Exhibit 99.1
| News Release
Contact:
Larry Vale
Keane Investor Relations
617.241.9200 x1290
Veronica Kido
Keane Public Relations
617-517-1390 |
Keane Reports Financial Results for Fourth Quarter and Fiscal Year 2005
Q4 Performance Exceeds Revenue and CEPS Guidance, Marking Strong Close to Year and Setting the Tone for 2006
BOSTON, February 15, 2006 – Keane, Inc. (NYSE: KEA), a leading business process and information technology (IT) services firm, today announced its results for the Fourth Quarter and Fiscal Year ended December 31, 2005.
Keane’s revenues for the Fourth Quarter of 2005 were $246.3 million, above the Company’s previous guidance, and an increase of 7.5 percent from revenues of $229.2 million in the Fourth Quarter of 2004. Net income for the Fourth Quarter of 2005 was $10.2 million, representing a decrease of 3.9 percent compared to net income of $10.6 million in the Fourth Quarter of 2004. Diluted earnings per share (EPS) for the Fourth Quarter of 2005 was $.16, above previous guidance, compared to EPS of $.16 for the same period last year. Net income and EPS for the Fourth Quarter of 2005 included a $0.7 million or $.01 non-recurring tax benefit compared to the Fourth Quarter of 2004, which included a $2.2 million or $.03 non-recurring tax benefit.
Keane’s management believes that cash performance is the primary driver of long-term per share value. As such, we view diluted cash earnings per share (CEPS)(1) as an important indicator of performance that helps investors gain a meaningful understanding of our core operating results and future prospects, consistent with the manner in which management measures and forecasts the Company’s performance. CEPS was $0.20 in the Fourth Quarter of 2005, above previous guidance, compared to CEPS of $.20 for the same period last year. CEPS was $.67 in 2005 compared to CEPS of $.63 in 2004.
(1) CEPS excludes amortization of intangible assets, stock-based compensation, and restructuring charges, net. CEPS is not a measurement in accordance with Generally Accepted Accounting Principles (GAAP) and is not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. See reconciliation of EPS to CEPS in the accompanying financial data schedules.
Total revenues for 2005 were $955.9 million, an increase of 4.9 percent compared to revenues of $911.5 million in 2004. Net income for 2005 was $33.4 million, an increase of 3.5 percent compared to net income of $32.3 million in 2004. EPS for 2005 was $.52 compared to EPS of $.48 in 2004. Net income and EPS for the Fiscal Year 2005 included a $3.5 million or $.06 non-recurring tax benefit compared to the Fiscal Year 2004, which included a $2.7 million or $.04 non-recurring net tax benefit.
“Our Fourth Quarter results closed out the year on a positive note that sets the tone for the year ahead,” said Brian Keane, president and CEO of Keane. “2005 was an important year for Keane as we put the plan and the people in place to drive our company-wide One Keane transformation initiative. The goal of the One Keane initiative is to enhance top- and bottom-line growth by creating an efficient global operating model. This will enable us to better serve our clients by accelerating the development of innovative solutions, fostering collaboration, and improving efficiencies.”
“As we aggressively pursue our transformation in 2006, we believe that the Keane organization will be better positioned to deliver high-value, transformational solutions that bundle vertical expertise, business process and application services, cutting-edge technology platforms, and cost-effective global delivery,” added Keane.
2005 Highlights
• Increased Bookings: Keane achieved bookings of $1.4 billion in 2005, an increase of 24.4 percent from bookings of $1.1 billion in 2004.
• Outsourcing bookings were $722.7 million
• Development & Integration bookings were $266.0 million
• Other IT Services bookings were $378.7 million
• Client Engagements: Keane secured new engagements with both new and existing clients, across multiple industries, including: TIAA-CREF, Countrywide Financial Corporation, SEI Investments, Pfizer, Tufts Health Plan, PSE&G, Ecolab, Best Western International, National Weather Service, US Department of Justice, Commonwealth of Kentucky, State of Indiana, and several New York State agencies, including the Office for Temporary and Disability Assistance (OTDA).
• Stock Repurchase: In 2005, Keane repurchased approximately 4.6 million shares of common stock for $54.9 million pursuant to current and prior year stock repurchase programs. Keane’s Board of Directors authorized the repurchase of 6 million shares pursuant to two stock repurchase programs, of which approximately 2.6 million remain available for repurchase.
• BPO Investment: Keane increased its ownership stake in Keane Worldzen from 62% to approximately 86%. Keane Worldzen experienced improved profitability throughout 2005 and achieved break-even in Q4. Keane Worldzen continues to be an important integration point for Keane’s solution offerings, particularly the convergence of BPO and Application Services.
