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 SOLID THIRD QUARTER 2005 RESULTS
FARMINGTON HILLS, MI, October 26, 2005 - Covansys Corporation
(NASDAQ: CVNS), a global consulting and technology services company, today
announced its financial results for the third quarter ended September 30, 2005.
Covansys reported revenue of $111.2 million in the third quarter compared with
$96.2 million in the third quarter of 2004, an increase of 15.6%. Revenue
increased by 2.3% over the prior quarter, when Covansys reported revenue of
$108.7 million. Revenue for the nine months ended September 30, 2005 was $324.2
million, an increase of 17.8% compared with revenue of $275.2 million during the
same period in 2004.
The Company reported net income of $8.6 million, up 31.1% from net income of
$6.6 million in the third quarter of 2004 and down from $11.2 million in the
second quarter of 2005. Second quarter net income included an adjustment of $2.7
million related to tax reserves and valuation allowances. Net income for the
nine months ended September 30, 2005 was $27.9 million, up 237.1%, compared with
net income of $8.3 million during the same period in 2004.
Additional financial information from the quarter include:
- - Net income available to common shareholders of $0.23 per share as compared
with a loss of $0.81 per share (on a diluted basis) in the same period last
year and net income available to common shareholders of $0.30 per share (on
a diluted basis) in the second quarter of 2005;
- - Cash and short-term investments of $67.3 million, compared with $80.4
million at the end of the second quarter of 2005. On July 5, 2005, Covansys
eliminated all outstanding debt by repaying its $17.5 million subordinated
note related to the recapitalization;
- - Cash from operations of $9.9 million;
- - Revenue growth of $8.9 million in India and Asia Pacific on a full
attribution basis to $42.5 million compared with $33.6 million in the third
quarter of 2004; and
- - Accounts receivable of $93.9 million, compared with $84.4 million at the
end of the second quarter of 2005. The increase is attributable to
increased billings at the end of September due to the achievement of
contractual milestones on public sector projects.
Raj Vattikuti, Covansys' President and Chief Executive Officer, said, "Our third
quarter performance reflects our ability to continue generating solid results
through our focus on enhancing our commercial and public sector businesses and
global delivery resources. Our continued revenue growth demonstrates the ongoing
success of our global delivery model and technical prowess, which gives Covansys
a distinct advantage in today's increasingly competitive market."
Covansys' operational highlights from the third quarter include:
- - Appointment of Raj Sirohi to Senior Vice President of Sales and Marketing,
Worldwide. Raj's extensive experience and talent will help drive new
business development, improve sales execution and fuel revenue growth;
- - Opening of a Global Development Center in Bangalore, India, a
state-of-the-art technology center that will accommodate rapidly growing
offshore business;
- - Completed the acquisition of a majority interest in Fortune Infotech
Limited; and
- - Growth of total headcount in India to over 4,500, representing more than
65% of Covansys' global workforce of approximately 7,000 consultants and
employees.
ADDITIONAL FINANCIAL RESULTS
Domestic utilization was 85% in the third quarter of 2005, consistent with the
third quarter of 2004 and down from 88% in the second quarter of 2005.
Utilization in India was 75% for the third quarter of 2005, down slightly from
76% in the third quarter of 2004 and up slightly from 74% in the second quarter
of 2005.
Selling, general and administrative expenses were $17.7 million, or 15.9% of
revenue in the third quarter of 2005, down from $18.1 million, or 16.7% of
revenue in the second quarter of 2005.
Gross profit in the third quarter of 2005 was $29.0 million or 26.1% of revenue
compared with $26.1 million or 27.1% of revenue in the comparable 2004 period.
Gross profit for the first nine months of 2005 was $89.7 million or 27.7% of
revenue compared with a $66.3 million or 24.1% of revenue in 2004. Covansys'
gross profit declined in the third quarter of 2005 due to a number of factors
including competitive pressures, hardware sales and wage increases, which the
Company is working to offset with rate increases.
The effective tax rate in the third quarter and first nine months of 2005 was
27.9% and 22.5%, respectively.
OUTLOOK
Jim Trouba, Covansys' Chief Financial Officer, noted, "We are confident that
Covansys' global delivery model will continue to fuel strong revenue growth and
we anticipate that our efforts to drive improved performance in all of our
business segments will result in continued success. The Company's performance
this quarter once again demonstrates our management team's commitment to
delivering tangible results by improving our
operating centers and increasing headcount. While recruiting qualified personnel
to meet the strong demand for our services remains a challenge, we are confident
that we have the right human resources infrastructure in place to meet our
global staffing needs. Going forward, we remain confident that Covansys is
uniquely positioned to build on our strong momentum as we move into the end of
the year."
Mr. Vattikuti concluded, "Covansys' management team is focused on building upon
our success and planning for continued growth in 2006. We are aggressively
targeting new accounts in the financial services, healthcare and pharmaceuticals
industries while at the same time leveraging current accounts to expand upon
existing relationships. In the first three quarters of 2005 we have proven that
we can scale rapidly to meet our clients' needs and we are confident that we can
continue to expand both our revenue and gross margins during the fourth quarter
and into 2006."
