Exhibit 99.1
| News Release
Contact:
Larry Vale
Keane Investor Relations
617-517-1290
Danielle Wuschke
Public Relations
617-517-1445 |
KEANE REPORTS THIRD QUARTER 2006 FINANCIAL RESULTS
BOSTON, October 18, 2006 — Keane, Inc. (NYSE: KEA), a leading business process and information technology services firm, today announced its results for the Third Quarter ended September 30, 2006.
Keane’s revenues for the Third Quarter of 2006 were $232.0 million, a decrease of 3.2 percent from revenues of $239.6 million for the Third Quarter of 2005. Net income for the Third Quarter of 2006 was $8.4 million, a decrease of 5.4 percent from net income of $8.9 million for the Third Quarter of 2005. Diluted earnings per share (EPS) for the Third Quarter of 2006 was $.13, compared to EPS of $.14 for the Third Quarter of 2005. Net income and EPS for the Third Quarter of 2005 included a $2.8 million or $.04 non-recurring tax benefit resulting from the reduction of tax reserves due to the expiration of certain statutes of limitation.
Keane’s management believes that cash performance is the primary driver of long-term per share value. As such, Keane’s management views diluted cash earnings per share (CEPS(1)) as an important indicator of performance that helps investors gain a meaningful understanding of the Company’s core operating results and future prospects, consistent with the manner in which management measures and forecasts the Company’s performance. CEPS for the Third Quarter of 2006 was $.18, compared to CEPS of $.19 for the Third Quarter of 2005, which included the $.06 non-recurring tax benefit.
In October, Keane formed a new senior management team comprised of experienced Keane leaders. Headed by John Leahy as interim CEO, the new Executive Team includes Russ Campanello, who will continue in his role as SVP of Human Resources and member of the Office of the President. Reporting to John Leahy in their current roles will be Laurence Shaw, SVP, International & Global Solutions; Ray Paris, SVP, Healthcare Solutions; and Sandeep Bhargava, CEO, Keane Worldzen and Business Transformation Practice Leader. The management team was enhanced with the promotions of Aurora Coya to SVP, Global Practices, and Glenn Giles to SVP, North American Regions & Verticals, who will also be reporting to Leahy.
(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.
As SVP, Global Practices, Aurora Coya is now responsible for all of Keane’s global delivery and application-focused Global Practices, which we formerly called Business Lines. As SVP, North American Regions & Verticals, Glenn Giles is now responsible for all of Keane’s customer-facing regions and organization.
“We have a team of seasoned, senior leaders with a track record of success and resiliency, which we have further strengthened with the promotion of two proven Keane veterans,” explained John Leahy, interim president and chief executive officer and executive vice president and chief financial officer. “I am confident in our new Executive Team and in their ability to help to position our Company for a strong 2007. All of us remain firmly committed to the goals of our transformation and to our global growth strategy.”
Third Quarter 2006 Highlights:
· Client Engagements: Keane secured new engagements with both new and existing clients, across multiple industries, including US Securities and Exchange Commission (SEC) and CareFirst.
· SEC: During the Third Quarter, Keane leveraged the capabilities of multiple global practices, including Architecture Services, Program Management, and Infrastructure Management, to create a highly integrated world-class solution that enabled the Company to secure a $48 million contract with the SEC to maintain and modernize EDGAR (Electronic Data Gathering, Analysis and Retrieval). EDGAR is the SEC’s primary system for accepting company filings and providing information to investors.
· CareFirst: Keane developed an innovative end-to-end business solution to transform the business and IT architectures for CareFirst. Keane’s BTS, Architecture Services, and Testing practices all participated in creating an integrated solution to combine the client’s enrollment and billings systems onto a single platform and to secure this important win. Keane is leading a group of three major global providers at this multi-million dollar engagement.
· TTA Engagement Update: Since winning the $367 million contract with the State Government of Victoria, Australia’s Transport Ticketing Authority (TTA) in July 2005, Keane Australia Micropayment Consortium (Kamco) continues to make progress toward delivery of the new ticketing solution. During the quarter, Kamco opened its integrated test facility to transit-operator stakeholders providing an overview of the front office and back office technology.
