|
COVANSYS REPORTS FOURTH QUARTER AND FULL YEAR 2006 RESULTS
Focus on Global Outsourcing Solutions and Continued Expansion in Key Verticals Drives Record Revenue in 2006
Pro Forma Revenue Increased 21% and Pro Forma Income from Operations Increased 20% in 2006
FARMINGTON HILLS, Mich., (Mar 08, 2007)
/PRNewswire-FirstCall/ -- Covansys
Corporation (Nasdaq: CVNS), a global consulting and technology services
company, today announced its financial results for the fourth quarter and
fiscal year ended December 31, 2006.
Covansys reported revenue of $116.9 million in the fourth quarter compared
with $110.0 million in the fourth quarter of 2005 and $110.9 million in the
third quarter of 2006. For the full fiscal year 2006, revenue was $455.5
million, an increase of 4.9% compared with revenue of $434.1 million in fiscal
year 2005. Effective June 1, 2006, Covansys completed the sale of its state
and local government consulting practice to Saber Solutions, Inc. Pro forma
revenue, excluding the state and local government practice, was $433.6 million
in 2006, an increase of 21.0% compared with $358.4 million in 2005.
Gross profit for 2006 was $123.2 million or 27.0% of revenue, compared
with $118.0 million, or 27.2% of revenue, for 2005. Pro forma gross profit
was $123.5 million in 2006, up nearly 15% as compared with pro forma gross
profit of $107.8 million in 2005.
The Company reported income from operations of $48.3 million for the year
ended December 31, 2006, an increase of 5.2% compared with $45.9 million for
2005. Pro forma income from operations, excluding the state and local
government practice, was $51.5 million in 2006 compared with $43.1 million in
2005, an increase of approximately 20%.
Covansys generated net income of $10.3 million for the quarter ended
December 31, 2006, as compared to $10.3 million in the prior quarter and $9.6
million in the fourth quarter of 2005. For the full year 2006, net income was
$35.9 million compared with $37.5 million in 2005. Pro forma net income,
excluding the state and local government practice, was $37.9 million in 2006
compared with $35.9 million in 2005.
The effective tax rate in 2006 was 32.6% compared with 23.3% in 2005. The
2006 tax rate was negatively impacted by the mix in earnings from domestic and
foreign operations, which added approximately two percentage points to the
effective tax rate when compared with the effective tax rate in 2005. The
effective tax rate in 2005 benefited from the adjustment of previously
recorded tax reserves of $3.2 million, or approximately six percentage points,
due to the expiration of the statute of limitation for the tax years to which
the reserves related. The Company is undertaking tax planning strategies to
align the mix in earnings from domestic and foreign operations to lower its
overall tax rate to be comparable with our competitors.
Net income in the fourth quarter of 2006 was $0.27 per share (on a diluted
basis), compared with $0.25 per share (on a diluted basis) for the same period
in 2005. For the full year of 2006, net income was $0.95 per share (on a
diluted basis) compared to $0.99 per share (on a diluted basis) in 2005. Pro
forma net income, excluding the state and local government practice, was $1.00
per share (on a diluted basis) in 2006 compared with $0.94 per share (on a
diluted basis) in 2005. For the full year 2005, net income includes the
adjustment of previously recorded tax reserves of $3.2 million, as stated
above. Diluted earnings per share in the fourth quarter of 2006 and for the
year was affected by the dilutive impact of common stock warrants of
approximately 1,491,000 and 384,000 additional shares, respectively.
"I am pleased with our outstanding progress in executing on our strategic
plan in 2006," said Raj Vattikuti, Covansys' president and chief executive
officer. "With the sale of our state and local government practice, we are
now a more focused company dedicated to providing global outsourcing
solutions. Our record revenue demonstrates our success in further penetrating
key verticals -- most notably financial services and healthcare. We have also
expanded our core service offerings beyond Application Maintenance and
Development Outsourcing services to include ERP, Infrastructure Services,
Technology in SOA and Business Intelligence, Testing, and BPO. As a result,
our commercial segment grew at a 20% rate. While there is still more work to
be done to further reduce costs and enhance efficiency, we are confident that
our efforts in 2006 have positioned Covansys for even greater long-term growth
and success."
