KBAY Kanbay International (MM)

-- Consolidated revenue of $105.8 million and EPS of $0.18 ROSEMONT, Ill., August 1 /PRNewswire-FirstCall/ -- Kanbay International, Inc. (NASDAQ:KBAY), a global management consulting, technology integration and development, and outsourcing firm, today reported financial results for its second quarter ended June 30, 2006. (Logo: http://www.newscom.com/cgi-bin/prnh/20050830/CGTU033LOGO ) Second Quarter 2006 Highlights: -- Consolidated revenue of $105.8 million -- Kanbay, excluding Adjoined, generated revenue of $72.8 million, 14 percent sequential and 28% year-over-year revenue growth, respectively -- Third party revenue, excluding Adjoined, was $34.6 million, a 21 percent sequential increase -- Diluted EPS of $0.18 is net of $0.03 for employee stock compensation expense -- Integration of Adjoined Consulting running ahead of schedule -- A total of 35 new clients were added in the quarter "We are exceptionally pleased with Kanbay's financial results for the second quarter," commented Raymond Spencer, Chairman and CEO of Kanbay. He continued: "We achieved this quarter's results based on strong execution and favorable market conditions within both pre-merger Kanbay and Adjoined Consulting's business models. We also made substantial progress integrating the organizations in a timely fashion. "We have said repeatedly we would not take our eye off the ball and we believe these second quarter results are proof of our ability to execute our business plans while completing the bulk of integration tasks ahead of our original schedule," Spencer said. Kanbay's third party revenue growth accelerated in the quarter due to strong demand within the financial services industry, notably the need to support and upgrade legacy systems and mission critical applications. Discretionary spending trends are also strong as the industry seeks to enhance revenue and increase operating efficiencies. Spencer added: "We also had strong revenue trends at Adjoined, coupled with consistent execution, serving to drive solid operating results. Early revenue synergies are being realized and this is strong evidence of the strategic rationale for this transaction. We are very pleased with Adjoined, its current and future growth prospects. "Our pipeline of existing and potential client opportunities is robust. The market is highly responsive to our approach which delivers highly efficient and domain-centered IT services and consulting solutions. We are excited about the fact we signed 35 new clients in the quarter, the largest number in our history," Spencer stated. Financial Review Bill Weissman, Kanbay's Chief Financial Officer, added, "We posted a strong quarter of growth across all service lines. Of the $105.8 million in consolidated revenue, $72.8 million was contributed by Kanbay, excluding the Adjoined acquisition, and this represents an increase of 14 percent sequentially and 28 percent year-over-year. Adjoined posted $33 million in revenues in the second quarter, a solid performance. "We are particularly pleased with the growth of third party revenue in the second quarter. Kanbay third party revenue, before Adjoined, grew 21 percent sequentially in the second quarter. We experienced good growth across most of our existing client base and had 12 pre-merger Kanbay accounts performing at a platinum level, up from 9 in the first quarter." Weissman added, "Our related party revenue from HSBC grew 9 percent sequentially and 29 percent year-over-year on a comparable basis, another quarter of strong performance. "Diluted earnings per-share after stock compensation expense was $0.18 in the second quarter," Weissman added. "While Adjoined was earnings neutral in the quarter, after integration costs, amortization of intangibles and interest expense, it was dilutive to EPS by $0.03 due to additional shares outstanding following the transaction. Further, employee stock compensation expense decreased EPS by an additional $0.03 in the second quarter." Kanbay's second quarter earnings per share before stock compensation expense and before the impact of the Adjoined acquisition was $0.24, which was consistent with the first quarter, despite salary increases and high visa costs, and compared to $0.19 in the second quarter of last year, a 26% increase. Outlook and Guidance Regarding the third quarter, Kanbay anticipates total consolidated revenues of at least $109 million in the third quarter. On a stand-alone basis, Kanbay should achieve revenue of approximately $75 million while Adjoined should contribute approximately $34 million in the third quarter. This outlook reflects not only continuing growth in the business but also the fact that projects at several accounts started sooner than anticipated in the second quarter. Based on Kanbay's performance year-to-date and taking into account revenue synergies, the company is increasing full year consolidated revenue guidance from at least $385 million to at least $402 million. In terms of earnings, on a consolidated basis, Kanbay is targeting third quarter 2006 EPS of $0.21 with a full year EPS of at least $0.81. Raymond Spencer concluded: "We have moved quickly to integrate our organizations at multiple levels, including people and business processes. Our goal is to move rapidly to manage Kanbay as a fully integrated organization. Looking ahead, we feel highly confident that our early and successful integration is just beginning to bring the rewards all Kanbay stakeholders expect." Conference Call Details Kanbay management will host a conference call on August 1, 2006, at 8:30 a.m. (ET) to discuss the Company's results of operations for the second quarter. To participate in the call, domestic callers can dial (800) 591-6923 and international callers can dial (617) 614-4907. The passcode for the conference call is 15437554. The conference call will also be webcast and accessible through Kanbay's website at http://www.kanbay.com/ . Please access the website at least fifteen minutes prior to the call to register and download any required software. A replay of the conference call will be available for one week, through August 8, 2006, by dialing (888) 286-8010 for domestic callers and (617) 801-6888 for international callers. The passcode for the replay is 95143258. A webcast replay of the conference call will also be available through Kanbay's website at http://www.kanbay.com/ . About Kanbay Founded in 1989, Kanbay International, Inc. (KBAY) is a global IT services firm with approximately 6,500 associates worldwide. Kanbay provides a highly integrated suite of management consulting, technology integration and development, and outsourcing solutions through a proven global delivery platform to clients focused on Financial Services and Consumer & Industrial Products, as well as an emerging presence in the Communications & Media and Life Sciences industries. Kanbay is a CMM Level 5 assessed company headquartered in greater Chicago with offices in North America and India as well as London, Singapore, Hong Kong, Tokyo and Melbourne. Further information about Kanbay can be found at http://www.kanbay.com/ . Forward-Looking Statements This release contains statements relating to projections or future results. These statements are forward-looking statements under the federal securities laws. We can give no assurance that any projections or future results discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this release. For a discussion of important factors that could affect our actual results, please refer to our SEC filings, including the "Risk Factors" disclosure in our Form 10-Q for the quarterly period ending March 31 2006. Presentation of Non-GAAP Financial Measures In the text of this press release and the accompanying supplementary financial information, Kanbay presents certain revenue measures excluding the acquisition of Adjoined Consulting, all of which are non-GAAP financial measures. The Company's management uses revenue excluding the impact of these matters to evaluate the quarterly and annual growth of the company before the impact of the Adjoined Consulting acquisition. This non-GAAP financial information is provided as additional information for investors and is not in accordance with, or an alternative to, GAAP. In addition, the non-GAAP financial information provided may be different than similar measures used by other companies. However, the Company's management believes these non-GAAP measures provide useful information to investors, potential investors, securities analysts and others so each group can evaluate the Company's current and future growth in the services business in the same manner as management if they so chose. Reconciliation from revenue to revenue excluding Adjoined Consulting has been provided in the accompanying supplementary financial information. Tables Follow Kanbay International, Inc. Condensed Consolidated Statements of Income (Unaudited) (dollars in thousands except per share amounts) Three months ended Six