VanceInfo Reports Record Results for the First Quarter 2010
BEIJING, May 13 /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 first quarter ended March 31, 2010.
First Quarter 2010 Financial and Operating Highlights
-- Net revenues in the first quarter of 2010 increased to $44.3 million,
up 47.3 % from $30.1 million in the first quarter of 2009.
-- Operating income in the first quarter of 2010 was $7.1 million, up
64.0% from the first quarter of 2009. Operating margin expanded to
16.0% in the first quarter of 2010, up from 14.4% in the first quarter
of 2009.
-- Diluted earnings per share ("EPS") were $0.15 in the first quarter of
2010, up from $0.10 in the first quarter of 2009. Non-GAAP diluted
EPS(1) was $0.18 in the first quarter, up from $0.11(2) in the first
quarter of 2009.
-- Employees totaled 9,263, including 8,337 billable professionals, as of
March 31, 2010.
"We are pleased to see that VanceInfo began 2010 with another strong quarter," said Chris Chen, Chairman and Chief Executive Officer of VanceInfo. "While our China business had a normal seasonal effect on our first quarter results, broad based growth drove up our top line and bottom line nicely. Looking ahead, we expect solid momentum in many areas of our business, and we will continue to invest in new opportunities to fuel a long term, sustainable growth."
(1) Non-GAAP net income, EPS and related margins exclude share-based
compensation expense, amortization of acquired intangible assets and
change in fair value of contingent consideration payable for business
acquisition. 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.
(2) Adjustments have been made to non-GAAP measures in prior periods to be
consistent with current period presentation.
First Quarter 2010 Financial Results
Due to the seasonal nature of its business, the Company presents financial analysis on a year-over-year basis between the first quarter of 2010 and the first quarter of 2009 as in the following paragraphs.
Net Revenues
Net revenues were $44.3 million in the first quarter of 2010, up 47.3% from $30.1 million in the first quarter of 2009. The increase in net revenues was driven by continued expansion of the Company's business in all major geographic markets including the U.S., Europe and Greater China (including mainland China, Hong Kong and Taiwan).
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. Other Solutions & Services consist of business process outsourcing ("BPO") and system integration ("SI") services and other solutions.
Net revenues from research and development services grew 54.9% compared with the first quarter of 2009 and accounted for 63.6% of the Company's net revenues. Net revenues from application development & maintenance were up 16.5% from the year-ago quarter, mainly driven by broad based growth from multiple accounts, partially offset by continued weakness in the Japanese business and the decline of the subcontract revenues from a previous top five client.
Three Months Ended Three Months Ended
March 31, 2010 March 31, 2009
(in thousands, except percentages)
R&D Outsourcing Services
Research & development
services $28,194 63.6 % $18,198 60.5 %
Globalization &
localization 1,681 3.8 % 967 3.2 %
IT Services
Enterprise solutions 3,424 7.7 % 2,620 8.7 %
Application development
& maintenance 7,378 16.7 % 6,331 21.1 %
Quality assurance &
testing 2,535 5.7 % 1,726 5.7 %
Other Solutions &
Services 1,111 2.5 % 245 0.8 %
Total net revenues $44,323 100.0 % $30,087 100.0 %
Net Revenues by Geographic Markets
Based on the location of our clients' headquarters, Greater China is the Company's largest geographic market, accounting for $18.7 million or 42.2% of the net revenues in the first quarter of 2010, followed by 36.3% from clients headquartered in the United States, 16.1% in Europe and 4.6% in Japan.
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, Greater China accounted for 74.5% of net revenues in the first quarter of 2010, while the United States accounted for 19.6% and Japan accounted for 4.3% in the same period.
Largest Clients
Revenues from the top five clients totaled 58.1% of net revenues in the first quarter of 2010, compared to 58.3% in the first quarter of 2009.
Gross Profit and Gross Margin
Gross profit in the first quarter of 2010 was $16.2 million, an increase of 44.5% from $11.2 million in the first quarter of 2009. Gross margin was 36.6% in the first quarter of 2010, compared to 37.3% in the first quarter of 2009. The year-over-year margin decline reflects the pricing adjustments from certain large U.S. customers since July 2009.
