31, 2019		March 31, 2019
Interest rate swap contracts:
Other long-term assets	$	288	$	1,349
Long-term liabilities	$	5,836	$	3,633

Schedule of effect of the Company's foreign currency exchange and interest rate swap contracts on the consolidated financial statements

	Amount of Gain or (Loss) Recognized in AOCI on Derivatives
Derivatives Designated as	Three Months Ended December 31,				Nine Months Ended December 31,
Cash Flow Hedging Relationships	2019		2018		2019		2018
Foreign currency exchange contracts	$	(3,158)	$	9,398	$	148	$	(2,203)
Interest rate swaps	$	782	$	(2,776)	$	(3,054)	$	(2,310)

Location of Gain or (Loss) Reclassified	Amount of Gain or (Loss) Reclassified from AOCI into Income
from AOCI into Income (loss) (Effective	Three Months Ended December 31,				Nine Months Ended December 31,
Portion)	2019		2018		2019		2018
Revenue	$	—	$	(510)	$	(18)	$	(1,673)
Costs of revenue	$	827	$	(846)	$	2,351	$	(1,187)
Operating expenses	$	337	$	(405)	$	1,020	$	(578)
Interest Expenses	$	(100)	$	288	$	209	$	731

			Amount of Gain or (Loss) Recognized in Income
			(loss) on Derivatives
		Three Months Ended				Nine Months Ended
Derivatives not Designated	Location of Gain Or (Loss)	December 31,				December 31,
as Hedging Instruments	Recognized in Income (loss) on Derivatives	2019		2018		2019		2018
Foreign currency exchange contracts	Revenue	$	(1,449)	$	1,131	$	(205)	$	2,237
	Costs of revenue	$	1,105	$	(784)	$	380	$	(1,537)
	Selling, general and administrative expenses	$	114	$	(75)	$	29	$	(93)

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Earnings per Share - Basic earnings per share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				9 Months Ended
	Dec. 31, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2019	Dec. 31, 2018
Numerator:
Net income available to Virtusa stockholders	$ 12,720	$ 5,834	$ 12,576	$ 1,505	$ 25,656	$ 7,785
Less: Series A Convertible Preferred Stock dividends and accretion	(1,087)		(1,087)		(3,262)	(3,262)
Net income available to Virtusa common stockholders	$ 11,633		$ 11,489		$ 22,394	$ 4,523
Denominator:
Basic weighted average common shares outstanding (in shares)	29,849,368		29,893,220		30,041,740	29,764,507
Basic earnings per share available to Virtusa common stockholders (in dollars per share)	$ 0.39		$ 0.38		$ 0.75	$ 0.15

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Income Taxes - Tax Act (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Income Taxes
Effective tax rate (as a percent)	44.70%	44.80%	43.30%	63.30%
United States of America
Income Taxes
Deferred tax asset	$ 25,685		$ 25,685
United Kingdom
Income Taxes
Deferred tax asset	$ 2,183		$ 2,183

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Leases - Future minimum lease payments (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Accounted for in accordance with its historic accounting policies under ASC Topic 840
2020	$ 14,685
2021	13,895
2022	12,663
2023	9,879
2024	5,686
2025 and thereafter	16,761
Total lease payments	$ 73,569

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Revenues - Remaining performance obligation (Details) $ in Thousands	9 Months Ended
	Dec. 31, 2019 USD ($)
Remaining performance obligation
Aggregate amount of transaction price allocated to remaining performance obligations	$ 41,582
Upfront payments
Unamortized upfront payments for services	$ 34,420
Amortization period for upfront payments for services	5 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-12-31
Remaining performance obligation
Remaining performance obligation, expected period of recognition	5 years

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Treasury Stock (Details) - USD ($) $ / shares in Units, $ in Thousands		9 Months Ended
	Aug. 05, 2019	Dec. 31, 2019
Treasury Stock
Common stock repurchased (in shares)		505,565
Common stock at a weighted average price (in dollars per share)		$ 36.93
Aggregate purchase price		$ 18,680
Share repurchase program, August 5, 2019
Treasury Stock
Amount authorized	$ 30,000
Number of months from the approval date	12 months

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Income Taxes - Unrecognized tax benefits and other (Details) - USD ($) $ in Thousands	9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Mar. 31, 2019
Income Taxes
Total liability for unrecognized tax benefits	$ 6,905		$ 6,744
Increase (decrease) in unrecognized tax benefits	161	$ (531)
Cash, cash equivalents, short-term investments and long-term investments available for distribution if not indefinitely reinvested	$ 198,020

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Debt - Current portion of long-term debt (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Current portion of long-term debt
Total	$ 14,597	$ 11,407
JPM
Current portion of long-term debt
Term loan - current maturities	15,898	12,500
Less: deferred financing costs, current	(1,301)	(1,093)
Total	$ 14,597	$ 11,407

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Noncontrolling interest - Polaris and Virtusa India (Details) - USD ($) $ in Thousands	6 Months Ended	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2019	Dec. 31, 2018	Mar. 31, 2019
Noncontrolling interest
Aggregate purchase price of shares of delisted entity		$ 8,675	$ 30,387
Noncontrolling interest
Polaris
Noncontrolling interest
Number of shares held by noncontrolling interest shareholders of delisted entity	2,009,365
Polaris
Noncontrolling interest
Shares held by noncontrolling interest shareholders of delisted entity (as a percent)	1.95%
Virtusa India Private Limited | Polaris
Noncontrolling interest
Number of shares purchased from stockholders of delisted subsidiary	1,263,117
Shares purchased from stockholders of delisted subsidiary (as a percent)	1.20%
Aggregate purchase price of shares of delisted entity	$ 8,675

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Leases - Supplemental balance sheet information (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Leases
Operating lease right-of-use assets	$ 50,894
Operating lease asset location on balance sheet	us-gaap:OperatingLeaseRightOfUseAsset
Operating lease liabilities, current	$ 11,385
Operating lease liabilities current location on balance sheet	us-gaap:OperatingLeaseLiabilityCurrent
Operating lease liabilities, noncurrent	$ 44,009
Operating lease liabilities non current location on balance sheet	us-gaap:OperatingLeaseLiabilityNoncurrent
Total lease liabilities	$ 55,394
Minimum
Leases
Remaining lease terms, operating lease	1 year
Maximum
Leases
Remaining lease terms, operating lease	9 years

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Fair Value of Financial Instruments - Financial assets and liabilities measured at fair value on a recurring basis (Details) - Fair Value Measurements Recurring - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Investments:
Available-for-sales debt securities - current	$ 6,849	$ 20,132
Equity securities - current	13,209	13,006
Available-for-sales debt securities - non-current		188
Equity securities - non-current	10	134
Derivative financial instruments:
Foreign currency derivative contracts	2,152	3,411
Interest rate swap contracts	288	1,349
Total assets	22,508	38,220
Liabilities:
Foreign currency derivative contracts	2,264	321
Interest rate swap contracts	5,836	3,633
Total liabilities	8,100	3,954
Fair Value Inputs Level2
Investments:
Available-for-sales debt securities - current	6,849	20,132
Equity securities - current	13,209	13,006
Available-for-sales debt securities - non-current		188
Equity securities - non-current	10	134
Derivative financial instruments:
Foreign currency derivative contracts	2,152	3,411
Interest rate swap contracts	288	1,349
Total assets	22,508	38,220
Liabilities:
Foreign currency derivative contracts	2,264	321
Interest rate swap contracts	5,836	3,633
Total liabilities	$ 8,100	$ 3,954

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Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Consolidated Statements of Income
Revenue	$ 335,107	$ 314,681	$ 982,632	$ 920,232
Costs of revenue	236,427	221,461	709,746	654,288
Gross profit	98,680	93,220	272,886	265,944
Operating expenses:
Selling, general and administrative expenses	68,270	73,935	209,813	218,716
Income from operations	30,410	19,285	63,073	47,228
Other income (expense):
Interest income	520	634	1,744	1,988
Interest expense	(4,873)	(4,597)	(14,616)	(13,365)
Foreign currency transaction gains (losses), net	(3,065)	8,319	(5,300)	(11,794)
Other, net	209	(444)	1,137	998
Total other income (expense)	(7,209)	3,912	(17,035)	(22,173)
Income before income tax expense	23,201	23,197	46,038	25,055
Income tax expense	10,363	10,400	19,932	15,863
Net income	12,838	12,797	26,106	9,192
Less: net income attributable to noncontrolling interests, net of tax	118	221	450	1,407
Net income available to Virtusa stockholders	12,720	12,576	25,656	7,785
Less: Series A Convertible Preferred Stock dividends and accretion	1,087	1,087	3,262	3,262
Net income available to Virtusa common stockholders	$ 11,633	$ 11,489	$ 22,394	$ 4,523
Basic earnings per share available to Virtusa common stockholders (in dollars per share)	$ 0.39	$ 0.38	$ 0.75	$ 0.15
Diluted earnings per share available to Virtusa common stockholders (in dollars per share)	$ 0.38	$ 0.37	$ 0.73	$ 0.15

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Accumulated Other Comprehensive Loss

9 Months Ended

Dec. 31, 2019

Accumulated Other Comprehensive Loss.

