iSoftStone Reports Higher Revenues and Net Income for the Second Quarter 2011

BEIJING, Aug. 17, 2011 /PRNewswire-Asia/ -- iSoftStone Holdings Limited ("iSoftStone", or "the Company", NYSE: ISS), a leading China-based IT services provider, today reported higher revenues, net income, and diluted earnings per ADS in its unaudited financial results for the second quarter 2011.

Second quarter 2011 financial and operating results

• Net revenues increased 49.4% to $67.0 million in the second quarter 2011 from $44.8 million in the second quarter 2010.
• Gross profit increased 63.2% to $24.7 million in the second quarter 2011 from $15.1 million in the second quarter 2010, representing an improved gross profit margin of 36.9% in the second quarter 2011 from 33.8% in the second quarter 2010.
• Net income in the second quarter 2011 was $5.9 million compared with a net loss of $2.6 million in the second quarter 2010.
• Non-GAAP net income (note 1) increased 163.2% to $7.9 million in the second quarter 2011 from $3.0 million in the second quarter 2010.
• Diluted earnings per American Depositary Share ("ADS") were $0.10 in the second quarter 2011 and a loss of $0.26 in the second quarter 2010. Each ADS represents 10 ordinary shares.
• Non-GAAP diluted earnings per ADS (note 1) were $0.13 in the second quarter 2011 and $0.07 in the second quarter 2010.
• Total number of employees was 9,956 as of June 30, 2011.

First half 2011 financial and operating results

• Net revenues increased 47.3% to $123.9 million in the first half of 2011 from $84.1 million in the first half 2010.
• Gross profit increased 56.5% to $45.2 million in the first half 2011 from $28.9 million in the first half 2010, representing an improved gross profit margin of 36.5% in the first half 2011 from 34.4% in the first half 2010.
• Net income in the first half 2011 was $11.0 million compared with a net loss of $1.9 million in the first half 2010.
• Non-GAAP net income (note 1) increased 153.0% to $14.0 million in the first half 2011 from $5.5 million in the first half 2010.
• Diluted earnings per ADS were $0.18 in the first half 2011 and a loss of $0.26 in the first half 2010. Each ADS represents 10 ordinary shares.
• Non-GAAP diluted earnings per ADS (note 1) were $0.23 in the first half 2011 and $0.09 in the first half 2010.

Mr. T.W. Liu, iSoftStone's Chairman and Chief Executive Officer, said, "We are very pleased with our strong revenue growth and increases in our margins in the second quarter. The broad-based improvements and our success in delivering outstanding performance to our clients are validating our strategy of developing a diversified business base with end-to-end services capabilities, targeting multiple industry verticals, and maintaining geographically balanced growth.

"While the vast majority of our growth was from existing customers, we were especially successful in winning significant new customers in both domestic China and the global markets during the second quarter, which gives us further confidence for achieving our growth targets.

"Our business in greater China continues to be large and very strong, supported by the expanding Chinese economy and by the advances and technology leverage that our services provide for clients.

"Although we achieved a great second quarter, today we face an unusual unknown -- a wave of economic uncertainty that is currently moving through North America and Europe and to some extent Asia. It is too early to tell if that economic concern will be short-lived or will become similar to the global recession of a few years ago. We are keeping a close eye on how the global and national economies, industries, and our service markets are evolving and on how we can both maximize our benefits and minimize possible downward effects for iSoftStone in the current flux.

"So far, our markets, clients, and contracts all appear to be healthy. We will stick with our strategy focusing on top line growth at high rates and improving our operating efficiencies as the company reaches a higher economy of scale. Meanwhile, we will be looking at opportunities for investing in new growth drivers for the future.

"Given our good results in the first half of 2011, our backlog, and the new contract wins we have achieved, we believe it is prudent to move our guidance upward for the year 2011."

Results of operations for the second quarter 2011

Net revenues

Net revenues increased $22.1 million or 49.4% to $67.0 million in the second quarter 2011 from $44.8 million in the second quarter 2010. The increase reflects mainly organic growth from existing and new clients.

