EX-99.1 2 a05-7294_1ex99d1.htm EX-99.1

Exhibit 99.1

 

News Release

 

Contact:

Larry Vale

 

Keane Investor Relations

 

617-241-9200 x1290

 

 

 

Albie Jarvis

 

Porter Novelli

 

617-897-8200

 

KEANE REPORTS FIRST QUARTER 2005 FINANCIAL RESULTS

 

Posted Revenues and Earnings Growth Over Prior Year

 

BOSTON, April 27, 2005 — Keane, Inc. (NYSE: KEA), a leading business and information technology (IT) outsourcing firm, today announced its results for the First Quarter ended March 31, 2005.

 

Keane’s revenues for the First Quarter 2005 were $232.2 million, an increase of 7.6 percent from revenues of $215.8 million in the First Quarter of 2004.  Net income for the First Quarter of 2005 was $7.3 million, an increase of 31.7 percent from net income of $5.5 million in the First Quarter of 2004.  Diluted earnings per share (EPS) for the First Quarter of 2005 was $.11, in line with previous guidance, compared to $.08 EPS for the First Quarter of 2004.(1)

 

Keane’s management believes that cash performance is the primary driver of long-term per share value and, accordingly, views diluted cash earnings per share (CEPS(2)) as an important indicator of performance.  CEPS was $.15 in the First Quarter of 2005 compared to CEPS of $.12 for the same period last year, above previously issued guidance.

 

First Quarter 2005 Highlights:

 

•                  Awarded new engagements with both new and existing clients, including: CSX, Ecolab, the Department of Justice, GEICO, Invacare, the State of New York, PMI Group, SEI Investments, and TIAA-CREF.

•                  Grew outsourcing revenues to $122.6 million, a 16.5 percent increase from $105.3 million in the First Quarter of 2004 and a 2.6 percent increase from $119.5 million in the Fourth Quarter of 2004.

•                  Achieved bookings of $268.1 million, a 32.8 percent increase from bookings of $201.9 million in the Fourth Quarter of 2004.

•                  Outsourcing bookings were $119.0 million

•                  Development & Integration bookings were $44.2 million

•                  Other IT Services bookings were $104.9 million

 

(1)          First Quarter EPS and CEPS reflect the adoption of Emerging Issues Task Force (EITF) Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.”  EITF Issue No. 04-8 requires that contingently convertible debt be included in the calculation of diluted earnings per share using the if-converted method regardless of whether the market price trigger has been met.  Under the if-converted method, the debt is considered converted to shares, with the resulting number of shares included in the denominator of the earnings per share calculation and the related interest expense (net of tax) added back to the numerator of the earnings per share calculation.  EITF Issue No. 04-8 also requires the restatement of EPS for all periods presented.

 

(2)   CEPS excludes amortization of intangible assets and stock-based compensation.  CEPS includes the weighted average impact of the shares issuable upon conversion of the debentures.  CEPS is not a measurement in accordance with Generally Accepted Accounting Principles (GAAP).  See reconciliation of EPS to CEPS in the accompanying financial data schedules.

 


 

•                  Bolstered its Application Development & Integration capability with the acquisition of netNumina, a software development company with approximately 60 consultants that specializes in technology strategy, architecture, and custom development.

•                  Elected Lawrence Begley to the Company’s Board of Directors and Audit Committee and determined that Mr. Begley is an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K.

 

“Keane continued to make good progress in developing and marketing a series of differentiated, repeatable, high value business solutions during the First Quarter,” commented Brian Keane, president and CEO.  “We believe that these solutions, combined with our vertical go-to-market strategy, will help drive strong bookings and continued growth for the balance of the year.”

 

“Keane’s business fundamentals continue to strengthen as we have again posted strong year over year gains,” said John Leahy, senior vice president and CFO.  “Importantly, Keane maintains the cash resources and financial flexibility to support our ability to grow organically and pursue M&A opportunities.  During the First Quarter, cash from operations totaled $9.1 million, and Keane ended the quarter with $208.0 million in cash and investments.”

 

Business Outlook:

 

Based on the current economic outlook, Keane estimates revenues for the Second Quarter of 2005 to be in the range of $240.0 million to $250.0 million, EPS to be in the range of $.12 to $.14, and CEPS to be in the range of $.15 to $.17.  These estimates include the dilutive impact of approximately $.01 associated with Keane’s convertible debentures.

 

For fiscal year 2005, Keane is reiterating its previously stated estimates that its annual revenues will be in the range of $1.00 billion to $1.05 billion, EPS to be in the range of $.54 to $.58, and CEPS to be in the range of $.68 to $.71.  These estimates include the dilutive impact of approximately $.03 to $.04 on EPS and approximately $.05 to $.06 on CEPS associated with our convertible debentures.

