BEIJING, Nov. 17 /PRNewswire-Asia/ -- VanceInfo Technologies Inc. (NYSE:
VIT) ("VanceInfo" or the "Company"), an IT service provider and one of the
leading offshore software development companies in China, today reported its
unaudited financial results for the third quarter ended September 30, 2009.
Third Quarter 2009 Financial and Operating Highlights
-- Net revenues in the third quarter of 2009 increased to $40.2 million,
up 45.2% from $27.7 million in the third quarter of 2008.
-- Operating income in the third quarter of 2009 was $6.0 million, up
39.2% from the third quarter of 2008.
-- Net income in the third quarter of 2009 was $5.8 million, up 32.8% from
$4.3 million in the year-ago period. Non-GAAP net income(1) was $7.1
million, up 44.3% from $4.9 million a year ago.
-- Diluted earnings per share ("EPS") were $0.14 in the third quarter, up
from $0.11 in the third quarter of 2008. Non-GAAP diluted EPS(1) was
$0.17 in the third quarter, up from $0.12 in the third quarter of 2008.
-- Employees totaled 7,516, including 6,771 billable professionals, as of
September 30, 2009.
"We are pleased that VanceInfo continued to deliver record high revenues
and profit, despite the continued softness in global R&D and IT spending,"
said Chris Chen, Chairman and Chief Executive Officer of VanceInfo. "Business
with our existing and newly added Chinese customers continued the robust
growth momentum, while meaningful breakthroughs with several U.S. and European
clients are positioning us for improved growth outlook in those markets. We
are confident that we will conclude 2009 with solid success and begin 2010
with further growth opportunities."
Third Quarter 2009 Financial Results
Due to the seasonal nature of its business, the Company presents financial
analysis on a year-over-year basis between the third quarter of 2009 and the
third quarter of 2008 as in the following paragraphs.
Net Revenues
Net revenues were $40.2 million in the third quarter of 2009, up 45.2%
from $27.7 million in the third quarter of 2008. The increase in net revenues
was primarily due to continued expansion of the Company's China business,
partially offset by the softness in demand and pricing from the U.S. clients.
Net Revenues by Service Lines
The Company provides three broad sets of services: R&D Outsourcing
Services, IT Services and Other Solutions & Services. R&D Outsourcing Services
consist of research & development service line and globalization &
localization service line. IT Services consist of enterprise solutions,
application development & maintenance, and quality assurance & testing service
lines. Beginning this quarter, the Company has categorized a third business
line, Other Solutions & Services, which consist of business process
outsourcing ("BPO") and system integration ("SI") services and other solutions
at this time. The Company has been providing limited BPO, SI and other
solutions in the past, and the related revenues were grouped into other
service lines due to the insignificant volume until the third quarter of this
year. The net revenues for prior periods have been reclassified so as to
conform with the current period presentations.
Net revenues from research and development services grew 41.9% compared
with the third quarter of 2008 and accounted for 57.7% of the Company's net
revenues. Net revenues from applications development and maintenance were up
49.5% from the year-ago quarter. Net revenues from Other Solutions & Services
increased significantly in the third quarter of 2009 due to certain call
center business the Company acquired in Hong Kong in connection with the TP
acquisition, which includes approximately $1.0 million of revenue for the
establishment of a call center for a Hong Kong government agency.
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
(in thousands, except percentages)
R&D Outsourcing Services
Research & development
services $23,184 57.7% $16,340 59.0%
Globalization &
localization 1,508 3.8% 1,157 4.2%
IT Services
Enterprise solutions 5,023 12.5% 3,961 14.3%
Application development
& maintenance 6,766 16.8% 4,525 16.4%
Quality assurance &
testing 1,677 4.2% 1,596 5.8%
Other Solutions &
Services 2,010 5.0% 92 0.3%
Total net revenues $40,168 100.0% $27,671 100.0%
Net Revenues by Geographic Markets
Based on the location of our clients' headquarters, China has become the
Company's largest geographic market, accounting for $18.8 million or 46.7% of
the net revenues in the third quarter of 2009, followed by 34.9% from clients
headquartered in the United States, 12.9% in Europe and 5.2% in Japan. The
continued increase in China business was driven by strong organic growth from
existing Chinese clients and new customers gained in Hong Kong from the
acquisition of TP Corporation.