Net revenues by service line

We derive net revenues by providing an integrated suite of IT services and solutions, including: (i) IT Services, which primarily includes application development and maintenance, or ADM, as well as R&D services and infrastructure and software services; (ii) Consulting & Solutions; and (iii) Business Process Outsourcing ("BPO") services. The following table shows our net revenues by service line for the periods presented:

Net revenues from IT Services increased $17.7 million or 62.9% to $45.8 million in the second quarter 2011 from $28.1 million in the second quarter 2010. Net revenues from Consulting & Solutions increased $2.9 million or 19.7% to $17.8 million in the second quarter 2011 from $14.9 million in the second quarter 2010. Net revenues from BPO services increased 84.0% to $3.4 million in the second quarter 2011 from $1.8 million in the second quarter 2010. The increase of net revenues in each service line was primarily a result of deepening and broadening our engagements with existing clients and addition of new clients.

Net revenues by geographic markets

We classify our net revenues into the following geographic markets: Greater China (which includes China, Taiwan, Hong Kong and Macau) and Global (which includes the United States, Europe, Japan and others) based on the headquarters locations of our clients. The following table shows our net revenues by geographic markets for the periods presented:

We have experienced balanced growth across our geographic markets. Our net revenues from Greater China clients increased $14.2 million or 59.8% to $38.1 million in the second quarter 2011 from $23.8 million in the second quarter 2010. Net revenues from Global clients increased $7.9 million or 37.6% to $28.9 million in the second quarter 2011 from $21.0 million in the second quarter 2010.

Net revenues by client industry

We focus on serving clients, both globally and in China, in four target industry verticals, each with large and growing demand for IT services and solutions: technology; communications; banking, financial services and insurance, or BFSI; and energy, transportation and public sector. The following table shows our net revenues by client industry for the periods presented:

Net revenues from technology clients increased $4.4 million or 27.4% to $20.3 million in the second quarter 2011 from $16.0 million in the second quarter 2010. Net revenues from communications clients increased $9.2 million or 54.3% to $26.2 million in the second quarter 2011 from $17.0 million in the second quarter 2010. Net revenues from BFSI clients increased $6.9 million or 99.3% to $13.9 million in the second quarter 2011 from $7.0 million in the second quarter 2010. Net revenues from energy, transportation and public sector clients decreased $0.8 million or 22.6% to $2.7 million in the second quarter 2011 from $3.5 million in the second quarter 2010 primarily as a result of the completion of a major project in 2010. Net revenues from all other industries increased $2.5 million to $3.9 million in the second quarter 2011 from $1.4 million in the second quarter 2010.

Net revenues by key clients

Net revenues from our top five clients totaled $29.6 million or 44.2% of total net revenues in the second quarter 2011 compared with $22.1 million or 49.3% in the second quarter 2010. The reduced key client concentration reflected increased revenues from a broader client base.

Net revenues by pricing method

We provide our services on a time-and-expense basis, a fixed-price basis or, with respect to our certain BPO services, on the basis of volume of work processed for our clients. The following table shows our net revenues by pricing method for the periods presented:

Net revenues from time-and-expenses basis projects increased $10.3 million or 66.2% to $25.8 million in the second quarter 2011 from $15.5 million in the second quarter 2010. Net revenues from fixed-price basis projects increased $11.5 million or 40.4% to $39.9 million in the second quarter 2011 from $28.4 million in the second quarter 2010. Net revenues from volume basis increased $0.4 million or 44.8% to $1.2 million in the second quarter 2011 from $0.8 million in the second quarter 2010.

Cost of revenues, gross profit and gross profit margin

Cost of revenues increased $12.6 million or 42.4% to $42.3 million in the second quarter 2011 from $29.7 million in the second quarter 2010 primarily due to service delivery employees added to enable and match the growth of our business.

