Complete Business Solutions, Inc. Revenue Increases 35% in Third
Quarter, Pro Forma For Mergers; Pro Forma Net Income Up 134%,
Before Merger Costs, In Quarter
Claremont Technology Merger Accretive Excluding One-Time Merger Costs
FARMINGTON HILLS, Mich., Nov. 3 /PRNewswire/ -- Complete Business
Solutions, Inc. (Nasdaq: CBSI), a worldwide information technology (IT)
consultant and service provider to large and medium-size organizations,
reported third quarter 1998 diluted earnings per share (pro forma) of $0.24,
before one-time merger costs, a 118 percent increase over third quarter 1997
pro forma diluted EPS of $0.11. Third quarter 1998 revenue increased
35 percent to $98.7 million, from $72.9 million in third quarter 1997. Pro
forma net income increased 134 percent to $8.7 million, before the one-time
merger costs, compared with pro forma third quarter 1997 net income of
$3.7 million, before one-time merger costs.
Commenting on the results, Raj Vattikuti, president and chief executive
officer, said, "Once again we exceeded analysts' estimates and achieved solid
internal revenue growth within the 30 to 40 percent range together with
expanding margins. Last quarter's results were driven by a continued shift
toward high-margin services, growth in work done in our domestic and offshore
development centers as well as strong performance by our merger partners,
Synergy Software, Inc., c.w. Costello & Associates, inc. and Claremont
Technology Group, Inc.
"By cross-selling within our new organization, we closed several deals
with former Claremont clients during the third quarter utilizing CBSI's
traditional strengths including applications maintenance, ERP and
client/server development. We continue to promote our cost-effective
development centers," Vattikuti continued.
"Strong demand for our services drove our revenue growth. We closed 223
new deals in the quarter yielding $50 million in sales. The largest growth
area came from services that will help companies transition to client server
systems (reengineering and development -- 36 percent).
"The third quarter merger with Claremont has already had a positive impact
beyond the accretive effect on our EPS after one-time merger expenses. For
example, we've unleashed an exciting new line of services in supply chain
management with the marriage of Claremont's consulting expertise and CBSI's
Year-2000 (Y2K) experience. We closed 55 new deals in IT Consulting due to
Claremont's reputation and strong capabilities in this area," said Vattikuti.
All EPS comparisons are adjusted for a March, 1998, 2-for-1 stock split.
These results are restated for the November 1997 merger with Synergy Software,
Inc., the January 1998 merger with c.w. Costello & Associates, inc., and the
July 1998 merger with Claremont Technology Group, Inc., all accounted for as
poolings of interest. Pro-forma 1997 figures, as well as nine month 1998
results, adjust for the Company's and its merger partners' changes in taxable
status related to conversion from private S-corporations to C-corporations
upon mergers and upon CBSI's initial public offering.
Margins Increased
For the third quarter, 1998, the operating margin before merger costs was
12.4 percent, compared with 8.0 percent in third quarter 1997. The gross
margin improved to 34.5 percent of revenue, from 32.9 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,
excluding one-time merger costs, improved to 22.1 percent of revenue, from
third quarter 1997's 24.9 percent. Third quarter 1998's pro forma net margin
before merger costs was 8.8 percent compared with third quarter 1997's pro
forma net margin of 5.1 percent. Quarter to quarter, operating margin before
merger costs improved from 11.1 percent in second quarter 1998 to 12.4 percent
in third quarter 1998.
"We believe our operating margins have room to expand beyond the current
level by leveraging our SG&A infrastructure, continued movement of more work
to development centers both in the U.S. and offshore, and by further increases
in our high-margin services," said Tim Manney, executive vice president of
finance and administration. "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 $65.5 million in cash,
and shareholders' equity of $125.7 million. "The nine month results also
reflect improvements made in our combined balance sheet which give us great
confidence in our ability to deliver strong bottom-line results in the coming
quarters," continued Manney.
Outlook
Said Vattikuti, "In just 18 months since going public, we have grown from
a company with eight offices, 1,500 IT professionals, 220 clients and
$83 million in revenues to a global delivery organization with more than
30 offices, over 4,000 IT professionals, 500 clients and an annual revenue run
rate of approximately $400 million, based on last quarter.
