Exhibit 99.1
Investors:
Atul Phull
Kanbay International
(847) 384-8858
aphull@kanbay.com
Media:
Debra Johnson
Kanbay International
(773) 910-0411
djohnson@kanbay.com
Kanbay International Reports Second Quarter Results
Revenue Growth of 7 Percent Sequentially and 27 Percent Year-Over-Year
Diluted EPS of $.19
ROSEMONT, III. – Aug. 3, 2005 – Kanbay International, Inc. (NASDAQ: KBAY), a global IT services firm focused on the financial services industry, today announced financial results for the second quarter ended June 30, 2005.
Second Quarter 2005 Financial Highlights
• Revenue rose to $57 million, up 7 percent sequentially and up 27 percent year-over-year despite the sale of products business
• Third-party revenue increased 7 percent sequentially and 41 percent year-over-year
• Net income was $7.3 million, up 13 percent year-over-year; Operating profit rose 17 percent year-over-year to $8.8 million
• Diluted earnings per share of $0.19
• 6 new clients, including 3 new Platinum clients
Commenting on the results, Raymond Spencer, Chairman and CEO of Kanbay, said, “After finishing our first full year as a public company, we are pleased with our performance. We are achieving our growth objectives and executing against our business plan while investing strategically in the continued growth of our business. We continue to perform well against the goals we outlined at the beginning of the year, namely, to grow third-party revenue, to optimize our related-party relationships and to improve our operating profit through economies of scale.”
Kanbay’s second quarter revenue rose 7 percent sequentially and 27 percent year-over-year to $57 million driven by growth of existing accounts and the addition of new clients. Notably, revenue from third parties rose 7 percent sequentially and 41 percent year-over-year to $21.7 million. Third-party revenue sources include all clients other than HSBC, Morgan Stanley and their affiliates.
Spencer commented, “We are pleased with our growth in third-party revenue, especially given that we did not have the full contribution of revenue from our product business in the quarter. Excluding the impact of the sale of the product business, third-party revenue grew 15 percent sequentially and 55 percent year-over-year. The disposition of our product business on May 31st allows us to focus solely on growing our core services business.”
He added, “We finished the quarter with over 4,700 associates globally, an increase of more than 700 associates from the first quarter. As we have demonstrated in the past, we have the ability to quickly scale business delivery without compromising quality.”
Kanbay added 6 new clients in the quarter, of which 3 are Platinum clients. Platinum clients are relationships that produce greater than $5 million of annual revenue or have the potential to produce that level of revenue within their first two years as clients. According to Spencer, “We continue to be very active in new client development and are pleased with the quality of our new relationships and also the strength of our pipeline of prospective clients. It is particularly worth noting that two of our new clients this quarter are in the insurance industry, an area we have previously targeted as a major opportunity in the financial services sector. One of our new insurance clients in the quarter is also a Platinum account.”
Operating income rose 17 percent from last year to $8.8 million, but fell 13 percent sequentially on lower gross margins and additional visa costs. Gross margins at 46.1 percent were consistent with the second quarter last year, but fell sequentially due to annual salary increases and non-recurring severance costs related to the downsizing of the company’s St. Louis facility.
Bill Weissman, Chief Financial Officer of Kanbay, said, “Once again, Kanbay had a very solid quarter of financial performance with both revenue and earnings slightly better than projected. Our revenue growth for 2005 continues to track as we expected. We continue to consistently add blue chip clients and reduce our client concentration. We also expect our operating margins to improve in the third quarter as we have the significant visa and non-recurring expenses behind us.”
“Our tax rate for the quarter was 26 percent – up from the first quarter and in line with our expectations. Our tax rate was affected by a portion of our tax holiday in India expiring on March 31st, and should remain around current levels for the remainder of the year. Our net income for the period was $7.3 million, slightly better than projected, and our diluted earnings per share were 19 cents.”
Outlook and Guidance
Based on current visibility, Kanbay is providing the following guidance:
• Slightly increasing 2005 revenue guidance to at least $235 million, with a target of $60 million in the third quarter.
• Target net income for 2005 remains at $34.5 million, with a target of $8.7 million in the third quarter.
