Camelot Information Systems Inc. Announces Fourth Quarter and Full Year 2010 Unaudited Financial Results

BEIJING, March 4, 2011 /PRNewswire-Asia-FirstCall/ -- Camelot Information Systems Inc. (NYSE: CIS, the "Company" or "Camelot"), a leading domestic provider of enterprise application services and financial industry information technology services in China, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2010.  

FOURTH QUARTER 2010 FINANCIAL AND OPERATING HIGHLIGHTS

• Net revenues increased 49.3% year-over-year to US$60.0 million, compared to US$40.2 million in the fourth quarter 2009.
• Adjusted operating income(1) increased 70.3% year-over-year to US$12.8 million from US$7.5 million in the fourth quarter 2009. U.S. GAAP operating income increased 67.0% year-over-year to US$8.9 million from US$5.3 million in the fourth quarter 2009.
• Adjusted net income(1) attributable to Camelot increased 66.0% year-over-year to US$11.2 million from US$6.7 million in the fourth quarter 2009. U.S. GAAP net income attributable to Camelot increased 60.0% year-over-year to US$7.3 million from US$4.6 million in the fourth quarter 2009.
• Adjusted diluted earnings per share(1) was US$0.06, as compared to diluted earnings per share of US$0.05 in the fourth quarter 2009. U.S. GAAP diluted earnings per share was US$0.04 in the fourth quarter 2010, compared to US$0.03 in the fourth quarter 2009. Adjusted diluted earnings per American Depositary Share ("ADS")(2) was US$0.24, as compared to diluted earnings per ADS(2) of US$0.20 in the fourth quarter 2009. U.S. GAAP diluted earnings per ADS(2) was US$0.15 in the fourth quarter 2010, as compared to US$0.13 in the fourth quarter 2009.
• Employees totalled 3,718, including 3,162 information technology (IT) professionals, as of December 31, 2010, representing a 29.9% increase in total employees and a 28.9% increase in IT professionals compared to December 31, 2009.

FULL YEAR 2010 FINANCIAL HIGHLIGHTS

• Net revenues increased 63.4% year-over-year to US$192.9 million, compared to US$118.0 million in 2009.
• Adjusted operating income(1) increased 72.6% year-over-year to US$ 35.7 million from US$20.7 million in 2009. U.S. GAAP operating income increased 49.6% year-over-year to US$22.8 million from US$15.2 million in 2009.
• Adjusted net income(1) attributable to Camelot increased 71.0% year-over-year to US$31.5 million from US$18.4 million in 2009. U.S. GAAP net income attributable to Camelot increased 43.4% year-over-year to US$18.6 million from US$13.0 million in 2009.
• Adjusted diluted earnings per share(1) was US$0.19, as compared to adjusted diluted earnings per share of US$0.14 in 2009. U.S. GAAP diluted earnings per share was US$0.11 in 2010 compared to US$0.10 in 2009. Adjusted diluted earnings per ADS(2) was US$0.76, as compared to diluted earnings per ADS of US$0.55 in 2009. U.S. GAAP diluted earnings per ADS(2) was US$0.45 in 2010, as compared to US$0.39 in 2009.

Mr. Simon Ma, Camelot's Chairman and Chief Executive Officer ("CEO"), said, "We are pleased to report strong results exceeding our guidance across the board.  Our robust fourth quarter performance reflects the normal seasonal trend in our sector whereby the second half is typically stronger than the first half as the pace of project delivery tends to intensify in the latter part of the year.  2010 has been a transformative year for Camelot, driven by increasing domestic demand for IT services and our ability to leverage our leading position and publicly listed status in a fragmented market.  Looking ahead, we believe the demand for IT services in China will remain strong and we expect to continue gaining market share in each of our segments as we deepen our customer relationships and drive further organic growth."  

Mr. Gordon Lau, Chief Financial Officer, concluded, "The continued growth of our business and focus on higher value-added solutions and services allowed us to deliver healthy margin expansion in the fourth quarter and full year. Furthermore, we believe additional margin enhancement is attainable given the growing scalability of our business and increasing operational leverage. In light of our strong performance and the continuing demand for our IT services in China, we expect to achieve 2011 full-year net revenue of approximately US$250 million and adjusted net income attributable to Camelot of approximately US$42 million."        

FOURTH QUARTER FINANCIAL RESULTS

Net Revenues  

Net revenues for the fourth quarter 2010 increased 49.3% to US$60.0 million from US$40.2 million in the fourth quarter 2009.

