As Reported By PR Newswire - Kanbay International Reports First Quarter Results

Year-over-Year Revenue Growth of 44 Percent Raises Revenue Guidance Outlook for Full Year 2005

ROSEMONT, Ill., April 28 /PRNewswire-FirstCall/ -- Kanbay International, Inc. KBAY, a global IT services firm focused on the financial services industry, today announced financial results for the first quarter ended March 31, 2005.

First Quarter 2005 Financial Highlights -- Revenue increased to $53.5 million, up 5 percent sequentially and up 44 percent year-over-year -- Revenue from third parties increased 14 percent sequentially and 80 percent year-over-year -- Operating income margin was 19 percent, up 120 basis points sequentially and up 340 basis points year-over-year -- Net income rose to $8.2 million, up 2 percent sequentially and up 54 percent year-over-year -- Diluted EPS was $0.22 Commenting on the results, Chairman and CEO of Kanbay, Raymond Spencer said, "Kanbay had a strong first quarter of 2005 -- both in terms of financial performance and business model execution. At the beginning of the year, we highlighted three key goals for 2005. These top priorities have not changed, and they are to grow our third party revenue, improve our operating profit through additional economies of scale, and optimize our related party relationships. So far this year, we have made significant progress towards accomplishing these goals.

"Our financial performance was in line with our expectations, with revenue of $53.5 million. This represents a 5 percent sequential increase and a 44 percent increase year-over-year. I am particularly pleased to report that third party revenue growth was especially strong in the quarter, rising 14 percent sequentially and up 80 percent year-over-year. As a reminder, third party clients include all clients other than HSBC, Morgan Stanley and their affiliates. Our relationships with related party clients remain very strong, with revenue from these clients in the first quarter growing 29 percent year-over-year. Our total pipeline of revenue opportunities is strong and growing and gives us confidence for the rest of the year."

Spencer continued, "The first quarter was also a strong quarter in terms of executing our business plan. One of the highlights of the quarter was our previously announced acquisition of Accurum, Inc. Accurum is a premier IT services provider focused on the capital markets industry. Accurum brings an attractive client base and capabilities in the capital markets vertical that nicely complement Kanbay's existing service offerings. This addition provides an opportunity to accelerate our growth, particularly by selling Accurum's services to existing Kanbay clients and by introducing Kanbay's services to Accurum's client base. We have moved rapidly on our integration plan since the acquisition closed at the beginning of March. Although it is early, I am happy to say that our combination to date has exceeded my expectations.

"During the quarter, we expanded our Board of Directors with the appointment of Harry C. Gambill as an independent board member," added Spencer. Mr. Gambill is the President and CEO of TransUnion LLC, a global provider of information and decision-processing services. We are very excited that Mr. Gambill has joined the Kanbay team. He brings extensive management experience, strong industry relationships, and a deep understanding of financial services -- all of which will further strengthen our leadership team," concluded Spencer.

"Our financial results and performance metrics demonstrate that Kanbay had a solid first quarter and that we are making good progress towards our goals," said Bill Weissman, Kanbay's Chief Financial Officer. "Our balance sheet remains strong with a cash and investments position of $75 million at the end of the period. Our technical staff headcount increased to 3,534 during the quarter and we are seeing an increase in the number of requisitions for new hires going into the second quarter.

"We are pleased with our revenue growth and our increase in operating income. Our operating margin was very strong in the first quarter at 19 percent, an increase from 17.8 percent last quarter and an increase of 3.4 percentage points year-over-year. Operating margins improve as we continue to gain economies of scale over our support infrastructure. Our SG&A, excluding depreciation and stock compensation expense, as a percentage of revenue declined again in the first quarter, dropping by 80 basis points from the previous quarter. The strong operating performance allowed us to meet our targeted net income despite lower than expected equity in earnings of our affiliate, SSS, and a higher than anticipated effective tax rate.

"One of our key goals for 2005 is to grow our revenues from third parties. As part of this focus, we are concentrating on adding new accounts as well as growing existing relationships. Our new business development efforts are showing good momentum and we are realizing benefits from our investments in our sales and marketing organization. We added 13 new clients in the first quarter, 7 of which were a result of the Accurum acquisition. This raises the total number of active clients to 52. Six of our new clients are classified as Platinum accounts, which means they have the potential to produce annual revenue in excess of $5 million within two years. Our total number of Platinum clients at March 31st was 21. With only one third of these accounts currently producing at least $5 million of annual revenue, these accounts represent exciting growth opportunities for Kanbay in the future," Weissman concluded.

Outlook for 2005

Based on our current visibility and to reflect the Accurum acquisition, Kanbay is providing the following updated guidance: -- 2005 revenue expectation has been raised to at least $240 million from at least $228 million, with a target of $57 million in the second quarter. -- Projected net income for 2005 remains at least $34 million, with a target of $7 million in the second quarter. "Our results reinforce our positive outlook regarding our business model and the overall environment for offshore IT services," said Raymond Spencer. "We are pleased with our performance in the first quarter. The number of new clients added, the strength of our pipeline and the significant increase in requisitions for new hires we are seeing are early indications that the rest of the year will be as strong as projected," Spencer concluded.