Measuring the Company's revenues by geographic markets based on the
location of the contract signing entities, rather than the location of the
clients' headquarters, China accounted for 78.5% of the net revenues in the
third quarter of 2009, while the United States accounted for 14.9% and Japan
accounted for 5.4% in the same period.
Largest Clients
Revenues from the top five clients totaled 51.7% of net revenues in the
quarter, compared to 54.1% in the third quarter of 2008. The decline in
concentration was primarily due to the Company's diversification of client
base as well as lower revenue contribution from two of the top five customers
due to price reductions and the soft demand from the U.S.
Gross Profit and Gross Margin
Gross profit in the third quarter of 2009 was $15.0 million, an increase
of 37.8% from $10.9 million in the third quarter of 2008. Gross margin was
37.3% in the third quarter of 2009, compared to 39.3% in the third quarter of
2008. The margin decline reflects the one-time transitional effect associated
with the Expedia account in this quarter, as previously disclosed, as well as
the pricing pressure from a number of U.S. headquartered clients in 2009.
Operating Expenses
Selling, general and administrative expenses totaled $9.2 million in the
third quarter of 2009, up 33.9% from $6.8 million a year ago.
Operating Income and Operating Margin
Operating income in the third quarter of 2009 was $6.0 million, up 39.2%
from $4.3 million in the third quarter of 2008. Operating margin was 14.8% in
the third quarter of 2009, compared to 15.5% in the third quarter of 2008. The
margin decline was primarily attributable to the lower gross margin, partially
offset by the enhanced operating leverage as the Company continues to grow in
scale.
Provision for income taxes
The provision for income taxes was $0.5 million in the third quarter of
2009, compared to $0.6 million in the third quarter of 2008. The effective tax
rate was 8.4% in the third quarter of 2009, reflecting the preferential tax
rate of 7.5% for the Company's main operating entity, which has been qualified
as a High and New Technology Enterprise in China.
Net Income and EPS
Net income in the third quarter of 2009 was $5.8 million, up 32.8% from
$4.3 million in the third quarter of 2008. Net margin was 14.3% in the third
quarter of 2009, compared to 15.7% in the third quarter of 2008. Non-GAAP net
income was $7.1 million, up 44.3% from $4.9 million a year ago. Non-GAAP net
margin(1) was 17.6%, compared to 17.7% in the prior year period.
Diluted EPS was $0.14 in the third quarter of 2009, compared to $0.11 in
the third quarter of 2008. Non-GAAP diluted EPS was $0.17 in the third quarter
of 2009, compared to $0.12 in the third quarter of 2008.
Cash and Cash Flow
As of September 30, 2009, VanceInfo had cash and cash equivalents, term
deposits and short-term investments totaling $83.3 million. Operating cash
flow in the third quarter of 2009 was a net inflow of approximately $0.3
million. The lower cash flow was partly due to a negative operating cash flow
during the third quarter by TP, which received large advanced customer
payments prior to the acquisition. As a result, the acquisition produced a
positive cash inflow from the investing activities since the cash balance of
TP at the acquisition date was greater than our initial acquisition payment.
Capital expenditure totaled $2.2 million in the quarter, partly attributable
to leasehold improvements for the recent expansion of our offices in Shenzhen
and Nanjing.
First Nine Months of 2009 Financial Results
Net Revenues
Net revenues in the first nine months of 2009 were $104.8 million, up
44.4% from $72.6 million in the first nine months of 2008.
Net Revenues by Service Lines
Nine Months Ended Nine Months Ended
September 30, 2009 September 30, 2008
(in thousands, except percentages)
R&D Outsourcing Services
Research & development
services $63,539 60.6% $42,789 58.9%
Globalization &
localization 3,742 3.6% 3,163 4.3%
IT Services
Enterprise solutions 10,285 9.8% 9,697 13.4%
Application development
& maintenance 19,215 18.4% 12,129 16.7%
Quality assurance &
testing 5,376 5.1% 4,691 6.5%
Other Solutions & Services 2,656 2.5% 120 0.2%
Total net revenues $104,813 100.0% $72,589 100.0%
Gross Profit and Gross Margin
Gross profit for the first nine months of 2009 was $39.6 million, an
increase of 40.2% from $28.2 million in the same period of 2008. Gross margin
was 37.8% for the first nine months of 2009, compared to 38.9% for the same
period of 2008. The margin decline reflects the one-time transitional effect
of the Expedia account in the third quarter 2009 as well as the pricing
pressure from a number of U.S. headquartered clients in 2009.