Highlights of Covansys' fiscal 2006 include:
-- Completed the sale of the company's state and local government
consulting practice to Saber Solutions, Inc;
--Increased global headcount by 1,400 employees and consultants, or over
19% to reach 8,700, as compared to Covansys' total headcount of 7,300 at
the end of fiscal 2005 prior to the sale of the state and local
government practice;
--Repurchased approximately 1.6 million shares of Covansys common stock
for approximately $24 million. As of December 31, 2006, the Company had
approximately 36.4 million shares of common stock outstanding;
--Penetrated into Tier 1 business, which included two major payment
services companies, a large financial services company, and two
healthcare companies; and
-- Ramped up over 600 highly skilled consultants and delivered very high
quality products within one year.
Additional Financial Results
-- Domestic utilization was 86.2% in the fourth quarter of 2006, up from
84.1% in the fourth quarter of 2005, and a slight increase over last quarter
from 85.9%. Utilization in India was 79.8% for the fourth quarter, up from
72.9% in the fourth quarter of 2005, a slight decline over last quarter when
utilization in India was 80.3%
--The Company had $122.3 million in cash and short-term investments at the
end of the fourth quarter of 2006. Cash from operations for 2006 was $35.5
million.
Progress in Global Operating Structure
Covansys also announced that it is in the process of implementing a
strategic reorganization of its operating structure. Account teams are being
established to provide superior service in a number of industries, including:
-- Financial Services
-- Healthcare
--Retail and Distribution
--Manufacturing and Utilities
The Company anticipates that this structural evolution will allow it to
provide a higher level of service within key industries and a higher level of
specialized expertise to its clients.
"Through this strategic reorganization, we will be well equipped to offer
a broader range of industry-tailored services to our clients," said Mr.
Vattikuti. "In effect, we are taking a good model and improving upon it to
better meet the evolving needs of our clients, and as a result, we expect to
further penetrate our existing client accounts. We also anticipate that our
enhanced operational capabilities will facilitate the further expansion of our
account portfolio into new verticals."
Outlook
Jim Trouba, Covansys' chief financial officer, noted, "During 2006 we were
successful in improving the company's already strong financial position, even
as we executed on our share repurchase program. We are committed to driving
continued growth, improving our tax rate, and creating shareholder value in
2007, and as always, we will be disciplined in deploying our shareholders'
capital to achieve these objectives."
Mr. Vattikuti concluded, "Covansys delivered solid financial and
operational results in 2006 and we are confident that we can achieve even
greater success in 2007 as a pure-play provider of global outsourcing
solutions. The success of our flexible delivery model in the last year
demonstrated our ability to compete with Tier-1 providers and we are confident
that our improved operating structure will enable us to sustain and accelerate
growth. By the end of 2006, we had approximately 50 multi-million dollar
accounts and we expect that number to increase in 2007. With the support of
Covansys' talented and dedicated employees and consultants around the world,
we will continue to execute on our plan to drive increased revenue, improved
profitability and enhanced value for our shareholders."
Conference Call
Covansys will host a conference call on Monday, March 12, 2007 at 10:00
a.m. Eastern Time to discuss its financial results for the fourth quarter and
full year ended December 31, 2006. Interested parties may access the call by
dialing 866-700-7477 or 617-213-8840 from outside North America and entering
the passcode 51790914. The call may also be accessed via the Internet on the
company's website,
http://www.covansys.com.
A replay of the call will be available beginning at approximately 1:00
p.m. Eastern Time on March 12, 2007 through midnight on March 26, 2007 by
dialing 888-286-8010 or 617-801-6888 and entering the passcode 19337464. The
replay will also be available on the company's website, www.covansys.com,
for 90 days.
About Covansys
Headquartered in Michigan, Covansys Corporation (Nasdaq: CVNS) is a global
consulting and technology services company specializing in industry-specific
solutions, strategic outsourcing and integration services. Clients gain
competitive advantage by leveraging our unique global delivery capability to
achieve rapid deployment, world-class quality and reduced costs. Covansys is
known for strategic outsourcing and technology solutions in the healthcare,
financial services, retail and distribution, manufacturing, telecommunications
and high-tech industries. Founded in 1985, Covansys now has more than 8,700
consultants and employees worldwide. Covansys was one of the first U.S.- based
IT services companies to establish offshore facilities in India, and is a
pioneer in seamlessly integrating offshore capabilities into its offerings.
