To All: Earnings Report
Complete Business Solutions, Inc. Posts Record $0.21 EPS for Second Quarter; Revenue Increases 43 Percent to $67 Million
PR Newswire - August 04, 1998 05:15
FARMINGTON HILLS, Mich., Aug. 4 /PRNewswire/ -- Complete Business Solutions, Inc. (Nasdaq: CBSL), a worldwide information technology (IT) consultant and service provider to large and medium-size organizations, reported second quarter 1998 diluted earnings per share of $0.21, a 163 percent increase over second quarter 1997 pro forma diluted EPS of $0.08. Second quarter 1998 revenue increased 43 percent to $67 million from $47 million in the second quarter of 1997. Net income increased 209 percent to $6 million compared with pro forma net income of $1.9 million in the second quarter of 1997.
Commenting on the results, Raj Vattikuti, president and chief executive officer said, "We experienced solid revenue and margin growth again this quarter. This was due to a greater proportion of the mix in higher-margin services, growth in the work performed at our domestic and offshore development centers as well as the extremely successful integration of our merger partners, Synergy Software, Inc. and c.w. Costello & Associates, inc. These were the driving factors which led CBSL to exceed analysts' earnings estimates.
"The process of cross-selling services has really helped us to grow. Now, with the merger with Claremont Technology Group, Inc. completed, we will continue to cross-sell throughout our merged entity by offering strong geographic delivery and continued industry focus. We have 140 sales and account managers in 23 branch offices and have established regional offices and development centers to serve our customers and manage employees effectively by utilizing CBSL's traditional strengths. These include Year 2000 (Y2K), applications maintenance, ERP and client/server assignments. Over the past quarter, we began work on numerous engagements and added over 60 new projects due to the strengths and enhanced capability of our new entity. Repeat business as a percentage of total revenues continues to be in excess of 80 percent.
"We're also taking on more value-added projects with our expanded service capabilities," continued Vattikuti. "Our high value services are 84 percent of our revenues and with Claremont, our combined average bill rate is approximately $75. This shift to higher margin service offerings and more development center activity will enhance further our revenue and margin growth. Now that we have merged with Claremont, we expect this trend to accelerate."
For the six months ended June 30, 1998, revenues increased approximately 44 percent to $128 million from $88 million for the six months ended June 30, 1997. Pro forma net income before acquisition costs increased 203 percent to $10.6 million for the six months ended June 30, 1998, or $0.37 per share, compared with pro forma net income of approximately $3.5 million, or pro forma $0.15 per share, for the same period in 1997.
The 1997 results are restated for the November 1997 merger with Synergy Software, Inc. and the January 1998 merger with c.w. Costello & Associates, inc. both accounted for as poolings of interest. Pro forma figures adjust for the change in taxable status of c.w. Costello & Associates, inc. as a result of the first quarter 1998 merger, adjust for the change in taxable status related to the merger with Synergy Software, Inc. in fourth quarter, 1997 as well as for Complete Business Solutions' change in taxable status related to its March 5, 1997 initial public offering (IPO).
Margins Increased
For the second quarter, 1998, the operating margin was 12.2 percent compared with 6.4 percent in second quarter 1997. The gross margin improved to 31 percent of revenue, from 27.4 percent same-period 1997, due mainly to the growth in higher-margin business segments and in particular, the higher proportion of services performed offshore. SG&A improved to 18.9 percent of revenue from second quarter 1997's 20.9 percent. Second quarter 1998's net margin was 9 percent compared with second quarter 1997's pro forma net margin of 4.2 percent.
"Currently, we are operating as one seamless entity in our business model," said Tim Manney, executive vice president of finance and administration. "We were pleased to note that this quarter's results exceeded expectations due to better revenues, improved margin growth and lower turnover.
"We believe our operating margins have room to expand by continued leverage of our SG&A infrastructure, movement of more work to development centers both in the U.S. and offshore and by further increases in our high- margin services," Manney continued. "The proportion of low-margin business continued to decline year-over-year. The strong interest from our expanding client base in our offshore facilities will have a very positive impact on our combined margins going forward. The strategies built into our business model provide for offshore operating margins that are roughly double the margins on our average domestic business mix."
The Company's balance sheet remained strong with $52.6 million in cash, and shareholders' equity of $86.4 million.
Outlook
"While Claremont will not be announcing detailed results for the past quarter, their revenues continue to grow and their operating margin was approximately 8 percent for the quarter ending June 30, 1998," noted Vattikuti. "Claremont is quickly improving their operating margins and this third quarter merger is expected to be immediately accretive to earnings per share.
"We are very bullish about the future. The stature of our combined companies has enhanced our ability to recruit talent and reduced our turnover ratio. We have 45 dedicated professionals recruiting new people to join our team. Our human resources staff will continue to concentrate on the college recruiting program and this, along with the resources of our combined companies, will allow us to continue to successfully reduce our dependency on H-1B visas. We do not foresee that the potential impact of the proposed new H-1B regulations will have any affect on our daily operations. With our combined strengths and infrastructure, we will continue to grow revenue and EPS at a rapid rate without much additional investment.
"As of August 1, all of our offices share the CBSI name. Our employees are very excited about the prospects for the company to become a strong value player in the marketplace.