Accumulated Other Comprehensive Loss

(15) Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) by component were as follows for the three and nine months ended December 31, 2019 and 2018:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Investment securities
Beginning balance	$	12	$	(225)	$	12	$	69
Other comprehensive income (loss) (OCI) before reclassifications, net of tax of $0, $0, $0 and $(52)		—		(8)		—		(176)
Reclassifications from OCI to other income, net of tax of $0, $0, $0 and $12		—		271				125
Less: Noncontrolling interests, net of tax of $0, $(5), $0 and $7		—		(8)		—		12
Comprehensive income (loss) on investment securities, net of tax of $0, $(5), $0 and $(33)		—		255		—		(39)
Closing balance	$	12	$	30	$	12	$	30
Currency translation adjustments
Beginning balance	$	(64,116)	$	(57,318)	$	(57,354)	$	(41,207)
OCI before reclassifications		4,630		(2,477)		(2,106)		(20,201)
Less: Noncontrolling interests		(363)		(396)		(389)		1,217
Comprehensive income (loss) on currency translation adjustments		4,267		(2,873)		(2,495)		(18,984)
Closing balance	$	(59,849)	$	(60,191)	$	(59,849)	$	(60,191)
Cash flow hedges
Beginning balance	$	(2,175)	$	(5,179)	$	39	$	1,881
OCI before reclassifications net of tax of $(386), $1,608, $(666) and $(1,582)		(1,993)		5,014		(2,240)		(2,931)
Reclassifications from OCI to
—Revenue, net of tax of $0, $178, $7 and $586		—		332		11		1,087
—Costs of revenue, net of tax of $(188), $214, $(504) and $303		(639)		632		(1,847)		884
—Selling, general and administrative expenses, net of tax of $(77), $102, $(220) and $147		(260)		303		(800)		431
—Interest expenses, net of tax of $26, $(74), $(54) and $(188)		75		(214)		(155)		(543)
Less: Noncontrolling interests, net of tax of $0, $(23), $0 and $17		—		(44)		—		35
Comprehensive income (loss) on cash flow hedges, net of tax of $(625), $2,005, $(1,437) and $(717)		(2,817)		6,023		(5,031)		(1,037)
Closing balance	$	(4,992)	$	844	$	(4,992)	$	844
Benefit plans
Beginning balance	$	(2,776)	$	(1,511)	$	(2,084)	$	(1,424)
OCI before reclassifications net of tax of $0, $0, $0 and $348		—		3		(911)		(349)
Reclassifications from OCI for prior service credit (cost) to:
Other income (expense), net of tax of $0 for all periods		6		14		19		42
Reclassifications from net actuarial gain (loss) amortization to:
Other income (expense), net of tax of $0 for all periods		70		36		210		113
Other adjustments		3		20		76		171
(Less): Noncontrolling interests, net of tax $0 for all periods		(3)		—		(10)		9
Comprehensive income (loss) on benefit plans, net of tax of $0, $0, $0 and $348		76		73		(616)		(14)
Closing balance		(2,700)	$	(1,438)		(2,700)	$	(1,438)
Accumulated other comprehensive loss	$	(67,529)	$	(60,755)	$	(67,529)	$	(60,755)

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Earnings per Share (Tables)

9 Months Ended

Dec. 31, 2019

Earnings per Share

Schedule of components of basic earnings per share

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Numerators:
Net income available to Virtusa stockholders	$	12,720	$	12,576	$	25,656	$	7,785
Less: Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		3,262		3,262
Net income available to Virtusa common stockholders	$	11,633	$	11,489	$	22,394	$	4,523
Denominators:
Basic weighted average common shares outstanding		29,849,368		29,893,220		30,041,740		29,764,507
Basic earnings per share available to Virtusa common stockholders	$	0.39	$	0.38	$	0.75	$	0.15

Schedule of components of diluted earnings per share

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Numerators:
Net income available to Virtusa common stockholders	$	11,633	$	11,489	$	22,394	$	4,523
Add : Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		—		—
Net income available to Virtusa common stockholders and assumed conversion	$	12,720	$	12,576	$	22,394	$	4,523
Denominators:
Basic weighted average common shares outstanding		29,849,368		29,893,220		30,041,740		29,764,507
Dilutive effect of Series A Convertible Preferred Stock if converted		3,000,000		3,000,000		—		—
Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units		608,863		768,508		658,529		833,607
Weighted average shares—diluted		33,458,231		33,661,728		30,700,269		30,598,114
Diluted earnings per share available to Virtusa common stockholders	$	0.38	$	0.37	$	0.73	$	0.15

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Consolidated Statements of Cash Flows (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Balance sheet classification
Cash and cash equivalents	$ 217,387	$ 189,676
Restricted cash in current assets	1,735	351
Restricted cash in other long-term assets	112	86
Total restricted cash	1,847	437
Total cash, cash equivalents and restricted cash	$ 219,234	$ 190,113

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Dec. 31, 2019

Accumulated Other Comprehensive Loss.

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

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Investment securities
Beginning balance	$	12	$	(225)	$	12	$	69
Other comprehensive income (loss) (OCI) before reclassifications, net of tax of $0, $0, $0 and $(52)		—		(8)		—		(176)
Reclassifications from OCI to other income, net of tax of $0, $0, $0 and $12		—		271				125
Less: Noncontrolling interests, net of tax of $0, $(5), $0 and $7		—		(8)		—		12
Comprehensive income (loss) on investment securities, net of tax of $0, $(5), $0 and $(33)		—		255		—		(39)
Closing balance	$	12	$	30	$	12	$	30
Currency translation adjustments
Beginning balance	$	(64,116)	$	(57,318)	$	(57,354)	$	(41,207)
OCI before reclassifications		4,630		(2,477)		(2,106)		(20,201)
Less: Noncontrolling interests		(363)		(396)		(389)		1,217
Comprehensive income (loss) on currency translation adjustments		4,267		(2,873)		(2,495)		(18,984)
Closing balance	$	(59,849)	$	(60,191)	$	(59,849)	$	(60,191)
Cash flow hedges
Beginning balance	$	(2,175)	$	(5,179)	$	39	$	1,881
OCI before reclassifications net of tax of $(386), $1,608, $(666) and $(1,582)		(1,993)		5,014		(2,240)		(2,931)
Reclassifications from OCI to
—Revenue, net of tax of $0, $178, $7 and $586		—		332		11		1,087
—Costs of revenue, net of tax of $(188), $214, $(504) and $303		(639)		632		(1,847)		884
—Selling, general and administrative expenses, net of tax of $(77), $102, $(220) and $147		(260)		303		(800)		431
—Interest expenses, net of tax of $26, $(74), $(54) and $(188)		75		(214)		(155)		(543)
Less: Noncontrolling interests, net of tax of $0, $(23), $0 and $17		—		(44)		—		35
Comprehensive income (loss) on cash flow hedges, net of tax of $(625), $2,005, $(1,437) and $(717)		(2,817)		6,023		(5,031)		(1,037)
Closing balance	$	(4,992)	$	844	$	(4,992)	$	844
Benefit plans
Beginning balance	$	(2,776)	$	(1,511)	$	(2,084)	$	(1,424)
OCI before reclassifications net of tax of $0, $0, $0 and $348		—		3		(911)		(349)
Reclassifications from OCI for prior service credit (cost) to:
Other income (expense), net of tax of $0 for all periods		6		14		19		42
Reclassifications from net actuarial gain (loss) amortization to:
Other income (expense), net of tax of $0 for all periods		70		36		210		113
Other adjustments		3		20		76		171
(Less): Noncontrolling interests, net of tax $0 for all periods		(3)		—		(10)		9
Comprehensive income (loss) on benefit plans, net of tax of $0, $0, $0 and $348		76		73		(616)		(14)
Closing balance		(2,700)	$	(1,438)		(2,700)	$	(1,438)
Accumulated other comprehensive loss	$	(67,529)	$	(60,755)	$	(67,529)	$	(60,755)

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Revenues (Tables)

9 Months Ended

Dec. 31, 2019

Revenues

Schedule of disaggregation of revenue

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by geography:	2019		2018		2019		2018
North America	$	251,229	$	224,143	$	724,005	$	652,076
Europe		55,154		65,046		175,258		192,175
Rest of World		28,724		25,492		83,369		75,981
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by customer’s industry groups	2019		2018		2019		2018
Banking financial services insurance	$	187,312	$	197,329	$	570,620	$	578,138
Communications and Technology		119,558		89,159		332,465		257,527
Media & Information and Other		28,237		28,193		79,547		84,567
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by service offerings	2019		2018		2019		2018
Application outsourcing	$	183,777	$	165,986	$	547,303	$	488,584
Consulting		151,330		148,695		435,329		431,648
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
Revenue by contract type	2019		2018		2019		2018
Time-and-materials	$	190,423	$	189,134	$	579,657	$	552,530
Fixed-price*		144,684		125,547		402,975		367,702
Consolidated revenue	$	335,107	$	314,681	$	982,632	$	920,232

*Fixed-price includes both retainer-billing basis and fixed-price progress towards completion

Schedule of significant movements in contract assets and deferred revenue balances

The table below shows movements during the nine months ended December 31, 2019 and 2018 in contract assets:

	December 31, 2019		December 31, 2018
Beginning balance	$	18,538	$	15,998
Revenues recognized during the period but not yet billed		67,594		92,564
Amounts billed		(68,314)		(95,457)
Other		(20)		(507)
Ending balance	$	17,798	$	12,598

Contract liabilities comprise of amounts billed to customers for revenues not yet earned. Such amounts are anticipated to be recorded as revenues when services are performed in subsequent periods.