“We continue to feel positive about our outlook for the near and longer term,” said Raymond Spencer. “The overall demand environment for offshore IT services continues to be strong. Specific to Kanbay, our business model is performing very well as evidenced by our results, and we are experiencing particular success in growing our third-party revenue. Our consistent high-quality execution, combined with the strength of our pipeline and the increased recognition of the Kanbay brand, gives us confidence regarding our expectations.”
Conference Call Details
Kanbay management will host a conference call on August 3, 2005 at 8:00 a.m. (ET) to discuss the Company’s results of operations for the second quarter. To participate in the call, domestic callers can dial (800) 561-2601 and international callers can dial (617) 614-3518. The passcode for the conference call is 65868800. The conference call will also be webcast and accessible through Kanbay’s website at http://www.kanbay.com. Please access the website at least 15 minutes prior to the call to register and download any required software. A replay of the conference call will be available for one week, until 5:00 p.m. (ET) on Aug. 10, 2005, by dialing (888) 286-8010 for domestic callers and (617) 801-6888 for international callers. The passcode for the replay is 55888762. A webcast replay of the conference call will also be available for two weeks following the call, until 5:00 p.m. (ET) on Aug. 17, 2005, through Kanbay’s website at http://www.kanbay.com.
About Kanbay International, Inc.
Founded in 1989, Kanbay International, Inc. (NASDAQ: KBAY) is a global IT services firm focused on the financial services industry. With over 4,700 associates, Kanbay provides its services primarily to banking institutions, insurance companies, credit service companies and capital markets firms. The company uses a global delivery model to provide application development, maintenance and support, software package selection and integration, business process and technology advice and specialized services. Kanbay is a CMM Level 5 assessed company headquartered in greater Chicago with offices in the U.S., Canada, U.K., Australia, Hong Kong, Japan, Singapore and India.
Forward-Looking Statements
This release contains statements relating to projections or future results. These statements are forward-looking statements under the federal securities laws. We
can make no assurance that any projections or future results discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this release. For a discussion of important factors that could affect our actual results, please refer to our SEC filings, including the “Risk Factors” section of our Annual Report on Form 10-K for the most recently completed fiscal year.
Kanbay International, Inc.
Condensed Consolidated Statement of Income (Unaudited)
(dollars in thousands except per share amounts)
| | Three months ended
June 30 | | Six months ended
June 30 | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
Net revenues—related parties | | $ | 35,299 | | $ | 29,331 | | $ | 68,539 | | $ | 55,091 | |
Net revenues—third parties | | 21,719 | | 15,419 | | 41,939 | | 26,664 | |
| | | | | | | | | |
Total revenues | | 57,018 | | 44,750 | | 110,478 | | 81,755 | |
| | | | | | | | | |
Cost of revenues | | 30,729 | | 24,149 | | 58,826 | | 42,914 | |
| | | | | | | | | |
Gross profit | | 26,289 | | 20,601 | | 51,652 | | 38,841 | |
Sales and marketing expenses | | 4,574 | | 4,183 | | 9,214 | | 8,149 | |
General and administrative expenses | | 10,486 | | 7,378 | | 18,963 | | 14,556 | |
Stock compensation expense | | 71 | | 307 | | 203 | | 606 | |
| | | | | | | | | |
Total selling, general and administrative expenses | | 15,131 | | 11,868 | | 28,380 | | 23,311 | |
Depreciation and amortization | | 2,133 | | 1,185 | | 4,041 | | 2,222 | |
Loss (gain) on sale of fixed assets | | 189 | | (10 | ) | 229 | | (20 | ) |
| | | | | | | | | |
Income from operations | | 8,836 | | 7,558 | | 19,002 | | 13,328 | |
Other income (expense) | | | | | | | | | |
Gain on sale of net assets | | 270 | | | | 270 | | | |
Interest income and other, net | | 292 | | (82 | ) | 624 | | 37 | |
Equity in earnings of affiliate | | 438 | | 614 | | 677 | | 1,384 | |
| | | | | | | | | |
Total other income/(expense) | | 1,000 | | 532 | | 1,571 | | 1,421 | |
| | | | | | | | | |
Income before income taxes | | 9,836 | | 8,090 | | 20,573 | | 14,749 | |
Income tax expense | | 2,558 | | 1,660 | | 5,088 | | 2,990 | |
| | | | | | | | | |
Net income | | 7,278 | | 6,430 | | 15,485 | | 11,759 | |
Dividends on preferred stock | | — | | (125 | ) | — | | (277 | ) |
| | | | | | | | | |
Income available to common stockholders | | $ | 7,278 | | $ | 6,305 | | $ | 15,485 | | $ | 11,482 | |
| | | | | | | | | |
Income per share of common stock | | | | | | | | | |
Basic | | $ | 0.21 | | $ | 0.29 | | $ | 0.46 | | $ | 0.54 | |
Diluted | | $ | 0.19 | | $ | 0.21 | | $ | 0.41 | | $ | 0.40 | |
| | | | | | | | | |
Weighted average number of common shares outstanding | | 34,058,128 | | 21,828,474 | | 33,581,125 | | 21,277,125 | |
Weighted average number of common and dilutive shares outstanding | | 37,412,947 | | 29,908,725 | | 37,439,159 | | 29,421,440 | |
Kanbay International, Inc.