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• Revolving Credit Facility: In Q3, Keane closed a five-year, $200 million senior unsecured revolving credit facility with a banking syndicate led by Bank of America, N.A. Keane expects to use this funding in the continued execution of its strategy, including acquisitions, share repurchases, and investments in Keane’s vertical and solutions development expertise.
• Richard Garnick Hire: In Q3, Keane named former Wipro executive Richard Garnick its president of North American Services. Garnick is responsible for driving sales strategy and delivery execution. He also is playing a lead role in the One Keane transformation initiative.
“Looking at the year overall, we made great progress securing the resources necessary to continue investing in strategic areas of the Keane business,” said John Leahy, executive vice president and CFO. “In 2005 we continued to generate significant cash, as cash from operations totaled $45 million for the year. The execution of the $200 million senior unsecured credit facility is a great resource for the company as we enter 2006, and is a strong endorsement of Keane’s growth strategy,” continued Leahy.
TTA Update
Since winning the $367 million USD ($494 million AUD) contract with the State Government of Victoria, Australia’s Transport Ticketing Authority (TTA) in July, Keane Australia Micropayment Consortium (Kamco) continues to make progress. The mobilization phase of the project is complete, and the team is delivering on the next phase of the project. In Q4, Kamco received its first milestone payment of $8.8 million USD ($12 million AUD) for the mobilization phase of the project.
The Company has concluded that the contract will be accounted for as a single unit of accounting. As a result, revenues for the contract will be recognized over the period services are provided subsequent to completion of the development stage, currently estimated to occur in mid-2007. Any direct costs incurred during the development stage will also be recognized over the period revenues are recognized. During 2005, approximately $3.4 million in indirect costs were recorded.
Business Outlook
Keane estimates revenues for the First Quarter of 2006 to be in the range of $240 million to $250 million, EPS to be in the range of $.10 to $.12, and CEPS to be in the range of $.14 to $.16. These estimates include the impact associated with expensing of equity-based compensation under the Financial Accounting Standards Board’s Statement 123R, which the Company adopted on January 1, 2006.
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Conference Call
Keane will host a conference call today at 8:30 a.m. eastern time to discuss these results. Interested parties may access the call via the Internet at www.keane.com/investors/earnings.html or may dial 800-438-7212 (706-643-3476 from outside North America) and ask for the Keane call referencing reservation number 4605137. A replay of the call will be available beginning at approximately 10:30 a.m. today through 5:00 p.m. on February 24th. The replay may be accessed via the Internet at www.keane.com/investors/earnings.html or by dialing 800-642-1687 (706-645-9291 from outside North America) and referencing reservation number 4605137.
About Keane
In business since 1965, Keane, Inc. (NYSE: KEA) is a leading business process and IT services firm. Keane delivers Application and Business Process Services to help clients transform their business and IT operations to achieve demonstrable, measurable, and sustainable business benefit. As a trusted advisor and partner for its clients, Keane solves real business issues through the development and implementation of cost-effective, change-oriented, industry-specific solutions.
Specifically, Keane delivers highly synergistic application and business process services, including Application Development and Integration Services, Architectural Services, Application Outsourcing, Program Management, and Testing, as well as Business Process Improvement and Business Process Outsourcing. Keane believes that business and IT improvements are best realized by streamlining and optimizing business and IT processes, implementing rigorous management disciplines, and fostering a culture of accountability through meaningful performance metrics. Keane, based in Boston, Mass., delivers its services through an integrated network of regional offices in the United States, Australia, Canada, India, and the United Kingdom, and via SEI CMMI Level 5 evaluated Advanced Development Centers (ADCs) in Canada and India. Information on Keane is available on the Internet at www.keane.com.
This press release contains a number of forward-looking statements concerning Keane’s current expectations as to future growth and its results of operations. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates,” “intends,” “may,” “projects,” “will,” “would,” and similar expressions) should also be considered to be forward-looking statements. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: continued or further downturns in the US economy, political and economic conditions in India, the loss of one or more major clients, unanticipated disruptions to Keane’s business, the execution and successful completion of contracts evidencing the new bookings referred to in this release, the successful completion of software development or management projects, the availability and utilization rate of professional staff, and other factors detailed under the caption “Certain Factors That May Affect Future Results” in Keane’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, which important factors are incorporated herein by this reference. Keane disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release, including the potential impact of any future acquisitions, mergers, or dispositions it may make.
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Keane, Inc.