Two of the company's three wholly-owned development centers in India are
assessed at Level 5 in SEI CMM(R). All three are ISO 9001:2000 certified and
assessed at Level 5 in PCMM(R), and five global facilities are BS7799-2:2002
certified. For more information visit: http://www.covansys.com.
Safe Harbor Statement
Certain statements in this press release are "forward-looking statements"
under the federal securities laws. These forward looking statements are
subject to a number of substantial risks and uncertainties and may be
identified by the words "will," "anticipate," "believe," "estimate," "expect"
or "intend" and similar expressions. Our actual results, performance or
achievements could differ materially from these forward-looking statements.
Factors that could cause or contribute to such material differences include
internal control weaknesses, costs, variability of operating results, failure
to recruit, train and retain skilled IT professionals, impact of changes in
estimates on fixed-price projects, exposure to regulatory, political and
general economic conditions in India and Asia, short term nature and
termination provisions of contracts, competition in the IT services industry,
economic conditions unique to clients in specific industries, the success of
the company to negotiate contract renewals at comparable terms, limited
protection of intellectual property rights, infringement by our services on
the property rights of others, legal liability and damage to our professional
reputation from claims made against our work, and risks related to merger,
acquisition and strategic investment strategy. You should not place undue
reliance on any forward-looking statements contained herein. Except as
expressly required by the federal securities laws, we undertake no obligation
to update such factors or to publicly announce the results of any of the
forward-looking statements contained herein to reflect future events,
developments, changed circumstances or for any other reason.
FOR
FURTHER INFORMATION
Investors:
James S. Trouba
(248) 848-8896
jtrouba@covansys.com
Media:
Dorothy Chisholm
(248) 848-2283
dchisholm@covansys.com
COVANSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
Three Months Ended December 31,
2006 2005
Revenue $116,859 $109,961
Cost of revenue 82,768 81,676
Gross profit 34,091 28,285
Selling, general and administrative 19,406 17,446
Net loss on sale of businesses - -
Income from operations 14,685 10,839
Interest expense 7 -
Other income(expense), net 1,153 2,079
Income before income taxes 15,831 12,918
Provision for income taxes 5,544 3,295
Net income $10,287 $9,623
Earnings Per Share:
Basic Diluted Basic Diluted
Net income $0.28 $0.27 $0.26 $0.25
Weighted average common shares 36,314 38,392 37,388 38,033
Year Ended December 31,
2006 2005
Revenue $455,471 $434,120
Cost of revenue 332,307 316,109
Gross profit 123,164 118,011
Selling, general and administrative 74,649 72,097
Net loss on sale of businesses 218 -
Income from operations 48,297 45,914
Interest expense 41 495
Other income(expense), net 5,012 3,507
Income before income taxes 53,268 48,926
Provision for income taxes 17,348 11,388
Net income $35,920 $37,538
Earnings Per Share:
Basic Diluted Basic Diluted
Net income $0.97 $0.95 $1.00 $0.99
Weighted average common shares 36,855 37,694 37,364 37,960
COVANSYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
December 31, December 31,
2006 2005
Current Assets:
Cash and cash equivalents $91,007 $58,030
Short-term investments 31,270 23,332
122,277 81,362
Accounts receivable, net 94,229 82,526
Revenues earned in excess of billing,
net 2,981 25,632
Prepaid expenses and other 12,321 15,117
Total current assets 231,808 204,637
Property and equipment, net 33,955 36,656
Goodwill, net 22,545 21,893
Other assets 9,020 8,075
Total Assets $297,328 $271,261
Current liabilities $58,003 $59,727
Other liabilities 7,695 3,674
Shareholders' equity 231,630 207,860
Total Liabilities and
Shareholders' Equity $297,328 $271,261
COVANSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Year Ended December 31,
2006 2005
Net income $35,920 $37,538
Adjustments to reconcile net income to
net cash used by
operating activities:
Depreciation and amortization 12,371 13,145