The table below shows movements in the deferred revenue balances during the nine months ended December 31, 2019 and 2018:

	December 31, 2019		December 31, 2018
Beginning balance	$	6,421	$	7,908
Amounts billed but not yet recognized as revenues		5,342		5,310
Revenues recognized related to the opening balance of deferred revenue		(5,017)		(6,761)
Other		(154)		(337)
Ending balance	$	6,592	$	6,120

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Earnings per Share

9 Months Ended

Dec. 31, 2019

Earnings per Share

Earnings per Share

(3) Earnings per Share

Basic earnings per share available to Virtusa common stockholders (“EPS”) is computed by dividing net income, less any dividends and accretion of issuance cost on the Series A Convertible Preferred Stock by the weighted average

number of shares of common stock outstanding for the period. In computing diluted EPS, the Company adjusts the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the Series A Convertible Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A Convertible Preferred Stock to its redemption price. The Company adjusts the denominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from the issuance of restricted stock units, unvested restricted stock and stock options along with the conversion of the Series A Convertible Preferred Stock to common stock. The following table sets forth the computation of basic and diluted EPS for the periods set forth below:

The components of basic earnings per share are as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Numerators:
Net income available to Virtusa stockholders	$	12,720	$	12,576	$	25,656	$	7,785
Less: Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		3,262		3,262
Net income available to Virtusa common stockholders	$	11,633	$	11,489	$	22,394	$	4,523
Denominators:
Basic weighted average common shares outstanding		29,849,368		29,893,220		30,041,740		29,764,507
Basic earnings per share available to Virtusa common stockholders	$	0.39	$	0.38	$	0.75	$	0.15

The components of diluted earnings per share are as follows:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2019		2018		2019		2018
Numerators:
Net income available to Virtusa common stockholders	$	11,633	$	11,489	$	22,394	$	4,523
Add : Series A Convertible Preferred Stock dividends and accretion		1,087		1,087		—		—
Net income available to Virtusa common stockholders and assumed conversion	$	12,720	$	12,576	$	22,394	$	4,523
Denominators:
Basic weighted average common shares outstanding		29,849,368		29,893,220		30,041,740		29,764,507
Dilutive effect of Series A Convertible Preferred Stock if converted		3,000,000		3,000,000		—		—
Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units		608,863		768,508		658,529		833,607
Weighted average shares—diluted		33,458,231		33,661,728		30,700,269		30,598,114
Diluted earnings per share available to Virtusa common stockholders	$	0.38	$	0.37	$	0.73	$	0.15

During the three months ended December 31, 2019 and 2018, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase 24,037 and 20,617 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.  For the three months ended December 31, 2019 and 2018, all of the 3,000,000 shares of Series A Convertible Preferred Stock were included in the calculations of diluted earnings per share as their effect was dilutive using the if-converted method.

During the nine months ended December 31, 2019 and 2018, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase 100,434 and 13,745 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive. For the nine months ended December 31, 2019 and 2018, all of the 3,000,000 shares of Series A Convertible Preferred Stock were

excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

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Leases

9 Months Ended

Dec. 31, 2019

Leases

Leases

(7) Leases

The Company’s leased assets primarily consist of operating leases for office space, equipment and vehicles. At the inception of a contract, the Company determines whether a contract contains a lease, and if a lease is identified, whether it is an operating or finance lease. In determining whether a contract contains a lease, the Company considers whether (1)  it has the right to obtain substantially all of the economic benefits from the use of the asset throughout the term of the contract, (2) it has the right to direct how and for what purpose the asset is used throughout the term of the contract and (3) it has the right to operate the asset throughout the term of the contract without the lessor having the right to change the terms of the contract.  The Company leases vehicles in certain locations primarily as an employee benefit and these leases are classified as either operating or finance leases. The Company does not have finance leases that are material to the Company’s consolidated financial statements. Some of the Company’s lease agreements contain both lease and non-lease components. The Company separates lease components from non-lease components for all the Company’s lease assets. The consideration in the lease contract is allocated to the lease and non-lease components based on the estimated standalone prices.

A portion of the leases for office space contain certain charges for additional rent expenses that are variable. Due to this variability, the cash flows associated with these charges are not included in the minimum lease payments used in determining the ROU lease assets and associated lease liabilities.

The Company’s ROU lease assets represent the Company’s right to use an underlying asset for the lease term and may include any advance lease payments made and any initial direct costs and exclude lease incentives. The Company’s lease liabilities represent the Company’s obligation to make lease payments arising from the contractual terms of the lease. ROU lease assets and lease liabilities are recognized at the commencement of the lease and are calculated using the present value of lease payments over the lease term. The Company’s operating lease agreements do not provide enough information to arrive at an implicit interest rate. Therefore, the Company uses its estimated incremental borrowing rate

based on information available at the commencement date of the lease to calculate the present value of the lease payments. The Company determines the incremental borrowing rate on a lease-by-lease basis by developing an estimated borrowing rate of the Company for a fully collateralized obligation with a term similar to the lease term, and adjusts the rate to reflect the incremental risk associated with the currency in which the lease is denominated.

The following table provides information on the components of the Company’s operating leases included in its unaudited consolidated balance sheets:

Leases	Location on Consolidated Balance Sheets	December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use of assets	$	50,894
Liabilities
Current
Operating lease liabilities	Operating lease liabilities	$	11,385
Noncurrent
Operating lease liabilities	Operating lease liabilities, noncurrent	$	44,009
	Total	$	55,394

The Company’s leases have remaining lease terms ranging from 1 year to 9 years. Certain lease agreements, mainly for office space, include options to extend or terminate the lease before the expiration date. The Company includes such options when determining the lease term when it is reasonably certain that the Company will exercise that option.

The following table provides the components of lease expense related to our operating leases:

		Three Months Ended		Nine Months Ended
	Location on Consolidated Statements of Income	December 31, 2019		December 31, 2019
Operating lease cost:
Operating lease cost	Selling, general and administrative expenses	$	3,789	$	11,403
Variable lease cost	Selling, general and administrative expenses	$	30	$	74
Short-term lease cost	Selling, general and administrative expenses	$	90	$	359
Less: Sublease income	Selling, general and administrative expenses	$	(353)	$	(870)
Total operating lease cost		$	3,556	$	10,966

The following table provides supplemental cash flow information related to our operating leases:

	Nine Months Ended
	December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	11,217
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	5,714

The following table provides information on the weighted average remaining lease term and weighted average discount rate related to our operating leases:

	December 31, 2019
Weighted average remaining lease term, in years:
Operating leases		5.56
Weighted average discount rate:
Operating leases		7.49	%

There were no lease agreements that contained restrictive covenants or material residual value guarantees as of December 31, 2019.

The following table provides the schedule of maturities of the Company’s operating lease liabilities, under ASC Topic 842, as of December 31, 2019:

	Operating leases
	December 31, 2019
2020-remainder of year	$	3,784
2021		14,901
2022		13,663
2023		10,927
2024		6,975
2025 and thereafter		17,110
Total lease payments	$	67,360
Interest		(11,966)
Total lease liabilities	$	55,394

The following table provides the schedule of the Company’s future minimum payments on its operating leases at March 31, 2019, which were accounted for in accordance with its historic accounting policies under ASC Topic 840.

	Operating leases
	March 31, 2019
2020	$	14,685
2021		13,895
2022		12,663
2023		9,879
2024		5,686
2025 and thereafter		16,761
Total lease payments	$	73,569

As of December 31, 2019, the Company had committed to payments of $320 related to operating leases that had yet to commence and therefore are not included in consolidated balance sheets.  These leases will commence on various dates in the calendar year 2020 and have lease terms ranging from two years to three years..

