Yucheng Reports Unaudited Third Quarter 2011 Financial Results

BEIJING, Nov. 10, 2011 /PRNewswire-Asia-FirstCall/ -- Yucheng Technologies Limited (Nasdaq: YTEC) ("Yucheng," the "Company," "we," "us" and "our"), a leading provider of IT Solutions to the financial services industry in China, today announced unaudited financial results for the third quarter ended September30, 2011.

• Third quarter software & solutions revenues of US$18.0 million, an increase of 28.5% year over year;
• Third quarter net revenue of US$19.1 million, an increase of 21.1% year over year, and third quarter net revenue (Non-GAAP)(1) of US$18.9 million, an increase of 19.6% year over year;
• Third quarter operating income of US2.2 million, an increase of 12.0% year over year, and third quarter operating income(Non-GAAP) (4)of US$2.9million, an increase of 15.6% year over year;
• Third quarter operating margin of revenue of 11.7%, as compared to 12.6% in the prior year period, and third quarter operating margin of net revenue (Non-GAAP)(5) of 15.4%, as compared to 16.0% in the prior year period;
• Third quarter net income of US$1.9 million, or US$0.10, as compared to US$1.5 million, or US$0.08 per share in the prior year period, and third quarter net income (Non-GAAP) (6) of US$2.6 million, or US$0.14 per share, as compared to US$2.0 million, or US$0.10 per share in the prior year period;

"We had another solid quarter with results ahead of our expectations continuing our momentum of growth. We are pleased with our performance this year, especially in the current highly competitive environment. In addition to the strong demand for our traditional products such as internet banking and loan management, we have also benefited from faster growing demand in business intelligence and risk management. Our strength in the new solutions in the area of e-commerce, mobile banking, and community bank MIS systems also contributed to our growth this year," said Mr. Hong Weidong, CEO of Yucheng Technologies. "We are also pleased with the latest IDC ranking of IT solutions providers in banking industry in China, which ranked Yucheng No. 1 in market share in 2010. It is a demonstration of our leading industry position and a reflection of the effort the company has put forth in the last several years. We will continue to execute our strategy to further solidify our leading position."

Third Quarter 2011 Financial Results

Total revenues for the third quarter of 2011 were US$19.1million, an increase of 21.1% year over year and an increase of 20.8% sequentially. Net revenues (non-GAAP) (1) for the third quarter of 2011 were US$18.9 million, an increase of 19.6% year over year and an increase of 19.5% sequentially. The year over year increase in revenues was due mainly the strong demand for our software solutions from our customers.

Gross margin for the third quarter of 2011 was 49.7%, compared to 48.4% in the prior year period and 49.1% in the previous quarter. Gross margin of net revenues (non-GAAP)(2) for the third quarter of 2011 was 50.2%, compared to 48.4% in the prior year period and 49.1% in the previous quarter. The increase in gross margin year over year was due mainly to the increase in gross margin of maintenance services that was helped by an adjustment of accrued service fees to China Financial Certification Authority (CFCA), our partner in the e-banking ASP business.

Software & solutions revenues for the third quarter of 2011 were US$18.0 million, an increase of 28.5% year over year and an increase of 30.6% sequentially, the latter reflecting both the inherent seasonality and higher demand for our software solutions.

Gross margin of the software & solutions business for the third quarter of 2011 was 46.2%, compared to 50.0% in the prior year period and 46.1% in the previous quarter. The decrease in the gross margin was primarily due to the increase in labor costs this year and increased subcontracting to our strategic partner where our margin is significant lower.

Platform & maintenance services revenues for the third quarter of 2011 were US$1.1 million, compared to US$1.8 million in the prior year period and US$2.1 million in the previous quarter. Net revenues of platform & maintenance services (non-GAAP) for the third quarter of 2011 were US$0.9 million,  compared to US$1.8 million in the prior year period and US$2.1 million in the previous quarter.

Gross margin of platform & maintenance services business for the third quarter of 2011 was 104.2%, compared to 36.3% in the year-ago period and 69.1% in the previous quarter. Gross margin of net revenues (non-GAAP) for platform maintenance services in third quarter of 2011was128.2%, compared to 36.0% in the prior year period and 69.1% in the previous quarter. The increase in gross margin (non-GAAP) was due mainly to the adjustment of the accrued service fee to China Financial Certification Authority (CFCA), our partner in the e-banking ASP business.

Total operating expenses for the third quarter of 2011 increased 28.5% year over year and increased25.0% sequentially to US$7.3 million. Total operating expenses (non-GAAP)(3) for the third quarter of 2011 increased 28.5% year over year and increased 18.7% sequentially to US$6.6 million. The year-over-year increase was attributable mainly to stock-based compensation, the increase of labor costs and the increase of research and development expenses for enhancing our research and development capability.

Income from operations for the third quarter of 2011 was US$2.2 million, compared to US$2.0 million in the prior year period and US$2.0 million in the previous quarter. Income from operations (non-GAAP) for the third quarter of 2011 was US$2.9 million, compared to US$2.5 million in the prior year period and US$2.2 million in the previous quarter.

Operating margin of total revenue was 11.7% for the third quarter of 2011, compared to 12.6% in the prior year period and 12.4% in the previous quarter. Operating margin of net revenues (non-GAAP) was 15.4% for the third quarter of 2011, compared to 16.0% in the prior year period and 14.1% in the previous quarter.