Loss on disposal and obsolescence of
property and equipment 260 155
Loss on sale of businesses 218 -
Provision for and write-off of
doubtful accounts 520 63
Provision for deferred income taxes 907 1,316
Stock based compensation cost 1,446 -
Impairment of long-lived assets - 52
Gain from sale of development center - (1,000)
Loss(gain) from sale of short-term
investments (52) 5
Gain from sale of long-term
investment (915) -
Other - (6)
Change in assets and liabilities (15,170) 421
Net cash provided by operating
activities 35,505 51,689
Cash flows from investing activities:
Investment in property, equipment and
other (14,587) (16,991)
Proceeds from sale of development
center 200 800
Proceeds from sale of business 33,528 -
Gain from sale of property and
equipment 1,382 -
Gain from sale of long-term
investment 915 -
Proceeds from sale of available-for-
sale securities 140,798 130,642
Purchases of available-for-sale
securities (148,215) (131,833)
Investment in computer software - (83)
Business acquisitions net of cash
acquired - (7,022)
Net cash provided by (used in)
investing activities 14,021 (24,487)
Cash flows from financing activities:
Repayment of subordinated notes - (17,500)
Net proceeds from issuance of common
stock - -
Net proceeds from exercise of stock
options and other, net 5,450 3,509
Tax benefit from stock options
exercised 1,006 -
Repurchases of common stock (23,982) (4,803)
Net cash (used in) financing
activities (17,526) (18,794)
Effect of exchange rate changes on
cash 977 (219)
Increase (decrease) in cash and cash
equivalents 32,977 8,189
Cash and cash equivalents at beginning
of period 58,030 49,841
Cash and cash equivalents at end of
period $91,007 $58,030
COVANSYS CORPORATION
CONDENSED CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
(Unaudited, in thousands except per share amounts)
Three Months Ended December 31,
2006 2005
State
and
Local State and
Consul Local
-ting Consulting
As Practice As Practice
reported Proforma reported Proforma
Revenue $116,858 $- $116,858 $109,961 $14,422 $95,539
Cost of revenue 82,767 - 82,767 81,676 14,355 67,321
Gross profit (loss) 34,091 - 34,091 28,285 67 28,218
Selling, general,
and administrative
expenses 19,406 - 19,406 17,446 1,405 16,041
Loss (gain) on sale
of businesses - - - - - -
Income (loss) from
operations 14,685 - 14,685 10,839 (1,338) 12,177
Interest income and
other (1,146) - (1,146) (2,079) - (2,079)
Income (loss) before
provision (benefit)
for income taxes 15,831 - 15,831 12,918 (1,338) 14,256
Provision (benefit)
for income taxes 5,544 - 5,544 3,295 (535) 3,830
Net income (loss) $10,287 $- $10,287 $9,623 $(803) $10,426
Earnings per share:
Basic $0.28 $0.28 $0.26 $0.28
Diluted $0.27 $0.27 $0.25 $0.27
Year Ended December 31,
2006
State and
Local
Consulting
As reported Practice Proforma
Revenue $455,471 $21,905 $433,566
Cost of revenue 332,307 22,231 310,076
Gross profit (loss) 123,164 (326) 123,490
Selling, general, and administrative
expenses 74,649 2,627 72,022
Loss (gain) on sale of businesses 218 285 (67)
Income (loss) from operations 48,297 (3,238) 51,535
Interest income and other (4,971) - (4,971)
Income (loss) before provision
(benefit) for income taxes 53,268 (3,238) 56,506
Provision (benefit) for income taxes 17,348 (1,295) 18,643
Net income (loss) $35,920 $(1,943) $37,863
Earnings per share:
Basic $0.97 $1.03
Diluted $0.95 $1.00
Year Ended December 31,
2005
State and
Local
Consulting
As reported Practice Proforma
Revenue $434,120 $75,741 $358,379
Cost of revenue 316,109 65,529 250,580
Gross profit (loss) 118,011 10,212 107,799
Selling, general, and administrative
expenses 72,097 7,419 64,678
Loss (gain) on sale of businesses - - -
Income (loss) from operations 45,914 2,793 43,121
Interest income and other (3,012) - (3,012)
Income (loss) before provision
(benefit)
for income taxes 48,926 2,793 46,133
Provision (benefit) for income taxes 11,388 1,117 10,271
Net income (loss) $37,538 $1,676 $35,862
Earnings per share:
Basic $1.00 $0.96
Diluted $0.99 $0.94
SOURCE Covansys Corporation
CONTACT: Investors: James Trouba, +1-248-848-8896, jtrouba@covansys.com;
or Media: Dorothy Chisholm, +1-248-848-2283, dchisholm@covansys.com,
both of
Covansys Corporation
|