· Continued Improvement in Costs: SG&A was $48.4 million, or 20.9 percent of total revenues, a decrease of 180 basis points compared to the Third Quarter of 2005. The decrease in SG&A in the Third Quarter was primarily due to lower personnel costs.
· Solid CEPS Performance: CEPS was $.18, compared to CEPS of $.19 for the Third Quarter of 2005, which included the $.06 non-recurring tax benefit.
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Business Outlook:
Keane estimates revenues for the Fourth Quarter of 2006 to be in the range of $230 million to $235 million, EPS to be in the range of $.10 to $.12 and CEPS to be in the range of $.14 to $.16.
Conference Call:
Keane will host a conference call today at 8:30 a.m. ET 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 7748808. A replay of the call will be available beginning at approximately 10:30 a.m. ET today, through 5:00 p.m. ET on October 27, 2006. The replay may be accessed via the Internet at www.keane.com/investors or by calling 800-642-1687 (706-645-9291 from outside North America) and referencing reservation number 7748808.
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, Architecture Services, Application Outsourcing, Program Management, and Testing, as well as Business Transformation Services including 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. Based in Boston, Mass., Keane delivers its services throughout the United States, Australia, Canada, India, and the United Kingdom. For more information, visit www.keane.com.
Safe Harbor for Forward-Looking Statements:
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: 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 “Risk Factors” in Keane’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, 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 September 30, | | Nine Months Ended September 30, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| | (In thousands except per share amounts) | | (In thousands except per share amounts) | |
Revenues | | $ | 231,956 | | $ | 239,563 | | $ | 718,168 | | $ | 709,585 | |
Operating expenses | | | | | | | | | |
Salaries, wages, and other direct costs | | 166,361 | | 171,016 | | 511,122 | | 499,670 | |
Selling, general, and administrative expenses | | 48,419 | | 54,495 | | 155,907 | | 164,971 | |
Amortization of intangible assets | | 3,742 | | 3,780 | | 11,448 | | 11,710 | |
Restructuring charges, net | | 135 | | — | | 2,796 | | — | |
Operating income | | $ | 13,299 | | $ | 10,272 | | $ | 36,895 | | $ | 33,234 | |
| | | | | | | | | |
Other income (expense) | | | | | | | | | |
Interest and dividend income | | 1,402 | | 1,121 | | 3,887 | | 3,354 | |
Interest expense | | (1,542 | ) | (1,403 | ) | (4,610 | ) | (4,225 | ) |
Other (expense) income, net | | 97 | | (367 | ) | (24 | ) | (557 | ) |
Minority interest | | 41 | | 158 | | 25 | | 1,031 | |
Income before income taxes | | 13,297 | | 9,781 | | 36,173 | | 32,837 | |
Provision for income taxes | | 4,894 | | 895 | | 12,981 | | 9,633 | |
| | | | | | | | | |
Net income | | $ | 8,403 | | $ | 8,886 | | $ | 23,192 | | $ | 23,204 | |
| | | | | | | | | |
Basic earnings per share | | $ | 0.15 | | $ | 0.15 | | $ | 0.40 | | $ | 0.38 | |
| | | | | | | | | |
Diluted earnings per share | | $ | 0.13 | | $ | 0.14 | | $ | 0.37 | | $ | 0.36 | |
| | | | | | | | | |
Basic weighted average common shares outstanding | | 57,704 | | 59,897 | | 58,144 | | 61,265 | |
Diluted weighted average common shares and common share equivalents outstanding | | 66,565 | | 68,638 | | 66,835 | | 70,074 | |
Reconciliation of GAAP Diluted EPS to CEPS (1) (2)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
Net income | | $ | 8,403 | | $ | 8,886 | | $ | 23,192 | | $ | 23,204 | |
Add (Subtract): | | | | | | | | | |
Interest expense related to convertible debentures | | 971 | | 970 | | 2,911 | | 2,911 | |
Related tax effect | | (397 | ) | (396 | ) | (1,189 | ) | (1,189 | ) |
Net income for Diluted EPS | | $ | 8,977 | | $ | 9,460 | | $ | 24,914 | | $ | 24,926 | |
Amortization of intangible assets and stock-based compensation | | 4,652 | | 3,923 | | 13,862 | | 12,133 | |
Restructuring charges, net | | 135 | | — | | 2,796 | | — | |
Related tax effect | | (1,762 | ) | (359 | ) | (5,978 | ) | (3,559 | ) |