Enterprise Application Services (EAS) revenues increased 44.1% year-over-year to US$37.8 million in the fourth quarter 2010, as Camelot extended its leadership within mainland China's rapidly growing EAS market. Within the Financial Industry IT Services (FIS) segment, demand for customized solutions and services resulted in revenue of US$22.3 million in the fourth quarter, equating to year-over-year revenue growth of 59.1%, due to organic growth combined with the contribution from Tansun, a customized solutions provider acquired during the fourth quarter 2009.. EAS and FIS accounted for 62.9% and 37.1% of total net revenues, respectively, in the fourth quarter 2010, as compared to 65.2% and 34.8%, respectively, in the same period of the previous year, in a continuation of the trend towards a more balanced contribution from the two service lines.

Gross Profit and Gross Margin

Adjusted gross profit(1) increased 76.0% to US$20.7 million, from US$11.8 million in the fourth quarter 2009, as revenue from both the EAS and FIS business lines rose during the quarter. U.S. GAAP gross profit was US$20.3 million, compared to US$11.5 million for same period in the previous year. The difference between adjusted and GAAP gross profit represents US$0.4 million in share-based compensation and the amortization of intangible assets relating to the customized solutions acquisitions of Agree and Tansun. Adjusted gross margin(1) in the fourth quarter 2010 improved to 34.5%, as compared to 29.3% in the fourth quarter 2009, reflecting the Company's increased focus on higher-margin products and services. U.S. GAAP gross margin for the fourth quarter 2010 was 33.9%, compared to 28.7% in the fourth quarter 2009.

Operating Expenses

Adjusted operating expenses(1) were US$8.1 million in the fourth quarter 2010, an 88.5% year-over-year increase compared to the same period of 2009. U.S. GAAP operating expenses increased 85.9% to US$11.6 million from US$6.2 million in the fourth quarter 2009. The increase was primarily attributable to the Company's continuing business expansion, greater investment in sales and marketing activities, consolidation of Tansun, the customized solutions acquisition, and expansion of its operational infrastructure to support its publicly listed status. The difference between adjusted and GAAP operating expenses reflected US$0.7 million in share based compensation, US$1.0 million in amortization expenses, and US$1.8 million changes in fair value of contingent consideration incurred from the customized solutions acquisitions in 2009.

Operating Income and Operating Margin

Adjusted operating income(1) in the fourth quarter 2010 increased 70.3% to US$12.8 million, from US$7.5 million in the fourth quarter 2009. U.S. GAAP operating income in the fourth quarter 2010 increased 67.0% to US$8.9 million as compared to US$5.3 million in the same period of the previous year. Adjusted operating margin(1) was 21.3%, compared to 18.6% in the fourth quarter 2009. U.S. GAAP operating margin for the fourth quarter 2010 was 14.8%, compared to 13.2% in the year-earlier period.  

Net Income Attributable to Camelot and Earnings Per Share

As a result of the foregoing, adjusted net income(1) attributable to Camelot for the fourth quarter increased 66.0% to US$11.2 million from US$6.7 million in the fourth quarter 2009. U.S. GAAP net income attributable to Camelot for the quarter increased 60.0% to US$7.3 million from US$4.6 million in the fourth quarter 2009. Adjusted net margin(1) was 18.6% in the fourth quarter 2010, compared to 16.7% in the same period of the previous year. U.S. GAAP net margin was 12.1% in the fourth quarter 2010, compared to 11.3% in the year-earlier period.

Fourth quarter 2010 adjusted diluted earnings per share(1) was US$0.06, compared to adjusted diluted earnings per share of US$0.05 in the fourth quarter 2009. U.S. GAAP diluted earnings per share in the fourth quarter 2010 was US$0.04, compared to diluted earnings per share of US$0.03 in the year-earlier period. Fourth quarter 2010 adjusted diluted earnings per ADS(2) was US$0.24, compared to adjusted diluted earnings per ADS(2) of US$0.20 in the same period of the previous year. U.S. GAAP diluted earnings per ADS(2) in the fourth quarter 2010 was US$0.15, and diluted earnings per ADS(2) in the fourth quarter 2009 was US$0.13.

Cash and Cash Flow

As of December 31, 2010, the Company had US$140.4 million in cash and cash equivalents, an increase of US$31.4 million from September 30, 2010, derived mainly from the approximately US$19.9 million in net proceeds from the follow-on offering in December and the collection of receivables. Operating cash flow in the fourth quarter 2010 was approximately US$15 million.

FULL YEAR 2010 FINANCIAL RESULTS

Net Revenues  

Net revenues for the full year 2010 increased 63.4% to US$192.9 million from US$118.0 million in 2009.