Operating Expenses
Selling, general and administrative expenses totaled $11.1 million in the first quarter of 2010, up 50.8% from $7.4 million a year ago. The current quarter's expenses include a one-time loss of $1.1 million in leasehold improvements and penalties for early lease termination due to the relocation and consolidation of the Company's Shanghai facilities into a new office building.
Operating Income and Operating Margin
Operating income in the first quarter of 2010 was $7.1 million, up 64.0% from $4.3 million in the first quarter of 2009. Operating margin expanded to 16.0% in the first quarter of 2010, up from 14.4% in the first quarter of 2009. The margin improvement was partly attributable to a $1.55 million increase in government grants from the prior year level to support the Company's hiring and training of college educated employees and obtaining certain process improvement certification. Excluding the effect from government subsidies, the Shanghai office relocation and change in fair value of contingent consideration payable for business acquisition, the operating margin increased approximately 122 basis points, primarily attributable to enhanced operating leverage.
Provision for income taxes
The provision for income taxes was $0.7 million in the first quarter of 2010, compared to $0.4 million in the first quarter of 2009. The effective tax rate was 9.2% in the first quarter of 2010, compared to 9.5% in the first quarter of 2009.
Net Income and EPS
Net income in the first quarter of 2010 was $6.6 million, up 70.7% from $3.8 million in the first quarter of 2009. Net margin was 14.8% in the first quarter of 2010, up from 12.8% in the first quarter of 2009. Non-GAAP net income(1) was $7.7 million, up 76.1% from $4.4(2) million a year ago. Non-GAAP net margin(1) expanded to 17.4%, up from 14.6% in the prior year period.
Diluted EPS was $0.15 in the first quarter of 2010, compared with $0.10 in the first quarter of 2009. Non-GAAP diluted EPS(1) was $0.18 in the first quarter of 2010, compared with $0.11(2) in the first quarter of 2009.
Cash and Cash Flow
As of March 31, 2010, VanceInfo had cash and cash equivalents, term deposits and short-term investments totaling $85.6 million. In addition, the Company had $6.9 million in long-term fixed income investments with maturities ranging from 12 to 16 months. Operating cash flow in the first quarter of 2010 was a net inflow of approximately $6.9 million. Capital expenditure totaled $1.4 million in the quarter.
Days sales outstanding ("DSO") was 112 days(3) for the first quarter of 2010, improved slightly from 113 days in the fourth quarter of 2009.
(3) Calculated by dividing average accounts receivable, net of advance
from customers and deferred revenues, by the period's gross revenues
before business tax, and multiplying by 90.
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."
Recent Developments
Acquisition of Mobi Team
In March 2010, VanceInfo acquired the business from Beijing Mobitech Software Co. Ltd. ("Mobi"), a China-based mobile software development service provider, with a consideration of $0.3 million. Over 50 professionals of Mobi joined us in connection with the transaction.
Industry Recognition
In the first quarter of 2010, the Company was listed on the 2010 Global Outsourcing 100 list by the International Association of Outsourcing Professionals (IAOP). VanceInfo placed in the Leaders category for the second consecutive year, and was again awarded a top 10 spot on the sub-list 'Best Leaders - Research & Development Services'. The Company also appeared on the 'Best 10 Leaders in Revenue Growth' and 'Best 10 Leaders in Employee Growth' sub-lists.
Outlook for the Second Quarter 2010
VanceInfo expects:
-- Second quarter 2010 net revenues to be between $47.5 million and $48.5
million, representing a 37% to 40% increase from the corresponding
period in 2009.
-- Second quarter 2010 diluted EPS to be between $0.15 and $0.16 on a GAAP
basis, and non-GAAP diluted EPS(1) to be between $0.18 and $0.19, based
on 43.3 million total ADS-equivalent average shares outstanding.
For the full year 2010, the Company reaffirms the original guidance announced in February 2010 and will consider an update in the next quarter's earnings release.
Conference Call
VanceInfo will host a corresponding conference call and live webcast to discuss the results at 7:30 AM Eastern Daylight Time (EDT) on Thursday, May 13, 2010 (7:30 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: + 1 866.730.5763
- International Dial-in Number: +1 857.350.1587
- Hong Kong Dial-in Number: +852 3002.1672
Passcode: Vance
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 May 20, 2010 at +1 888-286-8010 or +1 617-801-6888, passcode: 36589723
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 Greater 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 Second Quarter and Full Year 2010" 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 May 13, 2010, 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 change in fair value of contingent consideration payable for business acquisition. 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, amortization of acquired intangible assets and change in fair value of contingent consideration payable for business acquisition 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.