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Income Taxes

9 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

(11) Income Taxes

The Company applies an estimated annual effective tax rate to its year-to-date operating results to determine the interim provision (benefit) for income tax expense. The Company’s effective tax rate was 44.7% and 43.3% for the three and nine months ended December 31, 2019, as compared to an effective tax rate of 44.8% and 63.3% for the three and nine months ended December 31, 2018. The Company’s effective tax rate for the three and nine months ended December 31, 2019 was impacted by executive stock compensation limitations and Base Erosion Alternative Tax “BEAT” enacted in the Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017 by the U.S. government. The Company’s reported effective tax rate is also impacted by jurisdictional mix of profits and losses in which the Company operates, foreign statutory tax rates in effect, unusual or infrequent discrete items requiring a provision during the period and certain exemptions or tax holidays applicable to the Company.

During the fiscal year ended March 31, 2019, the Company elected to treat several foreign entities as disregarded entities. The earnings of these subsidiaries will be subject to U.S. taxation as well as local taxation with a corresponding foreign tax credit, at the election of the Company. During the three and nine months ended December 31, 2019, the Company has elected to deduct the foreign taxes in computing the income tax expense. The Company’s income tax provision for the three and nine months ended December 31, 2019 includes the impact of Global Intangible Low-taxed Income (“GILTI”) and other provisions of the Tax Act and earnings of disregarded entities. The Company’s aggregate income tax rate in foreign jurisdictions is comparable to its income tax rate in the United States as a result of the Tax Act, other than in jurisdictions in which the Company has tax holiday benefits.

A valuation allowance is required if, based on available evidence, it is more likely than not that all or some portion of the asset will not be realized due to the inability of the Company to generate sufficient taxable income in a specific jurisdiction. The Company has $25,685 and $2,183 of net deferred tax assets in the United States and the United Kingdom, respectively, at December 31, 2019. The Company has not recorded a valuation allowance as management has concluded it is more likely than not that the deferred tax assets will be utilized before expiration. The Company expects sufficient taxable income in future periods related to the impact of the GILTI and the election to treat several foreign entities as disregarded entities.

The Company’s Indian subsidiaries operate several development centers in areas designated as a special economic zone, or SEZ, under the SEZ Act of 2005. In particular, the Company was approved as an SEZ Co-developer and has built a campus on a 6.3 acre parcel of land in Hyderabad, India that has been designated as an SEZ. As an SEZ Co-developer, the Company is entitled to certain tax benefits for any consecutive period of 10 years during the 15 year period starting in fiscal year 2008. The Company has elected to claim SEZ co-developer income tax benefits starting in the fiscal year ended March 31, 2013. The Company has other units at various stages of tax holiday benefit.

On September 20, 2019, the Indian government issued Ordinance 2019 making certain amendments in the Income-tax Act 1961, which substantially reduces tax rates. The effective rate of tax on India-based companies was reduced from 34.9% to 25.17%, effective for fiscal years beginning April 1, 2019. The new rates require the surrendering of any tax holidays and other attributes of which the Company may be currently taking advantage and is able to be elected once the tax holidays have concluded.  The Company continues to apply the old tax rates and applicable holidays. The Company will continue to analyze and elect this Ordinance 2019 when it is most beneficial to the Company.  

In addition, the Company’s Sri Lankan subsidiary, Virtusa (Private) Limited, was operating under a 12-year income tax holiday arrangement until March 31, 2019 and required Virtusa (Private) Limited to retain certain job creation and investment criteria through the expiration of the holiday period. During the fiscal year ended March 31, 2019, the Company believes it has fulfilled its hiring and investment commitments and is eligible for tax holiday through March 2019. The 12-year income tax holiday arrangement expired as of March 31, 2019 and therefore during the nine months ended December 31, 2019, the Company recorded tax expense on all the earnings in its Sri Lankan subsidiary at the statutory rate.

The Company has been under income tax examination in India, the U.K, Singapore and the United States. The Indian taxing authorities issued an assessment order with respect to their examination of the various tax returns for the fiscal years ended March 31, 2005 to March 31, 2017 of the Company’s Indian subsidiary, Virtusa (India) Private Ltd,

now merged with and into Virtusa Consulting Services Private Limited (collectively referred to as “Virtusa India”). At issue were several matters, the most significant of which was the redetermination of the arm’s-length profit which should be recorded by Virtusa India on the intercompany transactions with its affiliates. These matters are currently at different level of appeals. During the fiscal year ended March 31, 2011, the Company entered into a competent authority settlement and settled the uncertain tax position for the fiscal years ended March 31, 2004 and 2005. However, the redetermination of arm’s-length profit on transactions with respect to the Company’s subsidiaries and Virtusa UK Limited has not been resolved and remains under appeal for the fiscal year ended March 31, 2005. In the United Kingdom, the Company is currently under examination for transfer pricing and research benefits for the years ended March 31, 2014 to March 31, 2018. In Singapore, the Inland Revenue Authority is confirming the appropriateness of the Company’s deductions for the year ended March 31, 2017. In the United States, the Internal Revenue Service has concluded an examination of fiscal years ended March 31, 2015 and March 31, 2017 with a non-material impact on cash and earnings, while certain employment tax matters remain open.

Unrecognized tax benefits represent uncertain tax positions for which the Company has established reserves. At December 31, 2019 and March 31, 2019, the total liability for unrecognized tax benefits was $6,905 and $6,744, respectively. Unrecognized tax benefits may be adjusted upon the closing of the statute of limitations for income tax returns filed in various jurisdictions. During the nine months ended December 31, 2019 and 2018, the unrecognized tax benefits increased by $161 and decreased by $531, respectively. The increase in unrecognized tax benefits in the nine months ended December 31, 2019 was predominantly due to increase in liability related to the UK audit, settlement of a state tax matter, foreign currency movements and incremental interest accrued on existing uncertain tax 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 and is currently or has been historically 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 indefinitely reinvested. The Company does not provide for U.S. income taxes on foreign currency translation or applicable withholding tax until a distribution is declared. At December 31, 2019, the Company had approximately $198,020 of cash, cash equivalents, short-term and long-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested. If required, such cash and investments could be repatriated to the United States. 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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Noncontrolling interest - Capital Reduction (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 31, 2019	Dec. 31, 2019	Dec. 20, 2019
Noncontrolling interest
Payment of noncontrolling interest		$ 12,534
Polaris | Accrued Expense (Other) And Restricted Cash
Noncontrolling interest
Amount payable to remaining Polaris public shareholders	$ 1,030	$ 1,030
Polaris Public Shareholders | Polaris
Noncontrolling interest
Amount payable to remaining Polaris public shareholders			$ 13,564
Payment of noncontrolling interest	$ 12,534

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Revenues - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Disaggregation of Revenue
Revenue	$ 335,107	$ 314,681	$ 982,632	$ 920,232
Time-and-materials
Disaggregation of Revenue
Revenue	190,423	189,134	579,657	552,530
Fixed-price
Disaggregation of Revenue
Revenue	144,684	125,547	402,975	367,702
Application outsourcing
Disaggregation of Revenue
Revenue	183,777	165,986	547,303	488,584
Consulting
Disaggregation of Revenue
Revenue	151,330	148,695	435,329	431,648
Banking financial services insurance
Disaggregation of Revenue
Revenue	187,312	197,329	570,620	578,138
Communications and Technology
Disaggregation of Revenue
Revenue	119,558	89,159	332,465	257,527
Media & Information and Other
Disaggregation of Revenue
Revenue	28,237	28,193	79,547	84,567
North America
Disaggregation of Revenue
Revenue	251,229	224,143	724,005	652,076
Europe
Disaggregation of Revenue
Revenue	55,154	65,046	175,258	192,175
Rest Of World
Disaggregation of Revenue
Revenue	$ 28,724	$ 25,492	$ 83,369	$ 75,981

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Goodwill and Intangible Assets - Goodwill (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 31, 2019 USD ($)	Dec. 31, 2019 USD ($) segment	Sep. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)
Goodwill:
Number of operating segments | segment		1
Changes in goodwill
Beginning balance		$ 279,543
Foreign currency translation adjustments		(3,454)
Ending balance	$ 276,089	276,089
Acquisition costs and goodwill deductible for tax purposes	145,658	145,658
Acquisition costs and goodwill not deductible for tax purposes	143,334	143,334
Acquired certain assets of a small consulting company purchase price
Payment of contigent consideration of asset acquisition		942
eTouch Systems Corp.
Acquired certain assets of a small consulting company purchase price
Cash paid at closing			$ 4,000
Additional earn-out consideration			$ 4,000
Payment of contigent consideration of asset acquisition	942
Probable and estimable value of the contingent consideration	2,645
Aquisition One
Acquired certain assets of a small consulting company purchase price
Cash paid at closing	1,400	1,400
Additional earn-out consideration	1,400	1,400
Probable and estimable value of the contingent consideration	$ 1,381
Acquistion Two
Acquired certain assets of a small consulting company purchase price
Cash paid at closing				$ 4,251
Additional earn-out consideration				$ 4,453
Probable and estimable value of the contingent consideration		$ 3,078