 

Conference Call:

 

Keane will host a conference call today at 8:30 a.m. (EDT) to discuss these results.  Interested parties may access the call via the Internet at www.keane.com or may dial 800-438-7212 (706-643-3476 from outside North America) and ask for the Keane call referencing reservation number 5393933.  A replay of the call will be available beginning at approximately 10:30 a.m. (EDT) today, through 5:00 p.m. (EDT) on May 6, 2005.  The replay may be accessed via the Internet at www.keane.com or by calling 1-800-642-1687 or 706-645-9291 and referencing reservation number 5393933.

 

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About Keane:

 

Keane, Inc. (NYSE: KEA), helps clients to improve their business operations and IT effectiveness by delivering a broad range of business consulting and outsourcing services designed to achieve near-term and sustainable business benefit.  Specifically, Keane focuses on highly synergistic service offerings, including: Application Development & Integration, Application Outsourcing, 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 delivers its services through an integrated network of regional offices in North America 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.

 

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: continued or further downturns in the U.S. economy, political and economic conditions in India, the loss of one or more major clients, unfavorable government audits, 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 Annual Report on Form 10-K for the period ended December 31, 2004, 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 March 31,

 

 

 

2005

 

2004

 

 

 

(In thousands except per share amounts)

 

Revenues

 

$

232,204

 

$

215,824

 

Operating expenses

 

 

 

 

 

Salaries, wages, and other direct costs

 

162,193

 

149,990

 

Selling, general, and administrative expenses

 

54,172

 

53,217

 

Amortization of intangible assets

 

4,070

 

3,913

 

Operating income

 

11,769

 

8,704

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

Interest and dividend income

 

1,105

 

1,055

 

Interest expense

 

(1,416

)

(1,438

)

Other (expense) income, net

 

(16

)

125

 

Minority interest

 

683

 

761

 

Income before income taxes

 

12,125

 

9,207

 

Provision for income taxes

 

4,850

 

3,683

 

 

 

 

 

 

 

Net income

 

$

7,275

 

$

5,524

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.12

 

$

0.09

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.11

 

$

0.08

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

62,156

 

63,650

 

Diluted weighted average common shares and common share equivalents outstanding

 

71,028

 

73,004

 

 

Reconciliation of GAAP Diluted EPS to CEPS (1)

 

 

 

Three Months Ended March 31,

 

 

 

2005

 

2004

 

Net income

 

$

7,275

 

$

5,524

 

Add (Subtract):

 

 

 

 

 

Interest expense related to convertible debentures

 

970

 

970

 

Related tax effect

 

(388

)

(388

)

Net income for Diluted EPS

 

$

7,857

 

$

6,106

 

Amortization of intangible assets and stock-based compensation

 

4,210

 

4,106

 

Related tax effect

 

(1,684

)

(1,642

)

Adjusted net income for CEPS

 

$

10,383

 

$

8,570

 

Diluted CEPS

 

$

0.15

 

$

0.12

 

 

(1)          We believe that cash performance is the primary driver of long-term per share value, thus we view cash earnings per share (CEPS) as an important indicator of performance. CEPS excludes amortization of intangible assets and stock-based compensation. CEPS includes the weighted average impact of the shares issuable upon conversion of the debentures. CEPS is not a measurement in accordance with Generally Accepted Accounting Principles (GAAP).

 

4


 

Keane, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

As of March 31,

 

As of December 31,

 

 

 

2005

 

2004

 

 

 

(In thousands)

 

Assets

 

 

 

 

 

Current:

 

 

 

 

 

Cash and cash equivalents

 

$

80,969

 

$

67,488

 

Restricted cash

 

1,790

 

986

 

Marketable securities

 

127,020

 

130,678

 

Accounts receivable, net

 

142,957

 

126,467

 

Prepaid expenses and deferred taxes

 

15,598

 

16,515

 

Total current assets

 

368,334

 

342,134

 

Property and equipment, net

 

76,509

 

76,761

 

Goodwill

 

309,594

 

305,965

 

Customer lists, net

 

50,049

 

53,040

 

Other intangible assets, net

 

8,804

 

9,904

 

Other assets, net

 

15,415

 

16,390

 

Total assets

 

$

828,705

 

$

804,194

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Current:

 

 

 

 

 

Short-term debt

 

$

671

 

$

892

 

Accounts payable

 

6,939

 

9,511

 

Accrued restructuring

 