Operating Expenses
Selling, general and administrative expenses were $24.7 million for the
first nine months of 2009, up 34.5% from $18.3 million in the same period of
2008.
Operating Income and Operating Margin
Operating income for the first nine months of 2009 was $15.7 million, up
48.0% from $10.6 million in the prior year period. Operating margin was 15.0%
in the first nine months of 2009, up 40 basis points from 14.6% in the year-
ago period.
Net Income and EPS
Net income for the first nine months of 2009 was $14.8 million, up 36.7%
from $10.9 million for the same period of 2008. Net margin was 14.2% in the
first nine months of 2009, compared to 15.0% in the same period in 2008. Non-
GAAP net income was $17.3 million for the first nine months of 2009, up 37.9%
from $12.5 million a year ago. Non-GAAP net margin was 16.5%, compared to
17.2% in the first nine months of 2008.
Diluted EPS for the first nine months of 2009 was $0.36, up from $0.27 in
the year-ago period. Non-GAAP diluted EPS was $0.42 for the first nine months
of 2009, up from $0.31 for the first nine months of 2008.
Recent Development
Acquisition of Professional Team in Support of Leading Handset
Manufacturer
On October 1, 2009, VanceInfo acquired a team of engineers from a China-
based supplier which provides research and development services to a leading
global handset manufacturer. Over 150 professionals joined VanceInfo in
connection with the transaction. The acquisition enhances the Company's
capabilities in the smart phone area and further strengthens its position as
one of the top suppliers to the existing client, which is consolidating
service providers in an effort to achieve higher efficiency and service
quality.
Outlook for the Full Year 2009
For the full year 2009, the Company has increased its guidance and expects
to generate net revenues of at least $145 million in 2009, representing an
increase of at least 41% from 2008. 2009 diluted EPS is expected to be at
least $0.50 on a GAAP basis, based on 41.5 million total ADS-equivalent
average shares outstanding. Excluding the share-based compensation and
amortization of acquired intangible assets, diluted EPS is expected to be at
least $0.57 on a non-GAAP basis.
Conference Call
VanceInfo will host a corresponding conference call and live webcast to
discuss the results at 8:00 AM Eastern Standard Time (EST) on Tuesday,
November 17, 2009 (9:00 PM Beijing/Hong Kong time). Please dial-in five
minutes prior to the call to register and receive further instruction.
The dial-in details for the live conference call are as follows:
- U.S. Toll Free Dial-in Number: + 1 800.299.7089
- International Dial-in Number: +1 617.801.9714
- Hong Kong Dial-in Number: +852 3002-1672
Passcode: Vanceinfo
The conference call will be available live via webcast on the Investors
section of VanceInfo Technologies website at http://ir.vanceinfo.com . The
archive replay will be available on VanceInfo's website shortly after the call.
A dial-in replay of the conference call will be available until November
25, 2009 at +1 888-286-8010 or +1 617-801-6888; passcode: 11672241.
About VanceInfo
VanceInfo Technologies Inc. is an IT service provider and one of the
leading offshore software development companies in China. VanceInfo was the
first China software development outsourcer listed on the New York Stock
Exchange.
The Company ranked number one among Chinese offshore software development
service providers for the North American and European markets as measured by
2008 revenues, according to International Data Corporation.
VanceInfo's comprehensive range of IT services includes research &
development services, enterprise solutions, application development &
maintenance, quality assurance & testing, globalization & localization and
other solutions and services. VanceInfo provides these services primarily to
corporations headquartered in the United States, Europe, Japan and China,
targeting high-growth industries such as technology, telecommunications,
financial services, manufacturing, retail, and distribution.
Safe Harbor
This news release includes statements that may constitute forward-looking
statements made pursuant to the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
be identified by terminology such as will, should, expects, anticipates,
future, intends, plans, believes, estimates, and similar statements. Among
other things, the management's quotations and "Outlook for the Full Year 2009"
contain forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Potential risks and uncertainties include, but are not limited to,
the company's dependence on a limited number of clients for a significant
portion of its revenues, the economic slowdown in its principal geographic
markets, the quality and portfolio of its services lines and industry
expertise, and the availability of a large talent pool in China and supply of
qualified professionals, as well as the PRC government's investment in
infrastructure construction and adoption of various incentives in the IT
service industry. Further information regarding these and other risks is
included in VanceInfo's filings with the U.S. Securities and Exchange
Commission. All information provided in this news release and in the
attachments is as of November 17, 2009, and VanceInfo does not undertake any
obligation to update any forward-looking statement as a result of new
information, future events or otherwise, except as required under applicable
law.