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Unaudited Interim Financial Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Dec. 31, 2019	Apr. 01, 2019
Unaudited Interim Financial Information
Lease, Practical Expedients, Package [true false]	true
Lease, Practical Expedient, Use of Hindsight [true false]	false
Right-of-use-assets	$ 50,894
Lease liabilities	$ 55,394
Effect | ASU 2016-02
Unaudited Interim Financial Information
Right-of-use-assets		$ 54,762
Lease liabilities		$ 59,157

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets

Schedule of changes in goodwill

	December 31, 2019
Balance at April 1, 2019	$	279,543
Foreign currency translation adjustments		(3,454)
Balance at December 31, 2019	$	276,089

Schedule of intangible asset carrying amounts acquired and amortization

The following are details of the Company’s intangible asset carrying amounts acquired and amortization at December 31, 2019:

	December 31, 2019
	Weighted	Gross				Net
	Average	Carrying		Accumulated		Carrying
	Useful Life	Amount		Amortization		Amount
Amortizable intangible assets:
Customer relationships	12.3	$	141,267	$	42,979	$	98,288
Trademark	2.0		900		804		96
Technology	5.0		500		467		33
Other	5.0		1,233		131		1,102
	12.1	$	143,900	$	44,381	$	99,519

Schedule of estimated amortization expense related to the purchased intangible assets

	March 31, 2019
	Weighted	Gross				Net
	Average	Carrying		Accumulated		Carrying
	Useful Life	Amount		Amortization		Amount
Amortizable intangible assets:
Customer relationships	13.0	$	125,520	$	33,679	$	91,841
Trademark	2.0		900		431		469
Technology	5.0		500		370		130
	12.9	$	126,920	$	34,480	$	92,440

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Goodwill and Intangible Assets

9 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets

Goodwill and Intangible Assets

(10) Goodwill and Intangible Assets

Goodwill:

The Company has one operating segment. The following are details of the changes in goodwill balance at December 31, 2019:

	December 31, 2019
Balance at April 1, 2019	$	279,543
Foreign currency translation adjustments		(3,454)
Balance at December 31, 2019	$	276,089

The acquisition costs and goodwill balance deductible for our business acquisitions for tax purposes are $145,658. The acquisition costs and goodwill balance not deductible for tax purposes are $143,334.

Intangible Assets:

The following are details of the Company’s intangible asset carrying amounts acquired and amortization at December 31, 2019:

	December 31, 2019
	Weighted	Gross				Net
	Average	Carrying		Accumulated		Carrying
	Useful Life	Amount		Amortization		Amount
Amortizable intangible assets:
Customer relationships	12.3	$	141,267	$	42,979	$	98,288
Trademark	2.0		900		804		96
Technology	5.0		500		467		33
Other	5.0		1,233		131		1,102
	12.1	$	143,900	$	44,381	$	99,519

During the three months ended December 31, 2019, the Company acquired certain assets of a small consulting company located in the United States. The purchase price was approximately $1,400 in cash and an additional earn-out consideration of up to $1,400 payable within one year based on achievement of certain revenue targets. The probable and estimable value of the contingent consideration as of December 31, 2019 is $1,381.

During the three months ended September 30, 2019, the Company’s U.S. subsidiary, eTouch Systems Corp., acquired certain assets of a small consulting company located in the United States. The purchase price was approximately $4,000 in cash and an additional earn-out consideration of up to $4,000 payable within one year based on achievement of certain revenue targets. During the three months ended December 31, 2019, the Company paid $942 towards earn-out consideration based on achievement of revenue targets for the first measurement period. The remaining probable and estimable value of the contingent consideration as of December 31, 2019 is $2,645.

During the three months ended June 30, 2019, the Company acquired certain assets of a small consulting company located in the United States. The purchase price was approximately $4,251 in cash paid at closing and an additional earn-out consideration of up to $4,453, payable within one year based on achievement of certain revenue targets. The probable and estimable value of the contingent consideration as of December 31, 2019 is $3,078.

The following are the details of the Company’s intangible asset carrying amounts acquired, and amortization at March 31, 2019:

	March 31, 2019
	Weighted	Gross				Net
	Average	Carrying		Accumulated		Carrying
	Useful Life	Amount		Amortization		Amount
Amortizable intangible assets:
Customer relationships	13.0	$	125,520	$	33,679	$	91,841
Trademark	2.0		900		431		469
Technology	5.0		500		370		130
	12.9	$	126,920	$	34,480	$	92,440

The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

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Unaudited Interim Financial Information

9 Months Ended

Dec. 31, 2019

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, 2019 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May 24, 2019. 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.

Principles of Consolidation

The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of Virtusa Corporation and all of its subsidiaries that are directly or indirectly more than 50% owned or controlled. When the Company does not have a controlling interest in an entity, but exerts a significant influence on the entity, the Company

applies the equity method of accounting. For those majority-owned subsidiaries that are not 100% owned by the Company, the interests of the minority owners are accounted for as noncontrolling interests.

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, intangible assets, 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 December 31, 2019 and March 31, 2019, the carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits, other accrued expenses and long-term debt, approximate their fair values due to the nature of the items. See Note 5 for a discussion of the fair value of the Company’s other financial instruments.

Recent accounting pronouncements

Recently Adopted Accounting Pronouncements

Unless otherwise discussed below, the adoption of new accounting standards did not have an impact on the consolidated financial statements.

In February 2016, the FASB issued an update (ASU 2016-02) to the standard on leases to increase transparency and comparability among organizations. The FASB subsequently issued ASU 2018-10 and ASU 2018-11 in July 2018, ASU 2018-20 in December 2018 and ASU 2019-01 in March 2019, which provide clarifications and improvements to this new standard. ASU 2018-11 also provides the optional transition method which allows companies to apply the new lease standard at the adoption date instead of at the earliest comparative period presented. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. The standard permits the use of either retrospective to each prior reporting period presented with the cumulative effect of adoption recognized at the beginning of the earliest period presented or retrospective to the beginning of the period of adoption through a cumulative-effect adjustment (the “Modified Retrospective Effective Date Method”).

The Company adopted this standard, (“ASC Topic 842”) effective April 1, 2019, using a Modified Retrospective Effective Date Method. The Company has elected the package of practical expedients which permits the Company to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company did not elect the use of hindsight practical expedient to reevaluate the lease term of existing contracts. Prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting policies. The impact of adoption primarily relates to the recognition of ROU operating lease assets and operating lease liabilities on the Company’s unaudited consolidated balance sheets for all operating leases with a term greater than twelve months. The adoption of this standard on April 1, 2019 resulted in the recognition of ROU assets for operating leases of $54,762 and operating lease liabilities of $59,157. The Company’s accounting for finance leases (formerly capital leases) remains

substantially unchanged. The adoption of this standard did not have an impact on the consolidated statements of income and comprehensive income (loss), consolidated statement of changes in stockholders’ equity or the consolidated statement of cash flows.

See Note 7 “Leases” for additional information regarding leases.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This standard requires customers to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The standard also requires the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement. For public companies, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company early adopted this standard, as of July 1, 2019, on a prospective basis for applicable implementation costs. The adoption of this standard did not have a material impact on the consolidated balance sheet, consolidated statements of income, consolidated statement of changes in stockholders’ equity or the consolidated statement of cash flows.

New Accounting Pronouncements

Unless otherwise discussed below, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. The FASB subsequently issued ASU 2019-04 in April 2019, ASU 2019-05 in May 2019 and ASU 2019-11 in November 2019 which provide clarifications and improvements to this new standard. The FASB also issued ASU 2019-10 in November 2019, which amends the mandatory effective date for all other than public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This standard update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This update is effective for public entities from fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The effect on the consolidated financial statements will largely depend on the composition and credit quality of our investment portfolio and the economic conditions and forecasts at the time of adoption. Based on the current composition of our investment portfolio, current market conditions, and historical credit loss activity, the impact on our consolidated financial statements and related disclosures is not expected to be material.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The standard will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of this new standard will have on its consolidated financial statements.

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Derivative Financial Instruments

9 Months Ended

Dec. 31, 2019

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, consolidated statements of income and consolidated statement of cash flows from all foreign currencies, including most significantly the U.K. pound sterling and Indian rupee. The Company enters into hedging programs with highly rated financial institutions 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. There is no margin required, no cash collateral posted or received by us related to our foreign exchange forward contracts.

The U.S. dollar notional value of all outstanding foreign currency derivative contracts was $133,032 and $118,557 at December 31, 2019 and March 31, 2019, respectively. Unrealized net gains related to these contracts which are expected to be reclassified from accumulated other comprehensive income (loss) (“AOCI”) to earnings during the next 12 months are $52 at December 31, 2019. At December 31, 2019, the maximum outstanding term of any derivative instrument was 15 months.

The Company also uses interest rate swaps to mitigate the Company’s interest rate risk on the Company’s variable rate debt. The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the Credit Agreement (See Note 13), by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. The Company will recognize these transactions in accordance with ASC 815 "Derivatives and Hedging," and have designated the swaps as cash flow hedges.