Condensed Consolidated Statements of Income (Unaudited)
| | Three Months Ended December 31, | | Twelve Months Ended December 31, | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
| | (In thousands except per share amounts) | | (In thousands except per share amounts) | |
Revenues | | $ | 246,270 | | $ | 229,180 | | $ | 955,855 | | $ | 911,543 | |
Operating expenses | | | | | | | | | |
Salaries, wages, and other direct costs | | 170,279 | | 159,324 | | 669,949 | | 637,240 | |
Selling, general, and administrative expenses | | 54,304 | | 49,836 | | 219,275 | | 206,747 | |
Amortization of intangible assets | | 3,939 | | 4,149 | | 15,649 | | 16,234 | |
Restructuring charges, net | | — | | (111 | ) | — | | (111 | ) |
Operating income | | 17,748 | | 15,982 | | 50,982 | | 51,433 | |
| | | | | | | | | |
Other income (expense) | | | | | | | | | |
Interest and dividend income | | 1,297 | | 1,056 | | 4,651 | | 3,906 | |
Interest expense | | (1,399 | ) | (1,430 | ) | (5,624 | ) | (5,682 | ) |
Other income (expense), net | | (157 | ) | (784 | ) | (714 | ) | (665 | ) |
Minority interest | | (8 | ) | 700 | | 1,023 | | 2,516 | |
Income before income taxes | | 17,481 | | 15,524 | | 50,318 | | 51,508 | |
Provision for income taxes | | 7,259 | | 4,888 | | 16,892 | | 19,226 | |
| | | | | | | | | |
Net income | | $ | 10,222 | | $ | 10,636 | | $ | 33,426 | | $ | 32,282 | |
| | | | | | | | | |
Basic earnings per share | | $ | 0.18 | | $ | 0.17 | | $ | 0.55 | | $ | 0.52 | |
| | | | | | | | | |
Diluted earnings per share | | $ | 0.16 | | $ | 0.16 | | $ | 0.52 | | $ | 0.48 | |
| | | | | | | | | |
Basic weighted average common shares outstanding | | 58,266 | | 61,882 | | 60,540 | | 62,601 | |
Diluted weighted average common shares and common share equivalents outstanding | | 66,803 | | 71,099 | | 69,281 | | 71,807 | |
| | | | | | | | | | | | | | | |
Reconciliation of GAAP Diluted EPS to CEPS (1) (2) | | | | | | | |
| | | | | | | | | |
| | Three Months Ended December 31, | | Twelve Months Ended December 31, | |
| | 2005 | | 2004 | | 2005 | | 2004 | |
Net Income | | $ | 10,222 | | $ | 10,636 | | $ | 33,426 | | $ | 32,282 | |
Add (Subtract): | | | | | | | | | |
Interest expense related to convertible debentures | | 970 | | 970 | | 3,881 | | 3,880 | |
Related tax effect | | (396 | ) | (396 | ) | (1,585 | ) | (1,585 | ) |
Net income for Diluted EPS | | $ | 10,796 | | $ | 11,210 | | $ | 35,722 | | $ | 34,577 | |
Amortization of intangible assets and stock-based compensation | | 4,089 | | 4,253 | | 16,222 | | 16,853 | |
Restructuring charges, net | | — | | (111 | ) | — | | (111 | ) |
Related tax effect | | (1,698 | ) | (1,304 | ) | (5,446 | ) | (6,250 | ) |
Adjusted net income for CEPS | | $ | 13,187 | | $ | 14,048 | | $ | 46,498 | | $ | 45,069 | |
Diluted CEPS | | $ | 0.20 | | $ | 0.20 | | $ | 0.67 | | $ | 0.63 | |
(1) Keane management believes that cash performance is the primary driver of long-term per share value. As such, we view diluted cash earnings per share (CEPS) as an important indicator of performance that helps investors to gain a meaningful understanding of our core operating results and future prospects, consistent with the manner in which management measures and forecasts the Company’s performance. CEPS excludes amortization of intangible assets, stock-based compensation, and restructuring charges, net. CEPS is not a measurement in accordance with Generally Accepted Accounting Principles (GAAP) and is not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP.
(2) EPS and CEPS for the three months ended December 31, 2005 includes a $0.7 million non-recurring tax benefit resulting from the reduction of tax reserves associated with the expiration of certain statutes and a change in estimates. EPS and CEPS for the three months ended December 31, 2004 includes a $2.2 million non-recurring tax benefit resulting from book to tax timing differences related to depreciation expense.
EPS and CEPS for the twelve months ended December 31, 2005 includes a $3.5 million non-recurring tax benefit resulting from the reduction of tax reserves due to the expiration of certain statutes and a change in estimates. EPS and CEPS for the twelve months ended December 31, 2004 includes a $2.7 million non-recurring net tax benefit resulting from the reduction of tax reserves due to the expiration of certain statutes, a change in estimates, the enactment of certain tax laws, and book to tax timing differences related to depreciation expense.