EAS revenues increased 59.3% year-over-year to US$126.6 million for the full year 2010, as Camelot's strong client engagement enabled it to gain market share amid rapid expansion of the overall market. FIS revenues increased 71.9% year-over-year in 2010 to US$66.3 million due to a combination of strong organic growth and contributions from customized solutions providers Tansun and Agree acquired in 2009 ("customized solutions acquisitions"). EAS and FIS accounted for 65.6% and 34.4% of total net revenues, respectively, in 2010, as compared to 67.3% and 32.7%, respectively, in 2009, reflecting the implementation of the Company's strategy to balance the contribution from the two service lines.

Gross Profit and Gross Margin

Adjusted gross profit(1) increased 74.6% to US$63.9 million for the full year 2010, from US$36.6 million in 2009, as a result of broad-based revenue growth. U.S. GAAP gross profit was US$62.0 million in 2010, compared to US$36.0 million in 2009. The difference between adjusted and GAAP gross profit represents US$1.9 million in share-based compensation and the amortization of intangible assets relating to the customized solutions acquisitions. Adjusted gross margin(1) in 2010 improved to 33.1%, as compared to 31.0% in 2009, reflecting the shift towards higher-margin products and services in the Company's business mix. U.S. GAAP gross margin for 2010 was 32.1%, compared to 30.5% in 2009.

Operating Expenses

Adjusted operating expenses(1) were US$28.4 million in 2010, a 77.3% year-over-year increase compared to 2009. U.S. GAAP operating expenses increased 88.6% to US$39.4 million from US$20.9 million in 2009. The increase was mainly due to sustained business expansion, enhanced sales and marketing activities, consolidation of the customized solutions acquisitions, and expansion of its operational infrastructure to support its publicly listed status. The difference between adjusted and GAAP operating expenses reflected US$2.8 million in share based compensation, US$4.3 million in amortization expenses, and US$3.9 million changes in fair value of contingent consideration incurred from the customized solutions acquisitions in 2009.

Operating Income and Operating Margin

Adjusted operating income(1) in 2010 increased 72.6% to US$35.7 million, from US$20.7 million in 2009. U.S. GAAP operating income increased 49.6% to US$22.8 million as compared to US$15.2 million in 2009. Adjusted operating margin(1) for 2010 was 18.5%, compared to 17.5% in the previous year. U.S. GAAP operating margin for 2010 was 11.8%, compared to 12.9% in 2009.  

Net Income Attributable to Camelot and Earnings Per Share

As a result of the foregoing, adjusted net income(1) attributable to Camelot for 2010 increased 71.0% to US$31.5 million from US$18.4 million in 2009. U.S. GAAP net income attributable to Camelot for the full year increased 43.4% to US$18.6 million from US$13.0 million in 2009. Adjusted net margin(1) was 16.3% in 2010, compared to 15.6% in 2009. U.S. GAAP net margin was 9.6%, compared to 11.0% in 2009.

Full year 2010 adjusted diluted earnings per share(1) was US$0.19, compared to adjusted diluted earnings per share of US$0.14 in 2009. U.S. GAAP diluted earnings per share in 2010 was US$0.11, compared to diluted earnings per share of US$0.10 in 2009. Full year 2010 adjusted diluted earnings per ADS(2) was US$0.76, compared to adjusted diluted earnings per ADS(2) of US$0.55 in the previous year. U.S. GAAP diluted earnings per ADS(2) in 2010 was US$0.45, compared to diluted earnings per ADS(2) of US$0.39 in 2009.

Cash and Cash Flow

As of December 31, 2010, the Company had US$140.4 million in cash and cash equivalents, an increase of US$106.5 million from December 31, 2009, derived from the proceeds of US$93.8 million (net of underwriting commission) from our initial public offering in July and from the approximately US$19.9 million in net proceeds from the follow-on offering in December and the collection of receivables.  Operating cash flow for the full year 2010 was approximately US$11 million.

Days sales outstanding(3) ("DSO") was 145 for the fourth quarter 2010, an improvement from 151 in the fourth quarter 2009.  

Employees

As of December 31, 2010, employee headcount totalled 3,718, including 3,162 information technology (IT) professionals, representing a 29.9% increase in total employees and a 28.9% increase in IT professionals as compared to December 31, 2009. In terms of IT professionals, EAS employee headcount was 1,801, and FIS employee headcount was 1,361, as of December 31, 2010.

BUSINESS AND OPERATIONAL HIGHLIGHTS

Follow-on public offering

Camelot sold a total of 8,234,236 American Depositary Shares ("ADSs") in its follow-on public offering, which was completed in December 2010 with the full exercise of the over-allotment option. The offering consisted of 7,160,206 ADSs offered by certain pre-IPO investors and 1,074,030 ADSs offered by Camelot pursuant to the fully exercised over-allotment option at the offering price of US$19.50 per ADS. Camelot received net proceeds of approximately US$19.9 million.

