EXHIBIT 99.1
NEWS BULLETIN FROM
[COVANSYS LOGO]
FOR FURTHER INFORMATION
INVESTORS: MEDIA:
James Trouba Michelle Jones
Tel: (248) 848-8896 Tel: (248) 848-2269
jtrouba@covansys.com mjones@covansys.com
FOR IMMEDIATE RELEASE
COVANSYS REPORTS FIRST QUARTER 2005 RESULTS,
INCLUDING REVENUE OF $104 MILLION
FARMINGTON HILLS, MI, May 3, 2005 - Covansys Corporation (NASDAQ: CVNS), a
global consulting and technology services company, today announced its financial
results for the first quarter ended March 31, 2005.
Covansys reported revenue of $104.3 million in the first quarter compared with
$84.9 million in the first quarter of 2004 and $99.2 million in the fourth
quarter of 2004. This is the first quarter in more than three years that the
company's revenue exceeded $100 million.
Additional financial highlights from the quarter include:
- - Net income of $8.1 million, up from a net loss of $4.0 million in the first
quarter of 2004 and down from $9.2 million in the fourth quarter of 2004;
- - Net income available to common shareholders of $0.22 per share ($0.21 per
share on a diluted basis) as compared to a loss of $0.15 per share in the
same period last year and $0.24 per share (on a diluted basis) in the
fourth quarter of 2004;
- - Cash and short-term investments of $78.7 million, up from $71.3 million at
year-end;
- - Cash from operations of $9.4 million;
- - Growth of total billable headcount in India to over 3,900 consultants,
which represents more than 60% of Covansys' global workforce of more than
6,300 consultants and employees; and
- - Revenue growth of $10.6 million in India and Asia Pacific on a full
attribution basis to $38.3 million compared with $27.7 million in the first
quarter of 2004.
Raj Vattikuti, Covansys' President, and Chief Executive Officer, said, "I am
pleased with our first quarter performance, which reflects our continued
progress in expanding and enhancing Covansys' global delivery resources to meet
the evolving needs of our clients.
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As more companies recognize the value of pursuing an outsourcing strategy that
delivers proven offshore expertise with dedicated local project management and
oversight capabilities, Covansys ' well-established "blended" delivery model
puts us in an excellent position to capitalize on the growing demand we are
seeing for this combination of services. With years of experience offering the
unique global outsourcing services that our competitors are only now beginning
to develop, we are confident that our market leadership position will become an
increasingly important competitive differentiator for us."
Covansys' operational highlights from the first quarter include:
- - The initiation of several new statements of work on behalf of Fidelity
Information Services ("Fidelity"), which is now utilizing nearly 400
billable consultants. Covansys is currently working on more than 50
statements of work for Fidelity; and
- - Receipt of a $14.8 million contract award to support voter registration in
New Jersey together with PCC and Aradyme.
ADDITIONAL FINANCIAL RESULTS
Domestic utilization was 89% in the first quarter of 2005, up from 84% in the
first quarter of 2004 and 79% in the fourth quarter 2004. Utilization in India
was 75% for the first quarter of 2005, up from 71% in the first quarter of 2004
and consistent with a rate of 75% in the fourth quarter of 2004.
Selling, general and administrative expenses were $18.9 million, or 18.1% of
revenue in 2005, down from $19.3 million, or 22.7% of revenue in 2004. Included
in 2005 amounts are more than $1 million of expenses for professional fees
associated with the consultation and external auditing for the implementation of
Sarbanes-Oxley Section 404 and costs associated with the restatement of prior
year financial statements.
Covansys' effective tax rate was 32% for the first quarter of 2005.
ACQUISITION OF COVANSYS-PEOPLESOFT OFFSHORE CENTER BY ORACLE
As announced in a press release issued earlier today by Oracle, Oracle has
exercised its option to acquire the Covansys-PeopleSoft Offshore Center operated
by Covansys in Bangalore, India, under the terms of the Build, Operate and
Transfer agreement between Covansys and PeopleSoft (which was acquired by Oracle
in January 2005). The transfer is expected to be completed by the end of October
2005.
Raj Vattikuti said, "We are proud to have played a key role in helping
PeopleSoft and now Oracle deploy new products, ensure software quality, reduce
its costs and enhance its customer service capabilities through our
Covansys-PeopleSoft Offshore Center. Oracle's decision to assume ownership and
day-to-day oversight of the Offshore Center is
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a testament to the success of our undertaking as well as the value of the
Center's assets to their organization. We look forward to the opportunity to
leverage all that we have learned through our work on this venture as a
preferred vendor to partner with Oracle in growing the ERP and Fusion e-business
market."
"We are acquiring a world class development and consulting team that Covansys
has successfully built and operated," said Mr. Motasim Najeeb, group vice
president, Oracle. "Covansys has been a strong partner in establishing the
Bangalore development center and we look forward to a continued partnership with
the company."
