IT outsourcing vendor Perot Systems has reported strong growth in both revenue and profitability for the second quarter, and set out its strategy for dealing with the loss of business from its largest customer, Union Bank of Switzerland, when its contract expires in 2007.
Plano, Texas-based Perot Systems confirmed that its long-term IT outsourcing arrangement with UBS is scheduled to end on January 1, 2007, and although it will continue to do business with the bank, it hopes to counteract the loss of revenue and profits from the account by reducing operating costs.
The company has made between $44m and $50m in annual gross profit from the UBS account during the last three years, but is planning to increase the amount of work it delivers to the client from low-cost offshore centers. Perot Systems makes $30m revenue from providing offshore services to UBS, but this falls outside the scope of the main outsourcing contract.
Perot Systems is also aiming to realize general operating efficiencies of between $50m and $60m by the end of 2007, including savings on existing fixed- and unit-priced contracts of $30m by the end of 2007, and to reduce existing selling, general and administration expenses by $10m by the end of 2006.
In the second quarter, UBS accounted for $64.9m, or 15% of Perot Systems’ total revenue. UBS-related revenue from Perot Systems’ IT Solutions line of business fell 4% to $57.5m.
The company’s overall performance during the quarter was strong. In the three months to June 30, 2004, Perot Systems increased net profit 347% to $21.9m on revenue that grew 20% to $433.8m. Recent acquisitions, including Vision Healthsource, TSI, and Delphi Group, contributed $30.8m in revenue during the quarter, and if this is stripped out, sales grew 11.9% at an organic level.
Perot Systems pointed to growth of 27% in its healthcare business and a 17% rise in government sector revenue during the quarter, which were both outperformed by offshore applications management arm TSI which grew sales 34%. Perot Systems said it had signed contracts worth a total of $771m in the last 12 months. Cash resources stood at $167m at the end of June.
Looking ahead, Perot Systems expects to grow sales between 16% and 20%, to $430m to $445m in the third quarter of 2004, with acquisitions contributing $30m in sales.