The Company purchased interest rate swaps in July 2016 with an effective date of July 2017 and in November 2018.  The July 2016 interest rate swaps are at a blended weighted average of 1.025% and the Company will receive 1-month LIBOR on the same notional amounts. The November 2018 interest rate swaps were entered into to mitigate the interest rate risk associated with the Credit Agreement executed in February 2018 and subsequent additional borrowings. The November 2018 interest rate swaps are at a fixed rate of 2.85% and are designed to maintain a 50% coverage of our LIBOR debt, therefore the notional amount changes over the life of the swap to retain the 50% coverage target. At December 31, 2019, the total notional amounts of the interest rate swaps were $178,800 with remaining maturity of approximately 4 years. The unrealized losses associated with the swap agreements was $5,548 and $2,284 at December 31, 2019 and March 31, 2019, respectively, which represents the estimated amount that the Company would pay to the counterparties in the event of an early termination.

The following table sets forth the fair value of derivative instruments included in the consolidated balance sheets at December 31, 2019 and March 31, 2019:

Derivatives designated as hedging instruments

	December 31, 2019		March 31, 2019
Foreign currency exchange contracts:
Other current assets	$	2,058	$	3,264
Other long-term assets	$	94	$	147
Accrued expenses and other	$	2,006	$	318
Long-term liabilities	$	258	$	3

	December 31, 2019		March 31, 2019
Interest rate swap contracts:
Other long-term assets	$	288	$	1,349
Long-term liabilities	$	5,836	$	3,633

The following tables set forth the effect of the Company’s foreign currency exchange contracts and interest rate swap contracts on the consolidated financial statements of the Company for the three and nine months ended December 31, 2019 and 2018:

	Amount of Gain or (Loss) Recognized in AOCI on Derivatives
Derivatives Designated as	Three Months Ended December 31,				Nine Months Ended December 31,
Cash Flow Hedging Relationships	2019		2018		2019		2018
Foreign currency exchange contracts	$	(3,158)	$	9,398	$	148	$	(2,203)
Interest rate swaps	$	782	$	(2,776)	$	(3,054)	$	(2,310)

Location of Gain or (Loss) Reclassified	Amount of Gain or (Loss) Reclassified from AOCI into Income
from AOCI into Income (loss) (Effective	Three Months Ended December 31,				Nine Months Ended December 31,
Portion)	2019		2018		2019		2018
Revenue	$	—	$	(510)	$	(18)	$	(1,673)
Costs of revenue	$	827	$	(846)	$	2,351	$	(1,187)
Operating expenses	$	337	$	(405)	$	1,020	$	(578)
Interest Expenses	$	(100)	$	288	$	209	$	731

			Amount of Gain or (Loss) Recognized in Income
			(loss) on Derivatives
		Three Months Ended				Nine Months Ended
Derivatives not Designated	Location of Gain Or (Loss)	December 31,				December 31,
as Hedging Instruments	Recognized in Income (loss) on Derivatives	2019		2018		2019		2018
Foreign currency exchange contracts	Revenue	$	(1,449)	$	1,131	$	(205)	$	2,237
	Costs of revenue	$	1,105	$	(784)	$	380	$	(1,537)
	Selling, general and administrative expenses	$	114	$	(75)	$	29	$	(93)

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2019	Dec. 31, 2018
Changes in the components of accumulated other comprehensive income (loss)
Balance	$ 397,397	$ 399,202	$ 390,774	$ 359,431	$ 421,347	$ 436,083	$ 390,774	$ 436,083
Reclassifications from OCI to:
Other income	(209)			444			(1,137)	(998)
Revenue	(335,107)			(314,681)			(982,632)	(920,232)
Costs of revenue	236,427			221,461			709,746	654,288
Selling, general and administrative expenses	68,270			73,935			209,813	218,716
Interest expense	4,873			4,597			14,616	13,365
Less: comprehensive income attributable to noncontrolling interest, net of tax	484			669			849	134
Other comprehensive income (loss)	1,892	(8,585)	(1,194)			(14,526)
Other income (expense), net of tax	7,209			(3,912)			17,035	22,173
Comprehensive income (loss)				3,478	(10,492)
Balance	403,296	397,397	399,202	380,814	359,431	421,347	403,296	380,814
Investment securities, including noncontrolling interests
Changes in the components of accumulated other comprehensive income (loss)
OCI before reclassifications net of tax				(8)				(176)
Other Comprehensive Income (Loss), Tax
OCI before reclassifications, Tax	0			0			0	(52)
Investment securities, including noncontrolling interests | Other income (expense)
Other Comprehensive Income (Loss), Tax
Reclassifications from OCI, Tax	0			0			0	12
Investment securities, including noncontrolling interests | Reclassification Out Of Accumulated Other Comprehensive Income
Reclassifications from OCI to:
Other income				271				125
Investment securities, noncontrolling interests
Reclassifications from OCI to:
Less : Noncontrolling interests, net of tax				(8)				12
Other Comprehensive Income (Loss), Tax
Noncontrolling interests, Tax	0			(5)			0	7
Accumulated Net Unrealized Investment Gain Loss
Changes in the components of accumulated other comprehensive income (loss)
Balance	12		12	(225)		69	12	69
Reclassifications from OCI to:
Comprehensive income (loss)				255				(39)
Balance	12	12		30	(225)		12	30
Other Comprehensive Income (Loss), Tax
Comprehensive income (loss), Tax	0			(5)			0	(33)
Currency Translation Adjustments, including noncontrolling interests
Changes in the components of accumulated other comprehensive income (loss)
OCI before reclassifications net of tax	4,630			(2,477)			(2,106)	(20,201)
Reclassifications from OCI to:
Less : Noncontrolling interests, net of tax	(363)			(396)			(389)	1,217
Accumulated Translation Adjustment [Member]
Changes in the components of accumulated other comprehensive income (loss)
Balance	(64,116)		(57,354)	(57,318)		(41,207)	(57,354)	(41,207)
Reclassifications from OCI to:
Comprehensive income (loss)	4,267			(2,873)			(2,495)	(18,984)
Balance	(59,849)	(64,116)		(60,191)	(57,318)		(59,849)	(60,191)
Cash Flow Hedges, including noncontrolling interests
Changes in the components of accumulated other comprehensive income (loss)
OCI before reclassifications net of tax	(1,993)			5,014			(2,240)	(2,931)
Other Comprehensive Income (Loss), Tax
OCI before reclassifications, Tax	(386)			1,608			(666)	(1,582)
Cash Flow Hedges, including noncontrolling interests | Revenue
Other Comprehensive Income (Loss), Tax
Reclassifications from OCI, Tax	0			178			7	586
Cash Flow Hedges, including noncontrolling interests | Costs of revenue
Other Comprehensive Income (Loss), Tax
Reclassifications from OCI, Tax	(188)			214			(504)	303
Cash Flow Hedges, including noncontrolling interests | Selling General And Administrative Expenses
Other Comprehensive Income (Loss), Tax
Reclassifications from OCI, Tax	(77)			102			(220)	147
Cash Flow Hedges, including noncontrolling interests | Interest expenses
Other Comprehensive Income (Loss), Tax
Reclassifications from OCI, Tax	26			(74)			(54)	(188)
Cash Flow Hedges, including noncontrolling interests | Reclassification Out Of Accumulated Other Comprehensive Income
Reclassifications from OCI to:
Revenue				332			11	1,087
Costs of revenue	(639)			632			(1,847)	884
Selling, general and administrative expenses	(260)			303			(800)	431
Interest expense	75			(214)			(155)	(543)
Cash Flow Hedges, noncontrolling interests
Reclassifications from OCI to:
Less : Noncontrolling interests, net of tax				(44)				35
Other Comprehensive Income (Loss), Tax
Noncontrolling interests, Tax	0			(23)			0	17
Accumulated Net Gain Loss From Designated Or Qualifying Cash Flow Hedges
Changes in the components of accumulated other comprehensive income (loss)
Balance	(2,175)		39	(5,179)		1,881	39	1,881
Reclassifications from OCI to:
Comprehensive income (loss)	(2,817)			6,023			(5,031)	(1,037)
Balance	(4,992)	(2,175)		844	(5,179)		(4,992)	844
Other Comprehensive Income (Loss), Tax
Comprehensive income (loss), Tax	625			(2,005)			1,437	717
Benefit plans, including noncontrolling interests
Changes in the components of accumulated other comprehensive income (loss)
OCI before reclassifications net of tax				3			(911)	(349)
Reclassifications from OCI to:
Other adjustments	3			20			76	171
Other Comprehensive Income (Loss), Tax
OCI before reclassifications, Tax	0			0			0	348
Benefit plans, prior service credit (cost), including noncontrolling interests | Other income (expense)
Other Comprehensive Income (Loss), Tax
Reclassifications from OCI, Tax	0			0			0	0
Benefit plans, prior service credit (cost), including noncontrolling interests | Reclassification Out Of Accumulated Other Comprehensive Income
Reclassifications from OCI to:
Other income (expense), net of tax	6			14			19	42
Benefit plans, net actuarial gain (loss), including noncontrolling interest | Reclassification Out Of Accumulated Other Comprehensive Income
Reclassifications from OCI to:
Other income (expense), net of tax	70			36			210	113
Benefit plans, noncontrolling interests
Reclassifications from OCI to:
Less : Noncontrolling interests, net of tax	(3)						(10)	9
Accumulated Defined Benefit Plans Adjustment
Changes in the components of accumulated other comprehensive income (loss)
Balance	(2,776)		(2,084)	(1,511)		(1,424)	(2,084)	(1,424)
Reclassifications from OCI to:
Comprehensive income (loss)	76			73			(616)	(14)
Balance	(2,700)	(2,776)		(1,438)	(1,511)		(2,700)	(1,438)
Other Comprehensive Income (Loss), Tax
Comprehensive income (loss), Tax	0			0			0	348
Benefit plans, prior service credit (cost)
Other Comprehensive Income (Loss), Tax
Noncontrolling interests, Tax	0			0			0	0
Benefit plans, net actuarial gain (loss) | Other income (expense)
Other Comprehensive Income (Loss), Tax
Reclassifications from OCI, Tax	0			0			0	0
Accumulated Other Comprehensive Income
Changes in the components of accumulated other comprehensive income (loss)
Balance	(69,055)	(60,581)	(59,387)	(64,233)	(53,741)	(40,681)	(59,387)	(40,681)
Reclassifications from OCI to:
Other comprehensive income (loss)	1,526	(8,474)	(1,194)			(13,060)
Comprehensive income (loss)				3,478	(10,492)
Balance	$ (67,529)	$ (69,055)	$ (60,581)	$ (60,755)	$ (64,233)	$ (53,741)	$ (67,529)	$ (60,755)