About Non-GAAP Financial Measures
To supplement VanceInfo's consolidated financial results presented in
accordance with GAAP, VanceInfo uses the following measures defined as non-
GAAP financial measures by the SEC: net income and diluted EPS excluding
share-based compensation expense, amortization of acquired intangible assets
and a non-recurring transitional cost in connection with the services to
Expedia. The non-GAAP net income and diluted EPS for prior periods have been
reclassified so that the presentations are consistent. The presentation of
these non-GAAP financial measures is not intended to be considered in
isolation or as a substitute for the financial information prepared and
presented in accordance with GAAP. For more information on these non-GAAP
financial measures, please see the tables captioned "Reconciliations of non-
GAAP financial measures to comparable GAAP measures" set forth at the end of
this release.
VanceInfo believes that these non-GAAP financial measures provide
meaningful supplemental information regarding its performance by excluding
certain expenses and expenditures that may not be indicative of its operating
performance. The Company believes that both management and investors benefit
from referring to these non-GAAP financial measures in assessing the Company's
performance and when planning and forecasting future periods. A limitation of
using non-GAAP net income and diluted EPS is that these non-GAAP measures
exclude the share-based compensation charges and amortization of acquired
intangible assets that have been and will continue to be for the foreseeable
future a significant recurring expense in the business. Management compensates
for these limitations by providing specific information regarding the GAAP
amounts excluded from each non-GAAP measure. The accompanying tables have more
details on the reconciliations between GAAP financial measures that are
comparable to non-GAAP financial measures. The reconciliations of the forward-
looking guidance for non-GAAP financial measures to the most directly
comparable GAAP financial measures in the accompanying table include all
information reasonably available to VanceInfo at the date of this press
release. The table includes adjustments that the Company can reasonably
predict.
(1) Non-GAAP net income, EPS and related margins exclude share-based
compensation expense, amortization of acquired intangible assets, and
a non-recurring transitional loss associated with the Expedia account,
as previously disclosed. The non-GAAP measures and related
reconciliations to GAAP measures are described in the accompanying
sections of "About Non-GAAP Financial Measures" and "Reconciliations
of Non-GAAP Financial Measures to Comparable GAAP Measures" at the end
of the press release.
VANCEINFO TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets (Unaudited)
(US dollars in thousands, except share data)
September 30, December 31,
2009 2008
Assets
Current assets
Cash and cash equivalents $49,728 $79,963
Term deposits 21,464 1,466
Short-term investments 12,135 --
Accounts receivable 52,354 36,827
Other current assets 6,777 3,369
Total current assets 142,458 121,625
Property and equipment, net 14,187 11,260
Goodwill and other intangible assets 31,989 19,695
Other long-term assets 3,233 2,871
Total assets $191,867 $155,451
Liabilities and shareholders' equity
Current liabilities $28,837 $22,062
Other liabilities 9,184 1,886
Total liabilities 38,021 23,948
Shareholders' equity (a) 153,846 131,503
Total liabilities and
shareholders' equity $191,867 $155,451
Note:
(a) As of September 30, 2009, there were 39,465,879 ordinary shares issued
and outstanding.