Condensed Consolidated Statement of Financial Position (Unaudited)
(In thousands)
| | June 30,
2005 | | December 31,
2004 | |
Assets | | | | | |
Current Assets | | | | | |
Cash and cash equivalents | | $ | 21,161 | | $ | 29,126 | |
Restricted cash | | 2,478 | | 2,478 | |
Short term investments | | 32,021 | | 35,730 | |
Trade accounts receivable | | 41,243 | | 24,664 | |
Other current assets | | 12,249 | | 17,099 | |
Total Current Assets | | 109,152 | | 109,097 | |
Property and equipment – net | | 30,482 | | 20,891 | |
Investment in affiliate | | 23,257 | | 25,094 | |
Long term investments | | 17,664 | | 24,424 | |
Other assets | | 6,639 | | 660 | |
Total Assets | | $ | 187,194 | | $ | 180,166 | |
Liabilities and Stockholders’ Equity | | | | | |
Current Liabilities | | | | | |
Accounts payable | | $ | 3,980 | | $ | 3,973 | |
Accrued and other current liabilities | | 23,946 | | 33,113 | |
Total Current Liabilities | | 27,926 | | 37,086 | |
Total Liabilities | | 27,926 | | 37,086 | |
Stockholders’ Equity | | 159,268 | | 143,080 | |
Total Liabilities and Stockholders’ Equity | | $ | 187,194 | | $ | 180,166 | |
Kanbay International, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
| | Six months ended
June 30 | |
| | 2005 | | 2004 | |
Operating activities | | | | | |
Net income | | $ | 15,485 | | $ | 11,759 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities | | 3,796 | | 1,424 | |
Changes in operating assets and liabilities | | | | | |
Trade accounts receivable | | (14,137 | ) | (19,076 | ) |
Other assets | | (2,640 | ) | (3,630 | ) |
Trade accounts payable | | (425 | ) | 1,230 | |
Other liabilities | | (4,209 | ) | 1,736 | |
Net cash used in operating activities | | (2,130 | ) | (6,557 | ) |
Investing activities | | | | | |
Additions to property and equipment | | (13,407 | ) | (5,415 | ) |
Purchase of business, net of cash acquired | | (6,096 | ) | | |
Sale of short term investments | | 10,468 | | | |
Other investing activities | | 1,055 | | 931 | |
Net cash used in investing activities | | (7,980 | ) | (4,484 | ) |
Financing activities | | | | | |
Proceeds from exercise of options | | 2,109 | | | |
Other financing activities | | (4 | ) | 294 | |
Net cash provided by financing activities | | 2,105 | | 294 | |
Effect of exchange rates on cash and cash equivalents | | 40 | | (51 | ) |
Decrease in cash and cash equivalents | | (7,965 | ) | (10,798 | ) |
Cash and cash equivalents at beginning of period | | 29,126 | | 17,419 | |
Cash and cash equivalents at end of period | | 21,161 | | $ | 6,621 | |
| | | | | | | |