CONFERENCE CALL
Covansys will host a conference call to discuss its third quarter financial
results on October 27, 2005 at 10:00 a.m. Eastern Time. Interested parties may
access the call by dialing 877-407-9205 or 201-689-8054 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. on
October 27, 2005 through midnight on November 10, 2005 by dialing 877-660-6853
or 201-612-7415 and referencing account number 286 and conference ID 173957. 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, with 7,000 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. Visit our Web site:
http://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, foreign exchange fluctuations and risks related to merger,
acquisition and strategic investment strategy.
# # #
COVANSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- --------------- ------------------
2005 2004 2005 2004
-------------- ----------------- --------------- ----------------
Revenue $ 111,178 $ 96,201 $ 324,159 $ 275,203
Cost of Revenue 82,182 70,085 234,433 208,931
-------------- ----------------- --------------- ----------------
Gross Profit 28,996 26,116 89,726 66,272
Selling, general and administrative 17,650 16,931 54,652 55,780
-------------- ----------------- --------------- ----------------
Income from operations 11,346 9,185 35,074 10,492
Interest expense 26 43 495 43
Other income, net (621) (543) (1,428) (1,852)
-------------- ----------------- --------------- ----------------
Income before provision for income taxes 11,941 9,685 36,007 12,301
Provision for income taxes 3,331 3,118 8,092 4,019
-------------- ----------------- --------------- ----------------
Net income 8,610 6,567 27,915 8,282
Convertible redeemable preferred stock dividends - 953 - 3,221
Loss on redemption of convertible redeemable
preferred stock - 28,674 - 28,674
-------------- ----------------- --------------- ----------------
Net income (loss) available for common shareholders $ 8,610 $(23,060) $ 27,915 ($ 23,613)
============== ================ =============== =================
Earnings Per Share:
- -------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED BASIC DILUTED
-------------- ----------------- --------------- ----------------
Net Income (Loss) Available To Common Shareholders $ 0.23 $0.23 ($0.81) ($0.81) $0.75 $0.74 ($0.86) ($0.86)
============== ================ =============== =================
Weighted Average Common Shares 37,281 37,949 28,616 28,616 37,355 37,935 27,455 27,455
============== ================ =============== =================
MORE
COVANSYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
SEPTEMBER 30, DECEMBER 31,
2005 2004
------------- ------------
Current Assets:
Cash and cash equivalents $ 52,939 $ 49,841
Short-term investments 14,349 21,409
-------- --------
67,288 71,250
Accounts receivable, net 93,929 75,388
Revenues earned in excess of billing, net 25,428 24,613
Prepaid expenses and other 12,798 12,331
-------- --------
Total current assets 199,443 183,582
Property and equipment, net 34,791 33,468
Goodwill, net 19,336 19,148
Other assets 11,885 12,604
-------- --------
Total Assets $265,455 $248,802
======== ========
Current liabilities $ 62,051 $ 71,149
Other liabilities 4,432 3,462
Shareholders' equity 198,972 174,191
-------- --------
Total Liabilities and
Shareholders' Equity $265,455 $248,802
======== ========
COVANSYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
2005 2004
--------- ---------
Net income $ 27,915 $ 8,282
Adjustments to reconcile net income to net cash provided from
operating activities:
Depreciation and amortization 9,881 10,032
Loss on disposal and obsolescence of property and equipment 302 1,066
Provision for and write-off of doubtful accounts 240 1,562
Gain from sale of short-term investments (48) (132)
Provision for deferred income taxes 12 -
Other 272 163
Change in assets and liabilities (10,951) 4,342
--------- ---------
Net cash provided from operating activities 27,623 25,315
Cash flows from investing activities:
Acquisition of business, net of cash acquired (3,027) -
Investment in property, equipment and other (9,949) (6,646)
Proceeds from sale of available-for-sale securities 102,494 85,994
Purchases of available-for-sale securities (94,225) (69,343)
Investment in computer software (43) (171)
--------- ---------
Net cash provided from investing activities (4,750) 9,834
Cash flows from financing activities:
Repayment of subordinated notes (17,500) -
Net proceeds from issuance of common stock and warrants - 93,374
Net proceeds from exercise of stock options and other, net 2,916 1,025
Redemption of convertible redeemable preferred
stock and warrants - (178,977)
Repurchases of common stock (4,803) (2,407)
--------- ---------
Net cash provided from (used in) financing activities (19,387) (86,985)
Effect of exchange rate changes on cash (388) 25
--------- ---------
Increase in cash and cash equivalents 3,098 (51,811)
Cash and cash equivalents at beginning of period 49,841 89,671
--------- ---------
Cash and cash equivalents at end of period $ 52,939 $ 37,860
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