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Leases - Leases not yet commenced (Details)	Dec. 31, 2019
Minimum
Leases not yet commenced
Term of lease	2 years
Maximum
Leases not yet commenced
Term of lease	3 years

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Series A Convertible Preferred Stock (Details) - USD ($) $ / shares in Units, $ in Thousands		9 Months Ended
	May 03, 2017	Dec. 31, 2019	Dec. 31, 2018
Series A Convertible Preferred Stock
Cash dividends paid		$ 3,138	$ 3,138
Series A Convertible Preferred Stock
Series A Convertible Preferred Stock
Direct and incremental expenses incurred	$ 1,154
Declared and accrued dividends		686	686
Cash dividends paid		$ 3,138	$ 3,138
Series A Convertible Preferred Stock | After May 3, 2024
Series A Convertible Preferred Stock
Increase in preference dividend rate, per annum upon failure to repurchase (as a percent)		1.00%
Additional increase in preference dividend rate, per annum on each anniversary of the date that the Company is required to effect such repurchase (as a percent)		1.00%
Series A Convertible Preferred Stock | After May 3, 2024 | Maximum
Series A Convertible Preferred Stock
Dividend rate (as a percent)		6.875%
Series A Convertible Preferred Stock | Orogen
Series A Convertible Preferred Stock
Sale of convertible preferred stock (in shares)	108,000
Shares issuable upon conversion (in shares)	3,000,000
Aggregate purchase price	$ 108,000
Conversion price (in dollars per share)	$ 36.00
Dividend rate (as a percent)	3.875%

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Noncontrolling interest - (Details) - Virtusa India Private Limited - Polaris $ in Thousands	Aug. 01, 2018	Feb. 12, 2018 USD ($)	Feb. 12, 2018 ₨ / shares	Mar. 03, 2016 USD ($)
Acquisitions
Shares acquired (as a percent)				51.70%
Cash paid at closing				$ 168,257
Ownership interest of diluted shares (as a percent)		93.00%	93.00%
Exit price (in INR per share) | ₨ / shares			₨ 480
Expected amount of payment to settle the delisting offer		$ 145,000
Maximum period for public shareholders to tender shares after delisting	1 year

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Income Taxes - Income tax holiday (Details) - a		3 Months Ended			9 Months Ended
	Sep. 20, 2019	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Income Taxes
Effective tax rate (as a percent)		44.70%		44.80%	43.30%	63.30%
India
Income Taxes
Effective tax rate (as a percent)	25.17%		34.90%
Hyderabad, India | Indian Operations In Special Economic Zone
Income Taxes
Parcel of land (in acres)		6.3			6.3
Consecutive period of income tax exemption					10 years
Income tax benefits total eligibility period					15 years
L [K] | Virtusa Private Limited
Income Taxes
Income tax exemption period					12 years

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Debt - Credit Agreement (Details) - USD ($) $ in Thousands		9 Months Ended
	Feb. 06, 2018	Dec. 31, 2019	Dec. 31, 2018	Oct. 15, 2019	Oct. 14, 2019	Mar. 12, 2018	Feb. 05, 2018
Debt
Amount drawn down on credit facility		$ 36,000	$ 32,000
eTouch
Debt
Anniversary payment term		18 months
etouch anniversay payment		$ 17,500
JPM | Term loan facility
Debt
Amount under term loan	$ 180,000
Credit Agreement | JPM | London Interbank Offered Rate L I B O R
Debt
Interest rate (as a percent)				2.75%
Credit Agreement | JPM | Revolving credit facility
Debt
Maximum borrowing capacity under the credit agreement	200,000
Amount drawn down on credit facility	55,000	36,000
Credit Agreement | JPM | Delayed-draw term loan
Debt
Amount under term loan	70,000
Credit Agreement | JPM | Delayed-draw term loan | eTouch
Debt
Amount under term loan						$ 70,000
Credit Agreement | JPM | Term loan facility
Debt
Amount under term loan	$ 180,000
Required principal payments per quarter		$ 2,891
Frequency of required principal payments		quarterly
Term of credit facility	5 years
Interest rate (as a percent)		3.99%
Prior Credit Agreement | JPM
Debt
Maximum borrowing capacity under the credit agreement							$ 300,000
Credit Agreement Amendment | JPM | Revolving credit facility
Debt
Maximum borrowing capacity under the credit agreement				$ 275,000	$ 200,000

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Leases - Components of lease expense (Details) - Selling General And Administrative Expenses - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 31, 2019	Dec. 31, 2019
Operating lease cost:
Operating lease cost	$ 3,789	$ 11,403
Variable lease cost	30	74
Short-term lease cost	90	359
Less: Sublease income	(353)	(870)
Total operating lease cost	$ 3,556	$ 10,966

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Derivative Financial Instruments - Interest rate swaps (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Dec. 31, 2019	Mar. 31, 2019
Foreign Exchange Contract
Derivative Financial Instruments
Notional value of outstanding contracts	$ 133,032	$ 118,557
Unrealized net gains related to derivative instruments expected to be reclassified from AOCI into earnings during the next 12 months	$ 52
Foreign Exchange Contract | Maximum
Derivative Financial Instruments
Outstanding term of derivative instruments	15 months
Interest rate swaps
Derivative Financial Instruments
Notional value of outstanding contracts	$ 178,800
Outstanding term of derivative instruments	4 years
Unrealized loss on derivative	$ 5,548	$ 2,284
Interest rate swap 2018
Derivative Financial Instruments
Fixed interest rate	2.85%
Percentage of coverage target retain	50.00%
Interest rate swap 2018 | London Interbank Offered Rate L I B O R
Derivative Financial Instruments
Percentage of coverage on debt	50.00%
2016 interest rate swaps | 1-month LIBOR
Derivative Financial Instruments
Blended weighted average rate	1.025%

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Noncontrolling interest

9 Months Ended

Dec. 31, 2019

Noncontrolling interest

Noncontrolling interest

(14) Noncontrolling interest

On March 3, 2016, the Company’s Indian subsidiary, Virtusa Consulting Services Private Limited (“Virtusa India”), acquired approximately 51.7% of the fully diluted shares of Polaris Consulting & Services Limited (“Polaris”) for approximately $168,257 in cash (the “Polaris Transaction”) pursuant to a share purchase agreement dated as of November 5, 2015, by and among Virtusa India, Polaris and the promoter sellers named therein. Through a series of transactions and in compliance with the applicable Indian rules on takeovers and SEBI Delisting Regulations, Virtusa increased its ownership interest in Polaris from 51.7% to 93.0% by February 12, 2018, when Virtusa consummated its Polaris delisting offer with respect to the public shareholders of Polaris. The delisting offer resulted in an accepted exit price of INR 480 per share (“Exit Price”), for an aggregate consideration of approximately $145,000, exclusive of transaction and closing costs. On July 11, 2018, the stock exchanges on which Polaris common shares are listed notified Polaris that trading in equity shares of Polaris would be discontinued and delisted effective on August 1, 2018. For a period of one year following the date of delisting, Virtusa India has, in compliance with SEBI Delisting Regulations, permitted the public shareholders of Polaris to tender their shares for sale to Virtusa India at the Exit Price.