4,054

 

3,513

 

Unearned income

 

10,805

 

9,376

 

Accrued compensation

 

45,630

 

39,763

 

Accrued expenses and other current liabilities

 

64,386

 

52,760

 

Total current liabilities

 

132,485

 

115,815

 

 

 

 

 

 

 

Long-term debt

 

150,013

 

150,017

 

Accrued long-term building costs

 

39,414

 

39,545

 

Accrued long-term restructuring

 

4,167

 

5,164

 

Deferred income taxes

 

26,570

 

25,924

 

Total liabilities

 

352,649

 

336,465

 

Minority interest

 

5,343

 

6,026

 

Equity

 

 

 

 

 

Stockholders’ equity

 

470,713

 

461,703

 

Total liabilities and stockholders’ equity

 

$

828,705

 

$

804,194

 

 

5


 

Keane, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

7,275

 

$

5,524

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

7,165

 

6,857

 

Changes in operating assets and liabilities, net of acquisitions and other, net

 

(5,311

)

(13,125

)

Net cash provided by (used for) operating activities

 

9,129

 

(744

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sales and maturities of investments, net of purchases

 

2,761

 

18,261

 

Purchase of property and equipment

 

(4,759

)

(4,200

)

Payments for current year and prior year acquisitions, net of cash acquired

 

4,584

 

(17,747

)

Other, net

 

(221

)

121

 

Net cash provided by (used for) investing activities

 

2,365

 

(3,565

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock

 

2,059

 

2,749

 

Repurchase of common stock

 

—

 

(6,755

)

Other, net

 

(105

)

(165

)

Net cash provided by (used for) financing activities

 

1,954

 

(4,171

)

Effect of exchange rate changes on cash

 

33

 

127

 

Net increase (decrease) in cash and cash equivalents

 

13,481

 

(8,353

)

Cash and cash equivalents at beginning of period

 

67,488

 

56,736

 

Cash and cash equivalents at end of period

 

$

80,969

 

$

48,383

 

 

6


 

Keane, Inc.

Selected Financial Data (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

Increase (Decrease)

 

 

 

2005

 

2004

 

$

 

%

 

 

 

(Dollars in thousands)

 

Reconciliation of GAAP Net Income to EBITDA (1)

 

 

 

 

 

 

 

 

 

Net income

 

$

7,275

 

$

5,524

 

$

1,751

 

31.7

%

Add (Subtract):

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

4,850

 

3,683

 

1,167

 

31.7

%

Amortization of intangible assets and stock-based compensation

 

4,210

 

4,106

 

104

 

2.5

%

Depreciation

 

3,095

 

2,944

 

151

 

5.1

%

Interest and dividend income

 

(1,105

)

(1,055

)

(50

)

4.7

%

Interest expense

 

1,416

 

1,438

 

(22

)

-1.5

%

EBITDA

 

$

19,741

 

$

16,640

 

$

3,101

 

18.6

%

 

 

 

 

 

 

 

 

 

 

Service Line Revenues

 

 

 

 

 

 

 

 

 

Outsourcing

 

$

122,584

 

$

105,253

 

$

17,331

 

16.5

%

Development & Integration

 

41,757

 

41,899

 

(142

)

-0.3

%

Other IT Services

 

67,863

 

68,672

 

(809

)

-1.2

%

Total

 

$

232,204

 

$

215,824

 

$

16,380

 

7.6

%

 

 

 

 

 

 

 

 

 

 

Service Line Bookings (2)

 

 

 

 

 

 

 

 

 

Outsourcing

 

$

119,040

 

$

267,976

 

$

(148,936

)

-55.6

%

Development & Integration

 

44,177

 

37,937

 

6,240

 

16.4

%

Other IT Services

 

104,902

 

103,768

 

1,134

 

1.1

%

Total

 

$

268,119

 

$

409,681

 

$

(141,562

)

-34.6

%

 

 

 

 

 

 

 

 

 

 

Gross Margin

 

 

 

 

 

 

 

 

 

Revenues

 

$

232,204

 

$

215,824

 

$

16,380

 

7.6

%

Salaries, wages, and other direct costs

 

(162,193

)

$

(149,990

)

(12,203

)

8.1

%

Gross Margin

 

$

70,011

 

$

65,834

 

$

4,177

 

6.3

%

Gross Margin %

 

30.2

%

30.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days Sales Outstanding (DSO) (3)

 

52

 

52

 

—

 

 

 

 

(1)          EBITDA represents earnings before net interest, income taxes, depreciation, amortization of intangible assets, and stock-based compensation. 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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