Adjusted net income for CEPS | | $ | 12,002 | | $ | 13,024 | | $ | 35,594 | | $ | 33,500 | |
Diluted CEPS | | $ | 0.18 | | $ | 0.19 | | $ | 0.53 | | $ | 0.48 | |
(1) | Keane’s management believes that cash performance is the primary driver of long-term per share value. As such, Keane’s management views 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 and nine months ended September 30, 2005 include a $2.8 million non-recurring tax benefit resulting from the reduction of tax reserves due to the expiration of certain statutes. |
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Keane, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
| | As of September 30, | | As of December 31, | |
| | 2006 | | 2005 | |
| | (In thousands) | |
Assets | | | | | |
Current: | | | | | |
Cash and cash equivalents | | $ | 78,717 | | $ | 71,570 | |
Restricted cash | | 236 | | 1,745 | |
Marketable securities | | 74,411 | | 95,796 | |
Accounts receivable, net | | 181,415 | | 160,019 | |
Prepaid expenses and deferred taxes | | 27,867 | | 16,954 | |
Total current assets | | 362,646 | | 346,084 | |
| | | | | |
Marketable securities, long-term | | $ | 12,325 | | $ | — | |
Property and equipment, net | | 73,313 | | 77,583 | |
Goodwill | | 316,469 | | 314,536 | |
Customer lists, net | | 32,062 | | 41,050 | |
Other intangible assets, net | | 3,734 | | 6,173 | |
Deferred contract costs related to the TTA agreement | | 30,052 | | 8,550 | |
Other assets, net | | 13,540 | | 13,318 | |
Total assets | | $ | 844,141 | | $ | 807,294 | |
| | | | | |
Liabilities | | | | | |
Current: | | | | | |
Short-term debt | | $ | 3 | | $ | 7 | |
Accounts payable | | 5,591 | | 11,489 | |
Accrued restructuring | | 1,831 | | 2,781 | |
Deferred revenue | | 14,300 | | 6,932 | |
Accrued compensation | | 31,030 | | 44,835 | |
Accrued expenses and other current liabilities | | 47,850 | | 46,529 | |
Total current liabilities | | 100,605 | | 112,573 | |
| | | | | |
Long-term debt | | 150,000 | | 150,001 | |
Accrued long-term building costs | | 38,567 | | 39,004 | |
Accrued long-term restructuring | | 2,352 | | 2,823 | |
Other long-term liabilities | | 16,026 | | 16,493 | |
Deferred long-term revenue | | 23,688 | | 11,155 | |
Deferred income taxes | | 36,096 | | 30,864 | |
Total liabilities | | 367,334 | | 362,913 | |
| | | | | |
Minority interest | | 3,744 | | 3,769 | |
| | | | | |
Equity | | | | | |
Stockholders’ equity | | 473,063 | | 440,612 | |
Total liabilities and stockholders’ equity | | $ | 844,141 | | $ | 807,294 | |
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Keane, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | Nine Months Ended September 30, | |
| | 2006 | | 2005 | |
| | | | | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 23,192 | | $ | 23,204 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 23,373 | | 21,260 | |
Changes in operating assets and liabilities, net of acquisitions and other, net | | (40,968 | ) | (37,088 | ) |
Net cash provided by operating activities | | 5,597 | | 7,376 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Proceeds from sales and maturities of investments, net of purchases | | 9,720 | | 22,809 | |
Purchase of property and equipment | | (8,278 | ) | (10,721 | ) |
Payments for current year and prior year acquisitions, net of cash acquired | | (3,333 | ) | (4,800 | ) |
Other, net | | 1,990 | | 795 | |
Net cash provided by investing activities | | 99 | | 8,083 | |
| | | | | |
Cash flows from financing activities: | | | | | |
Proceeds from issuance of common stock | | 9,684 | | 4,374 | |
Payments under capital lease obligations | | (5 | ) | — | |
Debt issuance costs | | — | | (1,279 | ) |
Repurchase of common stock | | (9,290 | ) | (42,113 | ) |
Other, net | | 1,160 | | (215 | ) |
Net cash provided by (used for) financing activities | | 1,549 | | (39,233 | ) |
Effect of exchange rate changes on cash | | (98 | ) | (217 | ) |
Net increase (decrease) in cash and cash equivalents | | 7,147 | | (23,991 | ) |
Cash and cash equivalents at beginning of period | | 71,570 | | 67,488 | |
Cash and cash equivalents at end of period | | $ | 78,717 | | $ | 43,497 | |
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Keane, Inc.