Gross profit increased $9.6 million or 63.2% to $24.7 million in the second quarter 2011 from $15.1 million in the second quarter 2010. Gross profit margin increased to 36.9% in the second quarter 2011 from 33.8% in the second quarter 2010 primarily due to efficiency improvements, optimization in our service mix, favorable pricing adjustments in certain clients and leverage of government support.

Operating expenses

Operating expenses increased $2.5 million or 15.3% to $18.8 million in the second quarter 2011 from $16.3 million in the second quarter 2010 primarily due to increase of salary and compensation expenses in selling and marketing expenses and rental expenses, as a result of our continuous investment in sales force and marketing efforts to support our top line growth, which was partially offset by decrease of share-based compensation expenses since we issued 4.5 million ordinary shares in the second quarter 2010 to certain key employees without any service condition resulting in an immediate expensing in full of the value of the grant.

Excluding share-based compensation and amortization of intangible assets from acquisitions, the non-GAAP operating expenses (note 1) were $17.0 million, or 25.5% of net revenues in the second quarter 2011 compared with $12.3 million, or 27.5% of net revenues in the second quarter 2010. The decrease of operating expenses as a percentage of net revenues reflected the benefit of scalability from our earlier investments in management teams and corporate infrastructure.

Income (loss) from operations

Income from operations was $6.3 million in the second quarter 2011 compared with a loss of $0.4 million in the second quarter 2010 due to the factors explained above.

Our non-GAAP income from operations (note 1) increased $4.6 million or 124.1% to $8.2 million in the second quarter 2011 from $3.7 million in the second quarter 2010.

Change in fair value of convertible notes derivatives

In December 2009 and April 2010, the company issued $38.0 million Series C convertible notes to various holders. Certain terms of our issued convertible notes were determined as embedded derivatives and were carried at fair value at each period end. Upon the closing of our IPO in December 2010, $18.0 million of our convertible notes, together with interest thereon, were converted into our ordinary shares.  On March 3, 2011, the remaining $20.0 million of our convertible notes, together with interest thereon, were converted into ordinary shares. As a result of the conversion of all convertible notes by March 3, 2011, we had no change in fair value of convertible notes derivatives in the second quarter 2011, compared with an expense of $0.5 million in the second quarter 2010.

Interest expense

Interest expense was $0.2 million in the second quarter 2011 and $1.2 million in the second quarter 2010. Interest expense in the second quarter 2011 was $0.2 million of interest on short-term bank borrowings. The interest expense in the second quarter 2010 was mainly interest of $1.0 million accrued for our convertible notes, and $0.2 million on short-term bank borrowings. By March 3, 2011, all our convertible notes, together with accrued interest thereon, were converted into our ordinary shares. By June 30, 2011, we had repaid all of our short-term bank borrowings in the amount of $37.6 million.

Income taxes

Income tax expense was $0.4 million in the second quarter 2011 compared with $0.5 million in the second quarter 2010. We currently estimate that the effective tax rate will be at approximately 5.9% for the year 2011.

Net income

Net income in the second quarter 2011 was $5.9 million, compared with a loss of $2.6 million in the second quarter 2010. The improvement was due to the factors explained above.

Our non-GAAP net income (note 1) increased $4.9 million or 163.2% to $7.9 million in the second quarter 2011 from $3.0 million in the second quarter 2010.

Earnings per ADS

Basic earnings per ADS were an income of $0.11 in the second quarter 2011 and a loss of $0.26 in the second quarter 2010.

Diluted earnings per ADS were an income of $0.10 in the second quarter 2011 and a loss of $0.26 in the second quarter 2010.

Non-GAAP diluted earnings per ADS (note 1) were $0.13 in the second quarter 2011 and $0.07 in the second quarter 2010.

Cash and Cash Flow

As of June 30, 2011, we had a cash balance of $110.9 million. Our net cash provided by operating activities in the second quarter 2011 was $5.3 million. Our net cash used in investing activities in the second quarter 2011 was $20.3 million including capital expenditures of $15.4 million. Among the payment of capital expenditures, there was a payment of $11.6 million related to acquisition of new office premise in Wuxi. Please refer to "Recent Development" for more detailed discussion.