VANCEINFO TECHNOLOGIES INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(US dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2009 2008(a) 2009 2008(a)
Net revenues $40,168 $27,671 $104,813 $72,589
Cost of revenues (b) 25,177 16,796 65,242 44,362
Gross profit 14,991 10,875 39,571 28,227
Selling, general and
administrative expenses (b) 9,155 6,835 24,662 18,337
Other operating income 126 244 772 703
Income from operations 5,962 4,284 15,681 10,593
Interest income 281 487 665 1,694
Interest expenses 28 20 68 67
Exchange differences 47 171 (58) 262
Income before income
taxes and earnings in
equity investment 6,262 4,922 16,220 12,482
Provision for income taxes 531 588 1,406 1,616
Income before earnings
in equity investment 5,731 4,334 14,814 10,866
Earnings in equity
investment 25 -- 35 --
Net income $5,756 $4,334 $14,849 $10,866
Net (income)/loss
attributable to
noncontrolling interest -- (3) -- 84
Net income attributable to
VanceInfo Technologies Inc. $5,756 $4,331 $14,849 $10,950
Earnings per share
Basic - ordinary shares $0.15 $0.12 $0.39 $0.29
Diluted - ordinary shares 0.14 0.11 0.36 0.27
Weighted average shares
outstanding (in thousands)
Basic - ordinary shares 38,763 37,333 38,140 37,228
Diluted - ordinary shares 42,370 40,569 41,185 40,489
Notes:
(a) Amount in relation to noncontrolling interest, formerly referenced to
as minority interest, for the three months and nine months ended
September 30, 2008 is reclassified in accordance with guidance issued
by FASB regarding noncontrolling interests in consolidated financial
statements, which was adopted by the Company on January 1, 2009.
(b) Depreciation and amortization expenses included in cost of revenues
and selling, general and administrative expenses totaled $1,652 and
$916 for the three months ended September 30, 2009 and 2008,
respectively and $4,004 and $2,779 for the nine months ended September
30, 2009 and 2008, respectively.
VANCEINFO TECHNOLOGIES INC.
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(US dollars in thousands, except per share data and percentages)
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Net income $5,756 $1,305 (a) $7,061 $4,334 $560 (c) $4,894
Net margin 14.3% 3.3% (a) 17.6% 15.7% 2.0% (c) 17.7%
Diluted EPS $0.14 $0.03 (e) $0.17 $0.11 $0.01 (e) $0.12
Nine Months Ended Nine Months Ended
September 30, 2009 September 30, 2008
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Net income $14,849 $2,411 (b) $17,260 $10,866 $1,652 (d) $12,518
Net margin 14.2% 2.3% (b) 16.5% 15.0% 2.2% (d) 17.2%
Diluted EPS $0.36 $0.06 (e) $0.42 $0.27 $0.04 (e) $0.31
Notes:
(a) Adjustment to exclude acquisition related intangible assets
amortization expense of $533, a one-time transitional cost of $332
associated with services to Expedia, and share-based compensation of
$440 from operations of which $86 was reported in cost of revenues and
$354 was reported in selling, general and administrative expenses in
the unaudited condensed consolidated statements of operations.
(b) Adjustment to exclude acquisition related intangible assets
amortization expense of $947, a one-time transitional cost of $332
associated with services to Expedia, share-based compensation of $1132
from operations of which $245 was reported in cost of revenues and
$887 was reported in selling, general and administrative expenses in
the unaudited condensed consolidated statements of operations.
(c) Adjustment to exclude acquisition related intangible assets
amortization expense of $209 and share-based compensation of $351 from
operations of which $74 was reported in cost of revenues and $277 was
reported in selling, general and administrative expenses in the
unaudited condensed consolidated statements of operations.
(d) Adjustment to exclude acquisition related intangible assets
amortization expense of $612 and share-based compensation of $1,040
from operations of which $188 was reported in cost of revenues and
$852 was reported in selling, general and administrative expenses in
the unaudited condensed consolidated statements of operations.
(e) Non-GAAP diluted EPS is computed by dividing non-GAAP net income
attributable to VanceInfo Technologies Inc. by the weighted average
number of diluted ordinary shares outstanding for the respective
periods.
VANCEINFO TECHNOLOGIES INC.
Reconciliations of Forward-Looking Guidance for
Non-GAAP Financial Measures to Comparable GAAP Measures
(Unaudited)
Year Ending December 31, 2009
GAAP Adjustments Non-GAAP
Estimate Estimate
Diluted EPS (a) $0.50 $0.07 (b) $0.57
Notes:
(a) Based on 41.5 million total ADS-equivalent average shares outstanding
for the full year 2009.
(b) Reflects estimated adjustment for a one-time transitional cost of $0.3
million in connection with the service to Expedia, acquisition related
intangible assets amortization expense of approximately $1.5 million
for the full year and share-based compensation expenses of
approximately $1.5 million for the full year 2009.
SOURCE VanceInfo Technologies Inc.
Melissa Ning, Senior Director, Investor Relations, VanceInfo Technologies Inc., +86-10-8282-5330, or ir@vanceinfo.com
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