Selected Financial Data (Unaudited)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | | | | Increase
(Decrease) | | | | | | Increase
(Decrease) | |
| | 2006 | | 2005 | | $ | | % | | 2006 | | 2005 | | $ | | % | |
| | (Dollars in thousands) | | (Dollars in thousands) | |
Reconciliation of GAAP Net Income to EBITDA (1) | | | | | | | | | | | | | | | | | |
Net income | | $ | 8,403 | | $ | 8,886 | | $ | (483 | ) | -5.4% | | $ | 23,192 | | $ | 23,204 | | $ | (12 | ) | -0.1% | |
Add (Subtract): | | | | | | | | | | | | | | | | | |
Provision for income taxes | | 4,894 | | 895 | | 3,999 | | n/m | | 12,981 | | 9,633 | | 3,348 | | 34.8% | |
Amortization of intangible assets | | 3,742 | | 3,780 | | (38 | ) | -1.0% | | 11,448 | | 11,710 | | (262 | ) | -2.2% | |
Stock-based compensation, allocated as follows: | | | | | | | | | | | | | | | | | |
Salaries, wages and other direct costs | | 12 | | — | | 12 | | n/m | | 41 | | — | | 41 | | n/m | |
Selling, general and administrative expenses | | 898 | | 143 | | 755 | | n/m | | 2,373 | | 423 | | 1,950 | | n/m | |
Restructuring charges, net | | 135 | | — | | 135 | | n/m | | 2,796 | | — | | 2,796 | | n/m | |
Depreciation | | 4,093 | | 3,280 | | 813 | | 24.8% | | 11,925 | | 9,550 | | 2,375 | | 24.9% | |
Interest and dividend income | | (1,402 | ) | (1,121 | ) | (281 | ) | 25.1% | | (3,887 | ) | (3,354 | ) | (533 | ) | 15.9% | |
Interest expense | | 1,542 | | 1,403 | | 139 | | 9.9% | | 4,610 | | 4,225 | | 385 | | 9.1% | |
EBITDA | | $ | 22,317 | | $ | 17,266 | | $ | 5,051 | | 29.3% | | $ | 65,479 | | $ | 55,391 | | $ | 10,088 | | 18.2% | |
| | | | | | | | | | | | | | | | | |
Service Line Revenues | | | | | | | | | | | | | | | | | |
Outsourcing | | $ | 118,735 | | $ | 118,655 | | $ | 80 | | 0.1% | | $ | 362,441 | | $ | 355,028 | | $ | 7,413 | | 2.1% | |
Development & Integration | | 38,958 | | 43,052 | | (4,094 | ) | -9.5% | | 119,923 | | 127,062 | | (7,139 | ) | -5.6% | |
Other Services | | 74,263 | | 77,856 | | (3,593 | ) | -4.6% | | 235,804 | | 227,495 | | 8,309 | | 3.7% | |
Total | | $ | 231,956 | | $ | 239,563 | | $ | (7,607 | ) | -3.2% | | $ | 718,168 | | $ | 709,585 | | $ | 8,583 | | 1.2% | |
| | | | | | | | | | | | | | | | | |
Service Line Bookings (2) (3) | | | | | | | | | | | | | | | | | |
Outsourcing | | $ | 71,196 | | $ | 342,385 | | $ | (271,189 | ) | -79.2% | | $ | 246,374 | | $ | 589,822 | | $ | (343,448 | ) | -58.2% | |
Development & Integration | | 68,318 | | 155,126 | | (86,808 | ) | -56.0% | | 161,438 | | 241,904 | | (80,466 | ) | -33.3% | |
Other Services | | 75,144 | | 102,897 | | (27,753 | ) | -27.0% | | 290,078 | | 295,969 | | (5,891 | ) | -2.0% | |
Total | | $ | 214,658 | | $ | 600,408 | | $ | (385,750 | ) | -64.2% | | $ | 697,890 | | $ | 1,127,695 | | $ | (429,805 | ) | -38.1% | |
| | | | | | | | | | | | | | | | | |
Gross Margin | | | | | | | | | | | | | | | | | |