Days sales outstanding ("DSO") was 155 days for the second quarter 2011 and 162 days for the second quarter 2010. DSO is calculated by dividing average accounts receivable, net of deferred revenues, by the period's gross revenues, and multiplying by the number of days in the period.

Results of operations for the first half 2011

Net revenues

Net revenues increased $39.8 million or 47.3% to $123.9 million in the first half 2011 from $84.1 million in the first half 2010. The increase reflects mainly organic growth from existing and new clients.

Net revenues by service line

The following table shows our net revenues by service line for the periods presented:

Net revenues from IT Services increased $33.4 million or 62.1% to $87.3 million in the first half 2011 from $53.8 million in the first half 2010. Net revenues from Consulting & Solutions increased $3.7 million or 13.5% to $30.9 million in the first half 2011 from $27.2 million in the first half 2010. Net revenues from BPO services increased 88.9% to $5.7 million in the first half 2011 from $3.0 million in the first half 2010. The increase of net revenues in each service line was primarily a result of deepening and broadening our engagements with existing clients and addition of new clients.

Net revenues by geographic markets

The following table shows our net revenues by geographic markets for the periods presented:

We have experienced balanced growth across our geographic markets. Our net revenues from Greater China clients increased $24.3 million or 53.6% to $69.5 million in the first half 2011 from $45.2 million in the first half 2010. Net revenues from Global clients increased $15.5 million or 40.0% to $54.4 million in the first half 2011 from $38.8 million in the first half 2010.

Net revenues by client industry

The following table shows our net revenues by client industry for the periods presented:

Net revenues from technology clients increased $8.6 million or 28.5% to $38.9 million in the first half 2011 from $30.2 million in the first half 2010. Net revenues from communications clients increased $15.2 million or 47.0% to $47.5 million in the first half 2011 from $32.3 million in the first half 2010. Net revenues from BFSI clients increased $13.4 million or 108.2% to $25.7 million in the first half 2011 from $12.4 million in the first half 2010. Net revenues from energy, transportation and public sector clients decreased $2.2 million or 32.8% to $4.4 million in the first half 2011 from $6.6 million in the first half 2010 primarily as a result of the completion of a major project in 2010. Net revenues from all other industries increased $4.8 million to $7.4 million in the first half 2011 from $2.6 million in the first half 2010.

Net revenues by key clients

Net revenues from our top five clients totaled $53.9 million or 43.6% of total net revenues in the first half 2011 compared with $40.6 million or 48.3% in the first half 2010. The reduced key client concentration reflected increased revenues from a broader client base.

Net revenues by pricing method

The following table shows our net revenues by pricing method for the periods presented:

Net revenues from time-and-expenses basis projects increased $14.1 million or 39.3% to $50.0 million in the first half 2011 from $35.9 million in the first half 2010. Net revenues from fixed-price basis projects increased $25.5 million or 54.4% to $72.5 million in the first half 2011 from $47.0 million in the first half 2010. Net revenues from volume basis increased $0.2 million or 12.4% to $1.4 million in the first half 2011 from $1.3 million in the first half 2010.

Cost of revenues, gross profit and gross profit margin

Cost of revenues increased $23.5 million or 42.5% to $78.6 million in the first half 2011 from $55.2 million in the first half 2010 primarily due to service delivery employees added to enable and match the growth of our business.

Gross profit increased $16.3 million or 56.5% to $45.2 million in the first half 2011 from $28.9 million in the first half 2010. Gross profit margin increased to 36.5% in the first half 2011 from 34.4% in the first half 2010 primarily due to efficiency improvements, optimization in our service mix, favorable pricing adjustments in certain clients and leverage of government support.