months ended June 30 June 30 2006 2005 2006 2005 Net revenues-related parties $38, 163 $35,299 $73,340 $68,539 Net revenues-third parties 67,668 21,719 106,946 41,939 Total revenues 105,831 57,018 180,286 110,478 Cost of revenues 63,267 30,729 105,262 58,826 Gross profit 42,564 26,289 75,024 51,652 Sales and marketing expenses 7,150 4,574 12,860 9,214 General and administrative expenses 21,045 10,557 35,024 19,166 Total selling, general and administrative expenses 28,195 15,131 47,884 28,380 Depreciation and amortization 3,633 2,133 7,151 4,041 Loss on sale of fixed assets 1 189 15 229 Income from operations 10,735 8,836 19,974 19,002 Other income (expense) Interest income and other 793 566 1,625 905 Interest (expense) (1,598) (4) (2,299) (11) Equity in earnings of affiliate 587 438 1,181 677 Total other income (expense) (218) 1,000 507 1,571 Income before income taxes 10,517 9,836 20,481 20,573 Income tax expense 3,130 2,558 5,522 5,088 Net income $7,387 $7,278 $14,959 $15,485 Income per share of common stock Basic $0.19 $0.21 $0.39 $0.46 Diluted $0.18 $0.19 $0.37 $0.41 Weighted average number of common shares outstanding 39,699,362 34,058,128 37,896,759 33,581,125 Weighted average number of common and dilutive shares outstanding 41,567,762 37,412,947 40,006,402 37,439,159 Kanbay International, Inc. Condensed Consolidated Statement of Financial Position (Unaudited) (In thousands) June 30, December 31, 2006 2005 Assets Current Assets Cash and cash equivalents $25,138 $19,520 Short term investments 44,853 54,918 Trade accounts receivable 74,997 51,771 Other current assets 13,487 13,660 Total Current Assets 158,475 139,869 Property and equipment - net 68,992 45,745 Investment in affiliate 24,159 22,567 Goodwill and other intangible assets, net 168,510 9,295 Other assets 3,391 -- Total Assets $423,527 $217,476 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $8,906 $3,878 Current portion of long-term debt 6,250 -- Accrued and other current liabilities 33,468 24,360 Total Current Liabilities 48,624 28,238 Long-term debt 90,500 -- Other non current liabilities 1,103 1,122 Total Non Current Liabilities 91,603 1,122 Total Liabilities $140,227 $29,360 Stockholders' Equity 283,300 188,116 Total Liabilities and Stockholders' Equity $423,527 $217,476 Kanbay International, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Six Months ended June 30, 2006 2005 Operating activities Net income $14,959 $15,485 Adjustments to reconcile net income to net cash provided by (used in) operating activities 9,858 3,526 Changes in operating assets and liabilities Trade accounts receivable (6,164) (14,137) Other assets 3,975 (2,640) Trade accounts payable 591 (425) Other liabilities (5,890) (4,209) Net cash provided by (used in) operating activities 17,329 (2,400) Investing activities Additions to property and equipment (26,709) (13,407) Purchase of businesses, net of cash acquired (90,740) (6,097) Purchase of short term investments 10,064 10,468 Other investing activities (2,300) 1,326 Net cash used in investing activities (109,685) (7,710) Financing activities Proceeds from issuance of long-term debt 98,000 -- Payment of long-term debt (1,250) -- Proceeds from exercise of options and employee stock purchase plan 1,366 2,105 Net cash provided by financing activities 98,116 2,105 Effect of exchange rates on cash and cash equivalents (142) 40 Increase (decrease) in cash and cash equivalents 5,618 (7,965) Cash and cash equivalents at beginning of period 19,520 29,126 Cash and cash equivalents at end of period $25,138 $21,161 Kanbay International, Inc. Reconciliation from Revenue to Revenue Excluding Adjoined Consulting (Unaudited) (in thousands) Three months ended June 30 2006 2005 Total revenues $105,831 $57,018 Less: Adjoined Consulting (33,055) -- Total revenues excluding Adjoined $72,776 $57,018 Kanbay International, Inc. Reconciliation from Third Party Revenue to Third Party Revenue Excluding Adjoined Consulting (Unaudited) (in thousands) Three months ended June 30 March 31 2006 2006 Total Third Party revenues $67,668 $39,278 Subtract: Adjoined Consulting Revenue (33,055) (10,806) Total Third Party revenues excluding Adjoined Consulting $34,613 $28,472 http://www.newscom.com/cgi-bin/prnh/20050830/CGTU033LOGO http://photoarchive.ap.org/ DATASOURCE: Kanbay International, Inc. CONTACT: Seth R. Frank, Director, Investor Relations, Kanbay International, Inc., +1-847-384-4732, or Web site: http://www.kanbay.com/

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