"Thus far this quarter our new business flow has been unabated and we have
seen no slacking in demand for our broad range of services. Y2K has not
'crowded out' the IT spending budgets of our clients in terms of the business
we are winning. In part this may be because CBSI, as a very cost-effective
service company, is able to take market share from competitors. We also do
not anticipate that any future constraints on corporate IT budgets will slow
our growth.
"With our mergers, we have built a U.S. recruiting capability that has
diversified our sourcing of new talent. We are building our offshore
infrastructure, most recently with the start of a Philippine office, so that
we can easily move work offshore. The creation of a seamless organization has
improved our employees' career opportunities which has also helped us retain
the best talent.
"Our Partnership Sourcing approach benefits clients through the
capabilities of our strong on-site/off-site/offshore delivery model, our
ability to staff up quickly utilizing global teams and resources, which in
turn allows us to manage and deliver services and projects to customers on a
very timely and cost-effective basis," Vattikuti concluded.
"Given all of these factors, we believe we can grow revenue in 1999 by 30
to 40 percent while improving margins and deploying capital in high-value
activities to increase EPS in a range of 35 to 45 percent," concluded Manney.
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.
CBSI 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. CBSI
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, CBSI'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 Nine Months Ended
September 30, September 30,
1998 1997 %Change 1998 1997 %Change
Revenues $98,688 $72,878 35.4% $272,554 $198,543 37.3%
Salaries, wages
and employee
benefits 50,839 39,806 27.7% 140,462 109,391 28.4%
Contractual services 9,804 5,204 88.4% 26,438 13,962
Project travel
and relocation 3,006 3,065 10,585 7,976
Depreciation and
amortization 984 848 3,018 2,119
Gross Profit 34,055 23,955 42.2% 92,051 65,095 41.4%
Selling, general
and
administrative 21,769 18,149 19.9% 62,922 50,413 24.8%
Merger costs
and other 9,180 360 28,250 716
Income from
Operations 3,106 5,446 -43.0% 879 13,966 -93.7%
Other expense
(income) (821) (163) (2,110) (126)
Income before tax
and minority
interest 3,927 5,609 2,989 14,092
Provision for
income taxes 2,657 1,832 5,493 5,121
Minority interest 0 0 0 82
Net Income (loss) $1,270 $3,777 -66.4% ($2,504) $8,889-128.2%
Pro forma
information:
Pro forma
provision for
income taxes 0 265 (1,417) 57
Pro forma net
income (loss) $1,270 $3,512 -63.8% ($1,087) $8,832-112.3%
Net income
(pro forma)
excluding one-time
merger expenses $8,706 $3,728 133.5% $20,872 $9,262 125.4%
Earnings Per Share
(pro forma) $0.03 $0.11 ($0.03) $0.28
Earnings Per Share
(pro forma)
excluding one-time
merger expenses $0.24 $0.11 $0.57 $0.30
Weighted Average
Common Shares 36,297 33,411 36,404 31,143
SELECTED OPERATING
DATA
Operating Margin 3.15% 7.47% 0.32% 7.03%
Operating Margin
excluding one-time
merger expenses 12.45% 7.97% 10.69% 7.39%
Net Margin (pro
forma) 1.29% 4.82% -0.40% 4.45%
Net Margin (pro
forma) 8.82% 5.12% 7.66% 4.66%
excluding one-time
merger expenses
Complete Business Solutions, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited in thousands)
September 30, December 31,
1998 1997
Current Assets:
Cash and cash equivalents $65,459 $61,861
Accounts receivable, net 70,732 54,445
Revenues earned in
excess of billing, net 12,929 11,774
Prepaid expenses and other 3,099 2,545
Total current assets 152,219 130,625
Property and equipment, net 15,485 15,186
Goodwill, net 4,222 5,870
Other assets 7,060 14,820
Total Assets $178,986 $166,501
Current liabilities 52,945 37,439
Other liabilities 337 387
Shareholders' equity 125,704 128,675
Total Liabilities and
Shareholders' Equity $178,986 $166,501
SOURCE Complete Business Solutions, Inc.
Web Site: cbsinc.com |