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Keane, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
| | As of December 31, | | As of December 31, | |
| | 2005 | | 2004 | |
| | (In thousands) | |
Assets | | | | | |
Current: | | | | | |
Cash and cash equivalents | | $ | 71,570 | | $ | 67,488 | |
Restricted cash | | 1,745 | | 986 | |
Marketable securities | | 95,796 | | 130,678 | |
Accounts receivable, net | | 160,019 | | 127,321 | |
Prepaid expenses and deferred taxes | | 16,954 | | 16,515 | |
Total current assets | | 346,084 | | 342,988 | |
| | | | | |
Property and equipment, net | | 77,583 | | 76,761 | |
Goodwill | | 314,536 | | 305,965 | |
Customer lists, net | | 41,050 | | 53,040 | |
Other intangible assets, net | | 6,173 | | 9,904 | |
Other assets, net | | 21,868 | | 16,390 | |
Total assets | | $ | 807,294 | | $ | 805,048 | |
| | | | | |
Liabilities | | | | | |
Current: | | | | | |
Short-term debt | | $ | 548 | | $ | 892 | |
Accounts payable | | 11,489 | | 8,140 | |
Accrued restructuring | | 2,781 | | 3,513 | |
Deferred revenue | | 6,932 | | 6,837 | |
Accrued compensation | | 44,835 | | 39,763 | |
Accrued expenses and other current liabilities | | 45,988 | | 41,494 | |
Total current liabilities | | 112,573 | | 100,639 | |
| | | | | |
Long-term debt | | 150,001 | | 150,017 | |
Accrued long-term building costs | | 39,004 | | 39,545 | |
Accrued long-term restructuring | | 2,823 | | 5,164 | |
Other long-term liabilities | | 27,648 | | 16,030 | |
Deferred income taxes | | 30,864 | | 25,924 | |
Total liabilities | | 362,913 | | 337,319 | |
| | | | | |
Minority interest | | 3,769 | | 6,026 | |
Equity | | | | | |
Stockholders’ equity | | 440,612 | | 461,703 | |
Total liabilities and stockholders’ equity | | $ | 807,294 | | $ | 805,048 | |
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Keane, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | Twelve Months Ended December 31, | |
| | 2005 | | 2004 | |
| | (In thousands) | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 33,426 | | $ | 32,282 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 28,894 | | 28,741 | |
Changes in operating assets and liabilities, net of acquisitions and other, net | | (16,844 | ) | (9,104 | ) |
Net cash provided by operating activities | | 45,476 | | 51,919 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Sales and maturities of investments, net of purchases | | 33,882 | | 15,056 | |
Purchase of property and equipment | | (16,331 | ) | (10,259 | ) |
Payments for current year and prior year acquisitions, net of cash acquired | | (7,583 | ) | (21,419 | ) |
Other, net | | 858 | | 186 | |
Net cash provided by (used for) investing activities | | 10,826 | | (16,436 | ) |
| | | | | |
Cash flows from financing activities: | | | | | |
Debt issuance costs | | (1,346 | ) | (42 | ) |
Repurchase of common stock | | (54,932 | ) | (30,096 | ) |
Other, net | | 4,781 | | 4,898 | |
Net cash used for financing activities | | (51,497 | ) | (25,240 | ) |
Effect of exchange rate changes on cash | | (723 | ) | 509 | |
Net (decrease) increase in cash and cash equivalents | | 4,082 | | 10,752 | |
Cash and cash equivalents at beginning of period | | 67,488 | | 56,736 | |
Cash and cash equivalents at end of period | | $ | 71,570 | | $ | 67,488 | |
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Keane, Inc.