FIRST QUARTER AND FULL YEAR 2011 GUIDANCE

First Quarter 2011

Camelot expects net revenues for the first quarter 2011 to be approximately US$50 million, representing a 41.6% increase from the first quarter 2010.

Camelot expects first quarter 2011 adjusted net income(1) attributable to Camelot to be approximately US$4.5 million, representing a 31.1% increase from the first quarter 2010.

Camelot expects first quarter 2011 adjusted diluted earnings per share(1) to be approximately US$0.02, based on 195.2 million weighted average ordinary shares outstanding. First quarter 2011 adjusted diluted earnings per ADS(2) is expected to be approximately US$0.09 based on 48.8 million weighted average ADSs outstanding, compared to US$0.09 for the first quarter 2010.

Full Year 2011

The Company expects net revenues for the full year 2011 to be approximately US$250 million, representing a 29.6% increase from 2010.

The Company expects full-year 2011 adjusted net income(1)attributable to Camelot to be approximately US$42 million, representing a 33.3% increase from 2010.

The Company expects full-year 2011 adjusted diluted earnings per share(1) to be approximately US$0.21, based on 198.6 million weighted average ordinary shares outstanding. The Company expects full-year 2011 adjusted diluted earnings per ADS(2) to be approximately US$0.85 based on 49.7 million weighted average ADSs, compared to adjusted diluted earnings per ADS of US$0.76 in 2010.

CONFERENCE CALL INFORMATION

Camelot's management will host a conference call on Friday, March 4, 2011 at 7:00 am (US Eastern) / 4:00 am (US Pacific) / 8:00 pm (Beijing / Hong Kong) to discuss the Company's 2010 fourth quarter and full year financial results and recent business activities. The conference call may be accessed by calling:

Please dial in approximately 10 minutes before the scheduled time of the call.

A replay of the conference call may be accessed by phone at the following numbers until Friday, March 11, 2011:

A live and archived webcast of the conference call will be available on the investor relations section of Camelot's website at www.camelotchina.com .

USE OF NON-GAAP FINANCIAL MEASURES

To supplement the unaudited consolidated financial statements presented in accordance with U.S. GAAP, Camelot uses the non-GAAP ("adjusted") financial measures of gross profit and margin, operating expenses, operating income and margin, net income attributable to Camelot Information Systems Inc. and margin, and diluted earnings per share and diluted earnings per ADS, which are adjusted from results based on U.S. GAAP to exclude share-based compensation, acquisition-related intangible amortization, gain from extinguishment of liability, postponed initial public offering costs, and changes in fair value of contingent consideration. The non-GAAP financial measure is provided as additional information to help our investors compare business trends among different reporting periods on a consistent basis and to enhance investors' overall understanding of our current financial performance and prospects for the future. The non-GAAP financial measure should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for or superior to U.S. GAAP results. In addition, our calculation of the non-GAAP financial measure may be different from the calculation used by other companies, and therefore comparability may be limited.

STATEMENT REGARDING UNAUDITED FINANCIAL INFORMATION

The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company's year-end financial statements, which could result in significant differences from this unaudited financial information.

ABOUT CAMELOT INFORMATION SYSTEMS INC.

Camelot is a leading domestic provider of enterprise application services and financial industry IT services in China, focusing on the high end of the IT value chain. The Company is the largest domestic provider of SAP-based Enterprise Resource Planning services in China as measured by 2009 revenue and by number of SAP consultants as of December 31, 2009. Camelot also operates in other areas of the Asia Pacific region, including Taiwan and Japan. The Company provides services to a wide range of industries, including financial services, resources and energy, manufacturing and automobile, technology, as well as telecommunication, media and education. For more information about Camelot Information Systems Inc., please visit www.camelotchina.com.

SAFE HARBOR

This announcement contains forward-looking statements. These statements are made under 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," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, 2011 financial outlook and quotations from management in this announcement, as well as strategic and operational plans, contain forward-looking statements. Camelot may also make written or oral forward-looking statements in periodic reports to the Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to second parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Camelot's anticipated growth strategies; Camelot's future business development, results of operations and financial condition; expected changes in the Company's revenues and certain cost or expense items; Camelot's ability to attract customers and leverage its brand; trends and competition in the software industry; the Company's ability to control expenses and maintain profit margins; the Company's ability to hire, train and retain qualified managerial and other employees; the Company's ability to develop new software and pilot new business models at desirable locations in a timely and cost-effective manner; the performance of third parties under contracts with the Company; the expected growth of the Chinese economy software market in retail and consumer goods industries; and Chinese governmental policies relating to private managers and operators of software and applicable tax rates.

Further information regarding these and other risks is included in Camelot's filings with the SEC. All information provided in this press release and in the attachments is as of March 4, 2011, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.

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