Revenues | | $ | 231,956 | | $ | 239,563 | | $ | (7,607 | ) | -3.2% | | $ | 718,168 | | $ | 709,585 | | $ | 8,583 | | 1.2% | |
Salaries, wages, and other direct costs | | (166,361 | ) | (171,016 | ) | 4,655 | | -2.7% | | (511,122 | ) | (499,670 | ) | (11,452 | ) | 2.3% | |
Gross Margin | | $ | 65,595 | | $ | 68,547 | | $ | (2,952 | ) | -4.3% | | $ | 207,046 | | $ | 209,915 | | $ | (2,869 | ) | -1.4% | |
Gross Margin % | | 28.3 | % | 28.6 | % | | | | | 28.8 | % | 29.6 | % | | | | |
| | | | | | | | | | | | | | | | | |
Days Sales Outstanding (DSO) (4) | | 70 | | 56 | | 14 | | 25.0% | | | | | | | | | |
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. |
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(2) | | Bookings represent the engagement value of contracts signed in the current reporting period. |
| | |
(3) | | Bookings for the three months and nine months ended September 30, 2005 included the $367 million TTA contract with the State Government of Victoria, Australia; $256.9 million of the TTA contract was included in Outsourcing bookings and $110.1 million of the TTA contract was included in Development and Integration bookings. |
| | |
(4) | | 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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Keane, Inc.
Realignment of Service Offering Categories for 2005 Quarterly Results (Unaudited)
| | Revised | | Revised | | Revised | | Revised | | Revised | |
| | Q1-2005 | | Q2-2005 | | Q3-2005 | | Q4-2005 | | YTD 2005 | |
| | (in thousands) | |
Service Line Revenues (1) | | | | | | | | | | | |
Outsourcing | | $ | 117,262 | | $ | 119,111 | | $ | 118,655 | | $ | 120,622 | | $ | 475,650 | |
Development & Integration | | 41,226 | | 42,784 | | 43,052 | | 45,547 | | 172,609 | |
Other Services | | 73,716 | | 75,923 | | 77,856 | | 80,101 | | 307,596 | |
Total | | $ | 232,204 | | $ | 237,818 | | $ | 239,563 | | $ | 246,270 | | $ | 955,855 | |
| | | | | | | | | | | |
Service Line Bookings (1) (2) | | | | | | | | | | | |
Outsourcing | | $ | 116,612 | | $ | 130,825 | | $ | 342,385 | | $ | 130,829 | | $ | 720,651 | |
Development & Integration | | 46,699 | | 40,079 | | 155,126 | | 29,270 | | 271,174 | |
Other Services | | 104,808 | | 88,264 | | 102,897 | | 79,626 | | 375,595 | |
Total | | $ | 268,119 | | $ | 259,168 | | $ | 600,408 | | $ | 239,725 | | $ | 1,367,420 | |
(1) | During the First Quarter of 2006, certain reclassifications were made to previously reported service line amounts. These reclassifications conform the grouping of certain business offerings within service lines to the current presentation and do not impact the total amounts previously reported. |
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(2) | Bookings represent the engagement value of contracts signed in the current reporting period. |
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