Operating expenses

Operating expenses increased $6.7 million or 22.4% to $36.6 million in the first half 2011 from $29.9 million in the first half 2010 primarily due to increase of salary and compensation expenses in selling and marketing expenses and rental expenses, as a result of our continuous investment in sales force and marketing efforts to support our top line growth, which was partially offset by decrease of share-based compensation expenses since we issued 4.5 million ordinary shares in the second quarter 2010 to certain key employees without any service condition resulting in an immediate expensing in full of the value of the grant.

Excluding share-based compensation and amortization of intangible assets from acquisitions, the non-GAAP operating expenses (note 1) were $31.8 million, or 25.7% of net revenues in the first half 2011 compared with $24.9 million, or 29.7% of net revenues in the first half 2010. The decrease of operating expenses as a percentage of net revenues reflected the benefit of scalability from our earlier investments in management teams and corporate infrastructure.

Income from operations

Income from operations was $9.9 million in the first half 2011 compared with $1.5 million in the first half 2010 due to the factors explained above.

Our non-GAAP income from operations (note 1) increased $8.7 million or 137.5% to $15.1 million in the first half 2011 from $6.3 million in the first half 2010.

Change in fair value of convertible notes derivatives

The change in fair value of convertible notes derivatives was recognized as an income of $2.8 million in the first half 2011 in our consolidated statement of operations, compared with an expense of $0.8 million in the first half 2010.

Interest expense

Interest expense was $1.4 million in the first half 2011 and $2.2 million in the first half 2010. Interest expense in the first half 2011 included imputed interest of $0.7 million accrued for our convertible notes, and $0.7 million of interest on short-term bank borrowings. The interest expense in the first half 2010 was mainly interest of $1.7 million accrued for our convertible notes, and $0.5 million on short-term bank borrowings. By March 3, 2011, all our convertible notes, together with accrued interest thereon, were converted into our ordinary shares.

Income taxes

Income tax expense was $0.7 million in the first half 2011 compared with $0.3 million in the first half 2010 primarily as a result of increased profit or reduced loss in certain China entities and two overseas entities. We currently estimate that the effective tax rate will be at approximately 5.9% for the year 2011.

Net income

Net income in the first half 2011 was $11.0 million, compared with a loss of $1.9 million in the first half 2010. The improvement was due to the factors explained above.

Our non-GAAP net income (note 1) increased $8.5 million or 153.0% to $14.0 million in the first half 2011 from $5.5 million in the first half 2010.

Earnings per ADS

Basic earnings per ADS were $0.20 in the first half 2011 and a loss of $0.26 in the first half 2010.

Diluted earnings per ADS were $0.18 in the first half 2011 and a loss of $0.26 in the first half 2010.

Non-GAAP diluted earnings per ADS (note 1) were $0.23 in the first half 2011 and $0.09 in the first half 2010.

Cash and Cash Flow

As of June 30, 2011, we had a cash balance of $110.9 million. Our net cash used in operating activities in the first half 2011 was $12.3 million. Our net cash used in investing activities in the first half 2011 was $20.4 million including capital expenditures of $17.2 million. Among the payment of capital expenditures was a payment of $11.6 million for acquisition of new office premises in Wuxi. Please see the section of recent development for more details.

Days sales outstanding was 157 days for the first half 2011 and 158 days for the first half 2010.

Recent Developments

Acquisition of Adventier Consulting Group, Inc. ("Adventier")

In August 2011, we acquired, in full, Adventier, a U.S.-based ERP consulting services company that provides enterprise resource planning ("ERP") consulting services and solutions to many Fortune 500 companies. With the addition of Adventier, we expect to enhance further our end-to-end service offerings, including ERP consulting and delivery capabilities, to both its global and Chinese clients. We paid an initial consideration of $3.6 million in August 2011 in cash with additional contingent cash consideration to be paid in installments on and before March 31, 2014 based on Adventier's adjusted earnings before interest and income taxes ("EBIT") for the year ending December 31, 2011 and the total consideration is capped at $8.0 million. We expect the acquisition to be accretive to earnings beginning in the third quarter 2011.