OUTLOOK
Jim Trouba, Covansys' Chief Financial Officer, noted, "The strong revenue growth
we generated in India and Asia Pacific, which together account for 36.7% of our
total revenue in the first quarter 2005, gave us a solid start to the year. This
increase reflects the continued shift to a higher utilization of Indian
resources, the transfer of certain commercial segment customer relationships to
the region from existing customers and the additional revenue we are realizing
from our Master Services Agreement with Fidelity. We are continuing to add to
our billable headcount in India and Asia Pacific, as well as the U.S., to meet
current and anticipated client demand. Additionally, we are taking the material
weaknesses in our internal control over financial reporting detailed in the
Company's 2004 Form 10-K very seriously and have begun the process of
remediation."
Mr. Vattikuti concluded, "We remain cautiously optimistic about our prospects in
2005, particularly as our unique global outsourcing model becomes more widely
understood. Robust demand in the markets we serve, together with our ongoing
focus on strengthening our new business pipeline and providing our clients with
superior execution, should allow us to realize solid results across our
businesses through the remainder of the year."
CONFERENCE CALL
Covansys will host a conference call to discuss its first quarter financial
results on May 3, 2005 at 10:00 a.m. Eastern Time. Interested parties may access
the call by dialing 877-407-9210 or 201-689-8049 from outside North America. 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 May 3rd through midnight on May 17, 2005 by dialing 877-660-6853
or 201-612-7415 and referencing account number 286 and conference ID 149032. The
replay will also be available on the company's website, www.covansys.com, for 90
days.
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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 on-site, offsite, offshore
delivery capability to achieve rapid deployment, world-class quality and reduced
costs. A leader in the public sector market, Covansys is also known for
application maintenance and development outsourcing in the healthcare, financial
services, retail and distribution, manufacturing, telecommunications and
high-tech industries. Founded in 1985, with 6000 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).
Covansys was named one of the leading IT companies for state and local
governments in 2002 and 2003 by Washington Technology magazine, and one of the
top 500 solution providers in 2002 and 2003 by VARBusiness magazine. Visit our
web site: www.covansys.com.
SAFE HARBOR STATEMENT
With the exception of statements regarding historical matters and statements
concerning our current status, certain matters discussed herein are
forward-looking statements that involve substantial risks and uncertainties.
Such forward-looking statements may be identified by the words "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, impact of changes in estimates on fixed price
projects, variability of operating results, failure to recruit, train and retain
skilled IT professionals, 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, decline in profitability of European
operations, public sector budget constraints, limited protection of intellectual
property rights, and risks related to merger, acquisition and strategic
investment strategy.
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COVANSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
Three Months Ended March 31,
2005 2004
--------- ---------
Revenues $104,273 $84,892
Cost of Revenues 73,950 70,001
--------- ---------
Gross Profit 30,323 14,891
Selling, general and administrative 18,861 19,264
--------- ---------
Income (loss) from operations 11,462 (4,373)
Interest expense 203 -
Other income, net (589) (6)
--------- ---------
Income (loss) from operations before income taxes 11,848 (4,367)
Provision (benefit) for income taxes 3,791 (1,477)
--------- ---------
Net income (loss) 8,057 (2,890)
Convertible redeemable preferred stock dividends - 1,130
--------- ---------
Net income(loss) available for
common shareholders $8,057 ($4,020)
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Earnings Per Share:
Basic Diluted Basic Diluted
----------------------- -----------------------
NET INCOME(LOSS) AVAILABLE TO COMMON SHAREHOLDERS $0.22 $0.21 ($0.15) ($0.15)
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Weighted average common shares 37,429 38,033 26,849 26,849
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COVANSYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
MARCH 31, DECEMBER 31,
2005 2004
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Current Assets:
Cash and cash equivalents $57,244 $49,841
Short-term investments 21,406 21,409
Accounts receivable, net 83,768 75,388
Revenues earned in excess of billing, net 22,473 24,613
Prepaid expenses and other 12,918 12,331
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Total current assets 197,809 183,582
Property and equipment, net 32,629 33,468
Goodwill, net 18,826 19,148
Other assets 12,862 12,604
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Total Assets $262,126 $248,802
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Current liabilities $76,588 $71,149
Other liabilities 3,438 3,462
Shareholders' equity 182,100 174,191
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Total Liabilities and
Shareholders' Equity $262,126 $248,802
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COVANSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31,
2005 2004
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Net income (loss) $8,057 ($2,890)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,218 3,275
Loss on disposal and obsolescence of property and equipment 158 1,066
Provision for and write-off of doubtful accounts 150 194
Provision(benefit) for deferred taxes (381) -
Gain from sale of short-term investments (43) (41)
Change in assets and liabilities (1,781) (1,376)
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Net cash provided by operating activities 9,378 228
Cash flows from investing activities:
Investment in property, equipment and other (2,608) (2,717)
Proceeds from sale of available-for-sale securities 29,972 39,872
Purchases of available-for-sale securities (30,047) (20,633)
Investment in computer software (43) (68)
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Net cash provided by (used in) investing activities (2,726) 16,454
Cash flows from financing activities:
Net proceeds from issuance of common stock - 186
Net proceeds from exercise of stock options and other, net 876 122
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Net cash provided by financing activities 876 308
Effect of exchange rate changes on cash (128) 28
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Increase (decrease) in cash and cash equivalents 7,400 17,018
Cash and cash equivalents at beginning of period 71,250 89,671
--------- ---------
Cash and cash equivalents at end of period $78,650 $106,689
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