Exhibit 99.1
NEWS BULLETIN FROM
FOR FURTHER INFORMATION
Investors: | Media: | |
James Trouba | Dorothy Chisholm | |
Tel: (248) 848-8896 | Tel: (248) 848-2283 | |
jtrouba@covansys.com | dchisholm@covansys.com |
FOR IMMEDIATE RELEASE
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
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
and Pro Forma Income from Operations Increased 20% in 2006
FARMINGTON HILLS, MI, March 8, 2007 — 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%.
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%.
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:
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.”
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, www.covansys.com.
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, 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.
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
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.
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COVANSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||||||
Revenue | $ | 116,859 | $ | 109,961 | $ | 455,471 | $ | 434,120 | ||||||||||||||||||||||||
Cost of revenue | 82,768 | 81,676 | 332,307 | 316,109 | ||||||||||||||||||||||||||||
Gross profit | 34,091 | 28,285 | 123,164 | 118,011 | ||||||||||||||||||||||||||||
Selling, general and administrative | 19,406 | 17,446 | 74,649 | 72,097 | ||||||||||||||||||||||||||||
Net loss on sale of businesses | — | — | 218 | — | ||||||||||||||||||||||||||||
Income from operations | 14,685 | 10,839 | 48,297 | 45,914 | ||||||||||||||||||||||||||||
Interest expense | 7 | — | 41 | 495 | ||||||||||||||||||||||||||||
Other income(expense), net | 1,153 | 2,079 | 5,012 | 3,507 | ||||||||||||||||||||||||||||
Income before income taxes | 15,831 | 12,918 | 53,268 | 48,926 | ||||||||||||||||||||||||||||
Provision for income taxes | 5,544 | 3,295 | 17,348 | 11,388 | ||||||||||||||||||||||||||||
Net income | $ | 10,287 | $ | 9,623 | $ | 35,920 | $ | 37,538 | ||||||||||||||||||||||||
Earnings Per Share: | ||||||||||||||||||||||||||||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||||||||
Net income | $ | 0.28 | $ | 0.27 | $ | 0.26 | $ | 0.25 | $ | 0.97 | $ | 0.95 | $ | 1.00 | $ | 0.99 | ||||||||||||||||
Weighted average common shares | 36,314 | 38,392 | 37,388 | 38,033 | 36,855 | 37,694 | 37,364 | 37,960 | ||||||||||||||||||||||||
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COVANSYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
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)
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 | ||||
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COVANSYS CORPORATION
CONDENSED CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
(Unaudited, in thousands except per share amounts)
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 Local | |||||||||||||||||||||||
Consulting | Consulting | |||||||||||||||||||||||
As reported | Practice | Proforma | As reported | Practice | 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 | ||||||||||||||||
COVANSYS CORPORATION
CONDENSED CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
(Unaudited, in thousands except per share amounts)
CONDENSED CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
(Unaudited, in thousands except per share amounts)
Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2005 | |||||||||||||||||||||||
State and Local | State and Local | |||||||||||||||||||||||
Consulting | Consulting | |||||||||||||||||||||||
As reported | Practice | Proforma | As reported | Practice | Proforma | |||||||||||||||||||
Revenue | $ | 455,471 | $ | 21,905 | $ | 433,566 | $ | 434,120 | $ | 75,741 | $ | 358,379 | ||||||||||||
Cost of revenue | 332,307 | 22,231 | 310,076 | 316,109 | 65,529 | 250,580 | ||||||||||||||||||
Gross profit (loss) | 123,164 | (326 | ) | 123,490 | 118,011 | 10,212 | 107,799 | |||||||||||||||||
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Selling, general, and administrative expenses | 74,649 | 2,627 | 72,022 | 72,097 | 7,419 | 64,678 | ||||||||||||||||||
Loss (gain) on sale of businesses | 218 | 285 | (67 | ) | — | — | — | |||||||||||||||||
Income (loss) from operations | 48,297 | (3,238 | ) | 51,535 | 45,914 | 2,793 | 43,121 | |||||||||||||||||
Interest income and other | (4,971 | ) | — | (4,971 | ) | (3,012 | ) | — | (3,012 | ) | ||||||||||||||
Income (loss) before provision (benefit) for income taxes | 53,268 | (3,238 | ) | 56,506 | 48,926 | 2,793 | 46,133 | |||||||||||||||||
Provision (benefit) for income taxes | 17,348 | (1,295 | ) | 18,643 | 11,388 | 1,117 | 10,271 | |||||||||||||||||
Net income (loss) | $ | 35,920 | $ | (1,943 | ) | $ | 37,863 | $ | 37,538 | $ | 1,676 | $ | 35,862 | |||||||||||
Earnings per share: | ||||||||||||||||||||||||
Basic | $ | 0.97 | $ | 1.03 | $ | 1.00 | $ | 0.96 | ||||||||||||||||
Diluted | $ | 0.95 | $ | 1.00 | $ | 0.99 | $ | 0.94 | ||||||||||||||||