Acquisition of New Office Premises in Wuxi

In July 2011, we agreed to purchase the office premises with an area of approximately 37,700 square meters in Wuxi, China for $35.8 million plus tax which is to be paid in five installments. To date, we paid $11.6 million in June 2011 and another $3.1 million in July 2011. The premises will be used as our new principal offshore delivery center (ODC) and regional headquarters of Eastern China to meet the increasing demand arising from our global clients and to support our tier 2 and tier 3 city expansion strategy to maintain our market competitiveness in cost and employee retention. We are still in the process to complete relevant real estate registration procedures.

A Joint Venture with Systena Corporation ("Systena")

In July 2011, the Company and Systena, a Japan-based IT service company listed on the Tokyo Stock Exchange, agreed to jointly set up an offshore development company ("Joint Venture") in Beijing to leverage Systena's strong consulting capability and wide client base in mobile and financial service sectors in Japan, and iSoftStone's competitive offshore service delivery capabilities and platform in China. The Company invested a total of $0.65 million to hold 65% of the equity of the Joint Venture

Strategic Investment in Dynomedia Inc. ("Dynomedia")

In June 2011, the Company agreed to invest a total of approximately $1.5 million to acquire 23.4% of total equity of Dynomedia to expand its service lines to e-Publishing market for both domestic Chinese and global clients. Dynomedia is the leading technology enabler for China's booming e-Publishing industry. With the best-in-breed digital rights management invention, Dynomedia has built extensive partnership with China's major publishing groups, and reach out to college students, working professionals and oversea audience. This strategic investment will help the Company quickly expand its business process outsourcing (BPO), IT services and mobile device solution services to the fast growing e-Publishing market. We used cost method to account for the investment as the investment in preferred shares is not in-substance common stock nor substantially similar to investment in common stock.

.Grants of share options, restricted share units and restricted shares

In the second quarter 2011, the Company granted 665,999 restricted shares with vesting period of 4 years and 4,157,863 restricted share units with vesting period of 1 year or 4 years.

In the second quarter 2011, the Company granted share options for the purchase of 9,711,796 ordinary shares, with exercise price of $0.3 to $1.982 per share and vesting period of 4 years. One ADS is equivalent to 10 ordinary shares.

Outlook for the third quarter of 2011 and full year 2011

For the third quarter 2011, iSoftStone expects the following measures to be within the ranges shown.

• Net revenues for the third quarter 2011: $72.0 million to $74.0 million.
• Net income for the third quarter 2011: $4.5 million to $5.0 million.
• Non-GAAP net income for the third quarter 2011: $8.5 million to $9.0 million.
• Non-GAAP diluted earnings per ADS for the third quarter 2011 to be approximately $0.14, assuming 60.7 million average ADSs will be outstanding in the third quarter 2011. One ADS represents 10 ordinary shares.

For the full year 2011, iSoftStone is revising upwards its prior guidance as shown below.

• Net revenues in 2011: $277.0 million to $284.0 million.
• Net income in 2011: $23.0 million to $24.0 million.
• Non-GAAP net income in 2011: $34.0 million to $35.0 million.
• Non-GAAP diluted earnings per ADS in 2011: $0.55 to $0.57 assuming 61.4 million average ADSs will be outstanding in 2011. One ADS represents 10 ordinary shares.

Non-GAAP measures

To supplement our financial results presented in accordance with U.S. GAAP, we use various non-GAAP financial measures, which are adjusted from results based on U.S. GAAP to exclude share-based compensation, amortization of intangible assets from acquisitions, interest expense of convertible notes, changes in fair value of convertible notes derivatives and changes in fair value of contingent consideration in business combinations. Reconciliations of our non-GAAP financial measures to our U.S. GAAP financial measures are set forth in tables at the end of this earnings release, which provide more details the non-GAAP financial measures.

Our non-GAAP financial information 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 the historical and current financial performance of our continuing operations and our prospects for the future. Our non-GAAP financial information 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 this non-GAAP financial information may be different from the calculation used by other companies, and therefore comparability may be limited.