VANCEINFO TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets (Unaudited)
(US dollars in thousands, except share data)
March 31, December 31,
2010 2009
Assets
Current assets
Cash and cash equivalents $68,016 $64,057
Term deposits 10,000 10,000
Short-term investments-held to maturity
securities 7,543 12,122
Accounts receivable 60,107 60,524
Other current assets 6,328 7,499
Total current assets 151,994 154,202
Property and equipment, net 13,833 15,000
Long-term investments-held to maturity
securities 6,894 --
Other long-term investment 1,422 930
Goodwill and other intangible assets 32,290 32,522
Other long-term assets 2,901 2,537
Total assets $209,334 $205,191
Liabilities and shareholders' equity
Current liabilities $36,075 $32,659
Other liabilities 2,891 9,970
Total liabilities 38,966 42,629
Shareholders' equity (a) 170,368 162,562
Total liabilities and shareholders'
equity $209,334 $205,191
Note:
(a) As of March 31, 2010, there were 39,860,320 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 March 31,
2010 2009
Net revenues $44,323 $30,087
Cost of revenues (a) (28,084) (18,852)
Gross profit 16,239 11,235
Selling, general and administrative
expenses (a) (11,140) (7,386)
Change in fair value of contingent
consideration payable for business
acquisition (78) --
Other operating income 2,062 471
Income from operations 7,083 4,320
Interest income 185 147
Interest expenses -- (20)
Exchange differences (91) (198)
Income before income taxes and earnings in
equity method investment 7,177 4,249
Provision for income taxes (660) (405)
Income before earnings in equity method
investment 6,517 3,844
Earnings in equity method investment 48 1
Net income $6,565 $3,845
Earnings per share
Basic - ordinary shares $0.17 $0.10
Diluted - ordinary shares 0.15 0.10
Weighted average shares outstanding
(in thousands)
Basic - ordinary shares 39,437 37,670
Diluted - ordinary shares 42,909 40,106
Notes:
(a) Depreciation and amortization expenses included in cost of revenues
and selling, general and administrative expenses totalled $1,775 and
$1,204 for the three months ended March 31, 2010 and 2009,
respectively. In addition, a one-time loss of $1,081 in leasehold
improvements and penalties for early lease termination was included in
selling, general and administrative expenses for the three months
ended March 31, 2010.
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
March 31, 2010 March 31, 2009
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Net income $6,565 $1,154 (a) $7,719 $3,845 $539 (b) $4,384
Net margin 14.8% 2.6% (a) 17.4% 12.8% 1.8% (b) 14.6%
Diluted EPS $0.15 $0.03 (c) $0.18 $0.10 $0.01 (c) $0.11
Notes:
(a) Adjustment to exclude acquisition related intangible assets
amortization expense of $491, change in fair value of contingent
consideration payable for business acquisition of $78 and share-based
compensation of $585 from the unaudited condensed consolidated
statements of operations.
(b) Adjustment to exclude acquisition related intangible assets
amortization expense of $206 and share-based compensation of $333 from
the unaudited condensed consolidated of operations.
(c) 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 used in computing the
GAAP diluted EPS for the respective periods.
VANCEINFO TECHNOLOGIES INC.
Reconciliations of Forward-Looking Guidance for
Non-GAAP Financial Measures to Comparable GAAP Measures
(US dollars in thousands, except per share data)
(Unaudited)
Three Months Ending June 30, 2010
GAAP Adjustments Non-GAAP
Range of Estimate Range of Estimate
From To From To
Diluted $0.15 $0.16 $0.03 (b) $0.18 $0.19
EPS (a)
Notes:
(a) Based on 43.3 million total ADS-equivalent average shares for the
second quarter 2010.
(b) Reflects estimated adjustment for acquisition related intangible
assets amortization expense, change in fair value of contingent
consideration payable for business acquisition and share-based
compensation expenses of approximately $1.2 million for the second
quarter 2010.
For further information, please contact:
Melissa Ning
Associate Vice President, Investor Relations
VanceInfo Technologies Inc.
Tel: +86-10-8282-5330
Email: [email protected]
SOURCE VanceInfo Technologies Inc.
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