"As we move into the third quarter, we have over 4,000 IT professionals and a total workforce of over 4,400 worldwide. We retained essentially all key senior project managers and management of Claremont and announced our new organizational structure to all employees last week. While we are considering future acquisitions to augment our current geographic presence, we are currently focused on efforts to integrate and strengthen our newly merged entity in order to provide continued growth and success for our employees, customers and shareholders."
With the exception of statements regarding historical matters and statements regarding the Company's current status, certain matters discussed herein are forward-looking statements that involve substantial risks and uncertainties that could cause actual results to differ materially from targets or projected results. Such forward-looking statements regarding targets or projections may be identified by the use of the words "anticipate," "believe," "estimate," "expect," "plan" and similar expressions. Factors that could cause such differences include the recruitment and retention of IT professionals, government regulation of immigration, increasing significance and risks of non-U.S. operations, variability of operating results, decrease in demand for Year 2000 services, exposure to conditions in India, fixed-price projects, competition, management of growth, rapid technological change, risks related to mergers and acquisitions and potential liability to clients.
About Complete Business Solutions, Inc.
CBSL is a worldwide provider of information technology ("IT") services to large and mid-size organizations. The Company offers its clients a broad range of IT services, from advising clients on strategic technology plans to developing and implementing appropriate IT applications solutions. CBSL offers custom-tailored solutions based on an assessment of each client's needs. The Company's services include: Year 2000 conversion and testing services; applications development and maintenance; reengineering legacy applications to client/server technology; client/server applications development; IT consulting services; packaged software implementation; and contract programming services. For 1997, CBSL's revenue increased approximately 51 percent to $275.1 million, from $182.6 million in 1996, both years restated for the acquisition of Synergy Software, Inc. in November, 1997, c.w. Costello & Associates, inc. in January, 1998 and Claremont Technology Group, Inc. in July, 1998.
Complete Business Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 % Change 1998 1997 % Change
Revenues $67,012 $46,850 43.0% $127,549 $88,319 44.4%
Salaries, wages and
employee
benefits 36,633 28,210 29.9% 70,193 53,852
Contractual
services 6,806 3,795 79.3% 12,569 6,739
Project travel and
relocation 2,454 1,726 5,158 3,147
Depreciation and
amortization 332 293 650 657
Gross Profit 20,787 12,826 62.1% 38,979 23,924 62.9%
Selling, general and
administrative 12,635 9,815 28.7% 24,625 18,366 34.1%
Merger costs 0 0 3,421 0
Income from
Operations 8,152 3,011 170.7% 10,933 5,558 96.7%
Other expense
(income) (632) 98 (1,170) 190
Income before tax
and minority
interest 8,784 2,913 12,103 5,368
Provision for income
taxes 2,773 862 5,821 1,997
Minority interest 0 0 0 82
Net Income $6,011 $2,051 193.1% $6,282 $3,289 91.0%
Pro forma information:
Pro forma provision for
income taxes 0 107 (1,417) (208)
Net income
(pro forma) $6,011 $1,944 209.2% $7,699 $3,497 120.2%
Net income (pro forma)
excluding one-time
merger expenses $6,011 $1,944 209.2% $10,600 $3,497 203.1%
Earnings Per Share
(pro forma) $0.21 $0.08 $0.27 $0.15
Earnings Per Share
(pro forma) excluding
one-time merger
expenses $0.21 $0.08 $0.37 $0.15
Weighted Average
Common Shares 28,584 24,040 28,511 22,759
SELECTED OPERATING DATA
Operating Margin 12.16% 6.43% 8.57% 6.29%
Operating Margin
excluding one-time
merger expenses 12.16% 6.43% 11.25% 6.29%
Net Margin
(pro forma) 8.97% 4.15% 6.04% 3.96%
Net Margin
(pro forma) 8.97% 4.15% 8.31% 3.96%
excluding one-time
merger expenses
Complete Business Solutions, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited in thousands)
June 30, December 31,
1998 1997
Current Assets:
Cash and cash equivalents $52,579 $57,458
Accounts receivable, net 54,287 38,810
Prepaid expenses and other 3,256 1,806
Total current assets 110,122 98,074
Property and equipment, net 10,141 8,371
Goodwill, net 2,736 2,809
Other assets 635 999
Total Assets $123,634 $110,253
Current liabilities 37,113 30,142
Other liabilities 170 190
Shareholders' equity 86,351 79,921
Total Liabilities and
Shareholders' Equity $123,634 $110,253
SOURCE Complete Business Solutions, Inc.
/NOTE TO EDITORS: For more information on Complete Business Solutions,
Inc., visit the Company's website at www.cbsinc.com or dial 1-800-PRO-INFO and
enter the ticker "CBSL"/
/CONTACT: Tim Manney, EVP Finance and Administration, 248-848-2203 or
Gail Lutey, Investor-Public Relations, 248-848-2217, or e-mail,
glutey@cbsinc.com, both of Complete Business Solutions, Inc.; or General Info,
Jim Ketelsen, or e-mail, jvk@chi.frbd.com, Analysts, Margaret Huebner, or
e-mail, mmh@chi.frbd.com, or Media Contact, Darcy Bretz, or e-mail,
dfb@chi.frbd.com, all of The Financial Relations Board, 312-266-7800/
(CBSL)
<Picture>Headlinesÿÿ<Picture>Next Story
------------------------------------------------------------------------
CBSL %CPR %ERN V%PRN P%PRN |
