Kanbay International Inc. has benefited from HSBC Holdings PLC's March 2003 acquisition of Kanbay's biggest customer, Household International Inc.
But now that Kanbay is a public company, executives say they want to diversify the client base while maintaining ties with the banking customers for which the 15-year-old company develop customized software.
Kanbay, of Rosemont, Ill., raised almost $65 million in its initial public offering July 22 by selling 5.4 million shares at $13. Its share price since then has bounced around in the $14 to $16 range.
Raymond Spencer, Kanbay's chief executive, said in an interview Thursday that the company plans to use the money from the stock offering and its higher profile as a public company to expand its operations in India, where most of its developers work, and to boost financial technology sales with heavier marketing.
As a pure-play provider of custom software for financial services firms, "we can go both broad and deep in that area" and "power the competitive differentiation for our clients," Mr. Spencer said.
Shannon Drost, a Kanbay vice president who heads its banking practice, said its developers concentrate on specific business lines. These include credit card processing, wholesale and retail banking, mortgages, commercial credit, and investment banking.
"We model ourselves like the industry," Ms. Drost said.
That approach put Kanbay in a position to take advantage when Household, of nearby Prospect Heights, Ill., was acquired by HSBC, the British banking giant.
Kanbay's sales to Household and other HSBC operations grew 82% in 2002 and 2003, reaching $57 million last year. And though Kanbay did not disclose how much of the increase was HSBC-related, executives said it was a big factor in the spike.
"Our affiliation with that customer has grown," Ms. Drost said. It has moved beyond consumer finance "to include all those flavors of a global financial institution," she said.
Kanbay's relationships with a small pool of big customers, however, could pose risks.
Household and HSBC-affiliated companies accounted for more than half of Kanbay's revenue last year, and its five largest customers produced more than 80% of its revenue. In addition to Household and other units of HSBC, Kanbay's top clients include Morgan Stanley, Citigroup Inc., the Development Bank of Singapore, ABN Amro Holding NV, and Sun Life Financial Inc.
Kanbay says that 89% of its 2003 revenue of $107.2 million came from clients it had been with since 2000.
"It proves you are able to deliver consistent, high-quality work over a long period of time," Mr. Spencer said. "We're in it for the long term with our clients."
Still, Kanbay has stepped up its spending on business development by 87% in an effort to diversify its client base, from $6.1 million in 2002 to $11.4 million in 2003. Mr. Spencer predicted that in two years the top five clients will bring in just over 60% of the total revenue.
Michael Haney, a senior analyst at the research and consulting firm Celent Communications LLC of Boston, said diversification is more important for Kanbay as a publicly owned company.
"They need to spread their risks," Mr. Haney said in an interview Friday. "But they're growing. That's a positive sign," especially considering the sluggish market for technology sales in recent years.
Kanbay's prospectus shows that its net income almost tripled year over year in the second quarter, to $6.4 million, or 21 cents a share. Net revenue rose 79%, to $44.8 million. Kanbay has scheduled a conference call Wednesday to discuss the results with investors and analysts.
Mr. Haney said Kanbay faces pressure from high-end IT consultants such as International Business Machines Corp. and Accenture Ltd. as well as the fast-growing offshore providers of India.
By putting its headquarters in the United States but the bulk of its operations in India, "Kanbay says it's the best of both worlds," Mr. Haney said. But with competition increasing from both sides, he added, "they're going to have to go out aggressively and sell."