Selected Financial Data (Unaudited)
| | Three Months Ended December 31, | | Twelve Months Ended December 31, | |
| | | | | | Increase (Decrease) | | | | | | Increase (Decrease) | |
| | 2005 | | 2004 | | $ | | % | | 2005 | | 2004 | | $ | | % | |
| | (Dollars in thousands) | | (Dollars in thousands) | |
Reconciliation of GAAP Net Income to EBITDA (1) | | | | | | | | | | | | | | | | | |
Net income | | $ | 10,222 | | $ | 10,636 | | $ | (414 | ) | -3.9 | % | $ | 33,426 | | $ | 32,282 | | $ | 1,144 | | 3.5 | % |
Add (Subtract): | | | | | | | | | | | | | | | | | |
Provision for income taxes | | 7,259 | | 4,888 | | 2,371 | | 48.5 | % | 16,892 | | 19,226 | | (2,334 | ) | -12.1 | % |
Amortization of intangible assets and stock-based compensation | | 4,089 | | 4,253 | | (164 | ) | -3.9 | % | 16,222 | | 16,853 | | (631 | ) | -3.7 | % |
Restructuring charges, net | | — | | (111 | ) | 111 | | n/m | | — | | (111 | ) | 111 | | n/m | |
Depreciation | | 3,695 | | 3,330 | | 365 | | 11.0 | % | 13,245 | | 12,507 | | 738 | | 5.9 | % |
Interest and dividend income | | (1,297 | ) | (1,056 | ) | (241 | ) | 22.8 | % | (4,651 | ) | (3,906 | ) | (745 | ) | 19.1 | % |
Interest expense | | 1,399 | | 1,430 | | (31 | ) | -2.2 | % | 5,624 | | 5,682 | | (58 | ) | -1.0 | % |
EBITDA | | $ | 25,367 | | $ | 23,370 | | $ | 1,997 | | 8.5 | % | $ | 80,758 | | $ | 82,533 | | $ | (1,775 | ) | -2.2 | % |
| | | | | | | | | | | | | | | | | |
Service Line Revenues | | | | | | | | | | | | | | | | | |
Outsourcing | | $ | 131,486 | | $ | 119,490 | | $ | 11,996 | | 10.0 | % | $ | 506,548 | | $ | 465,077 | | $ | 41,471 | | 8.9 | % |
Development & Integration | | 44,936 | | 44,392 | | 544 | | 1.2 | % | 171,003 | | 176,781 | | (5,778 | ) | -3.3 | % |
Other IT Services | | 69,848 | | 65,298 | | 4,550 | | 7.0 | % | 278,304 | | 269,685 | | 8,619 | | 3.2 | % |
Total | | $ | 246,270 | | $ | 229,180 | | $ | 17,090 | | 7.5 | % | $ | 955,855 | | $ | 911,543 | | $ | 44,312 | | 4.9 | % |
| | | | | | | | | | | | | | | | | |
Service Line Bookings (2) | | | | | | | | | | | | | | | | | |
Outsourcing | | $ | 132,561 | | $ | 97,847 | | $ | 34,714 | | 35.5 | % | $ | 722,699 | | $ | 574,712 | | $ | 147,987 | | 25.7 | % |
Development & Integration | | 27,538 | | 14,181 | | 13,357 | | 94.2 | % | 266,004 | | 124,822 | | 141,182 | | 113.1 | % |
Other IT Services | | 79,626 | | 89,827 | | (10,201 | ) | -11.4 | % | 378,717 | | 399,446 | | (20,729 | ) | -5.2 | % |
Total | | $ | 239,725 | | $ | 201,855 | | $ | 37,870 | | 18.8 | % | $ | 1,367,420 | | $ | 1,098,980 | | $ | 268,440 | | 24.4 | % |
| | | | | | | | | | | | | | | | | |
Gross Margin | | | | | | | | | | | | | | | | | |
Revenues | | $ | 246,270 | | $ | 229,180 | | $ | 17,090 | | 7.50 | % | $ | 955,855 | | $ | 911,543 | | $ | 44,312 | | 4.9 | % |
Salaries, wages, and other direct costs | | (170,279 | ) | $ | (159,324 | ) | (10,955 | ) | 6.9 | % | (669,949 | ) | $ | (637,240 | ) | (32,709 | ) | 5.1 | % |
Gross Margin | | $ | 75,991 | | $ | 69,856 | | $ | 6,135 | | 8.8 | % | $ | 285,906 | | $ | 274,303 | | $ | 11,603 | | 4.2 | % |
Gross Margin % | | 30.9 | % | 30.5 | % | | | | | 29.9 | % | 30.1 | % | | | | |
| | | | | | | | | | | | | | | | | |
Days Sales Outstanding (DSO) (3) | | 58 | | 52 | | 6 | | 11.5 | % | | | | | | | | |
n/m: not meaningful
(1) EBITDA represents earnings before net interest, income taxes, depreciation, amortization of intangible assets, stock-based compensation, and restructuring charges, net. EBITDA is a non-GAAP (Generally Accepted Accounting Principles) financial measure that Keane’s management believes is an important indicator of Keane’s liquidity. Keane’s calculation of EBITDA may not be consistent with EBITDA measures of other companies. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the condensed consolidated statements of income.
(2) Bookings represent the engagement value of contracts signed in the current reporting period.
(3) DSO is calculated using trailing three months total revenues divided by the number of days in the period to determine daily revenues. The average accounts receivable balance for the three-month period is then divided by daily revenues.
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