In connection with the Polaris delisting offer, during the six months ended September 30, 2019, Virtusa India purchased 1,263,117 shares, or approximately 1.2% of Polaris common stock from shareholders for an aggregate purchase price of approximately $8,675. As of September 30, 2019, the number of shares of Polaris common stock held by noncontrolling interest shareholders was 2,009,365 or approximately 1.95% of Polaris’ basic shares of common stock outstanding.

Further to the Polaris delisting, in order to acquire the remaining noncontrolling interest, the Company filed an application for approval and authorization to purchase the remaining outstanding Polaris shares held by the Polaris shareholders (“the Polaris Repurchase”) as well as final approval of the merger of Polaris with and into Virtusa India (“Merger”). On December 9, 2019, the Company received a Common Order (“Court Order”) to move forward with the Polaris Repurchase and certain conditional approvals for the Merger.  

In connection with the Polaris Repurchase under the Court Order, on December 20, 2019, upon the Company filing the required documents, all the outstanding equity shares of Polaris held by public shareholders were deemed cancelled, but converted to the right to receive payment for these shares from the Company. Within 30 days from December 20, 2019, the Company is required to pay consideration of INR 480 per share for each cancelled share held by these former Polaris shareholders.

At December 20, 2019, the total amount payable by the Company to the remaining Polaris public shareholders was $13,564.  During the three months ended December 31, 2019, the Company paid $12,534 to the public shareholders. The remaining balance at December 31, 2019 of $1,030 is presented in accrued expense and other and in restricted cash in the consolidated balance sheet.

In connection with the Merger, the conditional approvals required were approved by the respective authorities on January 2, 2020 and the Merger is effective, with an effective date as of April 1, 2018.  

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Nature of the Business

9 Months Ended

Dec. 31, 2019

Nature of the Business

Nature of the Business

(1) Nature of the Business

Virtusa Corporation (the “Company”, “Virtusa”, “we”, “us” or “our”) is a global provider of digital engineering and information technology (“IT”) outsourcing services that accelerate business outcomes for our clients. We support Forbes Global 2000 clients across large, consumer facing industries like banking, financial services, insurance, healthcare, communications, and media and entertainment, as these clients seek to improve their business performance through accelerating revenue growth, delivering compelling consumer experiences, improving operational efficiencies, and lowering overall IT costs. We provide services across the entire spectrum of the IT services lifecycle, from strategy and consulting to technology and user experience (“UX”) design, development of IT applications, systems integration, testing and business assurance, and maintenance and support services, including infrastructure and managed services. We help our clients solve critical business problems by leveraging a combination of our distinctive consulting approach, unique platforming methodology, and deep domain and technology expertise.

Our services enable our clients to accelerate business outcomes by consolidating, rationalizing and modernizing their core customer-facing processes into one or more core systems. We deliver cost-effective solutions through a global delivery model, applying advanced delivery methods such as Agile, an industry standard technique designed to accelerate application development. We also use our consulting methodology, which we refer to as Accelerated Solution Design (“ASD”), which is a collaborative decision-making and design process performed with the client to ensure our solutions meet the client’s specifications and requirements. Our industry leading business transformational solutions combine deep domain expertise with our strengths in software engineering and business consulting to support our clients’ business-imperative initiatives across business growth and IT operations.

Headquartered in Massachusetts, we have offices in the United States, Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, Austria, the United Arab Emirates, Hong Kong, Japan, Qatar, Mexico, Australia and New Zealand, with global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as near shore delivery centers in the United States.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Dec. 31, 2019

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, 2019 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May 24, 2019. 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.

Principles of Consolidation

Principles of Consolidation

The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of Virtusa Corporation and all of its subsidiaries that are directly or indirectly more than 50% owned or controlled. When the Company does not have a controlling interest in an entity, but exerts a significant influence on the entity, the Company

applies the equity method of accounting. For those majority-owned subsidiaries that are not 100% owned by the Company, the interests of the minority owners are accounted for as noncontrolling interests.

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, intangible assets, 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 December 31, 2019 and March 31, 2019, the carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits, other accrued expenses and long-term debt, approximate their fair values due to the nature of the items. See Note 5 for a discussion of the fair value of the Company’s other financial instruments.

Recent accounting pronouncements

Recent accounting pronouncements

Recently Adopted Accounting Pronouncements

Unless otherwise discussed below, the adoption of new accounting standards did not have an impact on the consolidated financial statements.

In February 2016, the FASB issued an update (ASU 2016-02) to the standard on leases to increase transparency and comparability among organizations. The FASB subsequently issued ASU 2018-10 and ASU 2018-11 in July 2018, ASU 2018-20 in December 2018 and ASU 2019-01 in March 2019, which provide clarifications and improvements to this new standard. ASU 2018-11 also provides the optional transition method which allows companies to apply the new lease standard at the adoption date instead of at the earliest comparative period presented. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. The standard permits the use of either retrospective to each prior reporting period presented with the cumulative effect of adoption recognized at the beginning of the earliest period presented or retrospective to the beginning of the period of adoption through a cumulative-effect adjustment (the “Modified Retrospective Effective Date Method”).

The Company adopted this standard, (“ASC Topic 842”) effective April 1, 2019, using a Modified Retrospective Effective Date Method. The Company has elected the package of practical expedients which permits the Company to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company did not elect the use of hindsight practical expedient to reevaluate the lease term of existing contracts. Prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting policies. The impact of adoption primarily relates to the recognition of ROU operating lease assets and operating lease liabilities on the Company’s unaudited consolidated balance sheets for all operating leases with a term greater than twelve months. The adoption of this standard on April 1, 2019 resulted in the recognition of ROU assets for operating leases of $54,762 and operating lease liabilities of $59,157. The Company’s accounting for finance leases (formerly capital leases) remains

substantially unchanged. The adoption of this standard did not have an impact on the consolidated statements of income and comprehensive income (loss), consolidated statement of changes in stockholders’ equity or the consolidated statement of cash flows.

See Note 7 “Leases” for additional information regarding leases.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This standard requires customers to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The standard also requires the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement. For public companies, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company early adopted this standard, as of July 1, 2019, on a prospective basis for applicable implementation costs. The adoption of this standard did not have a material impact on the consolidated balance sheet, consolidated statements of income, consolidated statement of changes in stockholders’ equity or the consolidated statement of cash flows.

New Accounting Pronouncements

Unless otherwise discussed below, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. The FASB subsequently issued ASU 2019-04 in April 2019, ASU 2019-05 in May 2019 and ASU 2019-11 in November 2019 which provide clarifications and improvements to this new standard. The FASB also issued ASU 2019-10 in November 2019, which amends the mandatory effective date for all other than public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This standard update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This update is effective for public entities from fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The effect on the consolidated financial statements will largely depend on the composition and credit quality of our investment portfolio and the economic conditions and forecasts at the time of adoption. Based on the current composition of our investment portfolio, current market conditions, and historical credit loss activity, the impact on our consolidated financial statements and related disclosures is not expected to be material.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The standard will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of this new standard will have on its consolidated financial statements.

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Document and Entity Information - shares	9 Months Ended
	Dec. 31, 2019	Feb. 03, 2020
Document and Entity Information
Entity Registrant Name	VIRTUSA CORP
Document Quarterly Report	true
Document Transition Report	false
Entity Central Index Key	0001207074
Document Type	10-Q
Document Period End Date	Dec. 31, 2019
Trading Symbol	VRTU
Amendment Flag	false
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	04-3512883
Current Fiscal Year End Date	--03-31
Entity Address, Address Line One	132 Turnpike Rd
Entity Address, City or Town	Southborough
Entity Address, Postal Zip Code	01772
Entity Address, State or Province	MA
City Area Code	508
Local Phone Number	389-7300
Entity File Number	001-33625
Title of 12(b) Security	Common Stock
Entity Current Reporting Status	Yes
Security Exchange Name	NASDAQ
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		29,860,501
Entity Shell Company	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3

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Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Consolidated Statements of Comprehensive Income (Loss)
Net income	$ 12,838	$ 12,797	$ 26,106	$ 9,192
Other comprehensive income (loss):
Foreign currency translation adjustment	4,630	(2,477)	(2,106)	(20,201)
Pension plan adjustment	79	73	(606)	(23)
Unrealized gain (loss) on available-for-sale debt securities, net of tax effect		263		(51)
Unrealized gain (loss) on effective cash flow hedges, net of tax effect	(2,817)	6,067	(5,031)	(1,072)
Other comprehensive income (loss)	1,892	3,926	(7,743)	(21,347)
Comprehensive income (loss)	14,730	16,723	18,363	(12,155)
Less: comprehensive income attributable to noncontrolling interest, net of tax	484	669	849	134
Comprehensive income (loss) available to Virtusa stockholders	$ 14,246	$ 16,054	$ 17,514	$ (12,289)