Note 1

Our non-GAAP information (including non-GAAP operating expenses, income from operations, net income and diluted earnings per ADS) excluded share-based compensation, interest expense of convertible notes, change in fair value of convertible notes derivatives, changes in fair value of contingent consideration in connection with business combination and amortization of intangible assets from acquisitions. For a reconciliation of our non-GAAP measures to our U.S. GAAP measures, please see the reconciliation table at the end of this earnings release.

Conference Call on August 17, 2011

iSoftStone will host an earnings conference call and live webcast covering its second quarter 2011 financial results at 8:00 a.m. Eastern Daylight Time (New York) on August 17, 2011 (which is also 8:00 p.m. in Beijing and Hong Kong on August 17).

The dial-in details for the live conference call are:

A live and archived webcast of the conference call will be available on the Investors section of iSoftStone's website at www.isoftstone.com. To join the webcast, please go to iSoftStone's website at least 15 minutes prior to the start of the call to register and download and install any necessary audio software.

A telephone replay of the call will be available two hours after the conclusion of the conference call through 8:00 a.m. EDT on August 24, 2011. The dial-in details for the replay are as follows:  U.S. toll-free at 1 888 286 8010, international dial-in at 1 617 801 6888, and the replay pass code for both is 5456 8900.

Safe harbor statement

This news release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include our preliminary unaudited results for the second quarter 2011 and the first half 2011, our financial outlook for the third quarter and full year 2011, our strategies to grow our business by expanding our service offerings, targeting multiple industry verticals and maintaining geographically balanced growth, our ability to increase our operating efficiencies as we scale, our ability to maintain growth in Japan, our ability to maximize market opportunities and minimize related risks given current economic fluctuation and the anticipated benefits of our acquisitions and strategic investments.

Our forward-looking statements are not historical facts but instead represent only our belief regarding expected results and events, many of which, by their nature, are inherently uncertain and outside of our control. Our actual results and other circumstances may differ, possibly materially, from the anticipated results and events indicated in these forward-looking statements. Announced results for the second quarter and the first half 2011 are preliminary, unaudited and subject to audit adjustment. In addition, we may not meet our financial outlook for the third quarter and full year 2011, effectively capitalize on our growth opportunities and strategies, enter targeted markets, or otherwise grow our business in the manner planned, successfully complete planned acquisitions or strategic investments or recognize the anticipated benefits of our acquisitions and strategic investments, on a timely basis or at all. In addition, other risks and uncertainties that could cause our actual results to differ from what we currently anticipate include: our ability to effectively manage our rapid growth; intense competition from China-based and international IT services companies; our ability to attract and retain sufficiently trained professionals to support our operations; and our ability to anticipate and develop new services and enhance existing services to keep pace with rapid changes in technology and in our selected industries. For additional information on these and other important factors that could adversely affect our business, financial condition, results of operations, and prospects, please see "Risk Factors" that begins on page 6 of our 2010 Annual Report on Form 20-F that we filed with the U.S. Securities and Exchange Commission on May 31, 2011, which can be found on our website at www.isoftstone.com and at www.sec.gov.

All projections (including our third quarter 2011 and 2011 full year financial outlook) in this release are based on limited information currently available to us, which is subject to change. Although these projections and the factors influencing them will likely change, we undertake no obligation to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, after the date of this news release, except as required by law. Such information speaks only as of the date of this release.

About iSoftStone Holdings Limited

Founded in 2001, iSoftStone is a leading China-based IT services provider serving both greater China and global clients. iSoftStone provides an integrated suite of IT services and solutions including consulting & solutions, IT services, and business process outsourcing services. The company focuses on industry verticals that include technology, communications, banking, financial services, insurance, energy, transportation, and public sectors.

iSoftStone's American depositary shares began trading on the New York Stock Exchange on December 14, 2010.

For more information, please visit www.isoftstone.com .

SOURCE iSoftStone Information Technology (Group) Co., Ltd.

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