In the third quarter of 2011, net income from continuing operations was US$1.9 million, or US$0.10per diluted share, compared to US$1.8 million, or US$0.09 per diluted share in the prior year period and US$1.6, or US$0.08 per diluted share in the previous quarter.

Net income from continuing operations (non-GAAP) was US$2.6 million in the third quarter of 2011 or US$0.14 per diluted share. Net income (non-GAAP) in the prior year period was US$2.3 million or US$0.12 per diluted share. Net income from continuing operations (non-GAAP) in the previous quarter was US$1.9 million or US$0.10 per diluted share.

In the third quarter of 2011, the Company recorded net income of US$1.9 million, or US$0.10per diluted share, compared to US$1.5 million, or US$0.08 per diluted share in the prior year period and US$1.6 million, or US$0.08 per diluted share in the previous quarter.

Net income (non-GAAP) was US$2.6 million in the third quarter of 2011 or US$0.14 per diluted share. Net income (non-GAAP) in the prior year period was US$2.0 million or US$0.10 per diluted share. Net income (non-GAAP) in the previous quarter was US$1.9 million or US$0.10 per diluted share.

As of September30, 2011, Yucheng had cash and cash equivalents and restricted cash totaling US$18.7 million, compared to US$20.0 million as of June30, 2010 and US$14.7 million as of September 30, 2010.Operating cash flow in the third quarter of 2011 was a net inflow of US$0.5million.

Business Outlook

For the quarter ending December 31, 2011, Yucheng expects net revenue (non-GAAP) to be approximately US$27-28.0 million and net income (non-GAAP) per share of US$0.20.

Third quarter 2011 Conference Call Details

Yucheng Management will conduct a conference call to discuss the financial results for the three-month period ended September30, 2011 on Thursday, November10, 2011 at 8:00AM EST/ 9:00PM BJT.

To participate, please dial one of the local access numbers, listed below, ten minutes prior to the scheduled start of the call. The conference call identification number is 5232.

A recording of the call will be accessible within 48 hours on the Investor Relations section of the Yucheng's website at http://www.yuchengtech.com/english/success.php?classid=41.

About Yucheng Technologies Limited

Yucheng Technologies Limited (NASDAQ:YTEC) is a leading IT service provider to the Chinese financial service providers. Headquartered in Beijing, China, Yucheng services clients from its nationwide network with approximately 2,500 employees. Yucheng provides a comprehensive suite of IT solutions to Chinese Banks including: (i) Channel Solutions, such as e-banking and call centers; (ii) Business Solutions, such as core banking systems and loan management; and (iii) Management Solutions, such as risk analytics and business intelligence. Yucheng has been ranked in the Global FinTech 100 survey of top technology partners to the financial services industry for in 2007, 2008, and 2009. The independent research firm IDC also has named Yucheng the No. 1 market share leader in China's Banking IT solution market in 2010. For more information about Yucheng Technologies Limited, please visit www.yuchengtech.com.

Reconciliation of non-GAAP Measures

This earnings release presents the following "non-GAAP financial measures" as defined by applicable U.S. securities regulations. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. The non-GAAP financial measures are provided as additional information to help both management and investors compare business trends among different reporting periods on a consistent and more meaningful basis and enhance investors' overall understanding of the Company's current financial performance and prospects for the future.  These non-GAAP measures have limitations, however, because they do not include all items of income and expenses that impact the Company's operations.  Management compensates for these limitations by also considering the Company's GAAP results.  The non-GAAP financial measures the Company uses are not prepared in accordance with, and should not be considered an alternative to measurements required by GAAP and should not be considered measures of the Company's liquidity.  Pursuant to relevant regulatory requirements, we are providing the following reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures.  

(1) Net revenue (non-GAAP)

Yucheng's net revenue (non-GAAP) represents total revenue net of third party hardware and software costs that are passed through to our customers. We believe total revenues net of third party hardware and software costs more accurately reflects our core business, which is the provision of software solutions and services, and provides transparency to our investors. It is also the same measure used by our management to evaluate the competitiveness and development of our business.

(2) Gross margin of net revenue (non-GAAP)

Gross margin of net revenues (non-GAAP) is calculated by dividing gross profit by net revenue (non-GAAP). We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance. Management uses the gross margin of net revenue (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP gross margin and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(3) Operating expenses (non-GAAP)

Operating expenses (non-GAAP) excludes stock-based compensation and amortization of acquired intangible assets related to previous acquisitions. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the operating expenses (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP operating expenses and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(4) Operating income (non-GAAP)

Operating income (non-GAAP) excludes stock-based compensation and amortization of acquired intangible assets related to previous acquisitions. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the operating income (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP operating income and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(5) Operating margin of net revenue (non-GAAP)

Operating margin of net revenue (non-GAAP) is calculated by dividing operating income, excluding amortization of acquired intangible assets and stock-based compensation expenses, divided by net revenue (non-GAAP). We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the operating margin of net revenue (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP operating margin and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(6) Net income (non-GAAP)

Net income (non-GAAP) excludes stock-based compensation and amortization of acquired intangible assets related to the previous acquisitions.  We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the net income (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes the Company's net income (non-GAAP) measure, when read in conjunction with the Company's GAAP net income measure and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(7) Net income (non-GAAP)per diluted share

Net income (non-GAAP) per diluted share is calculated by dividing net income (non-GAAP) (which as discussed above excludes stock-based compensation expenses and amortization of acquired intangible assets) by the same number of weighted average shares outstanding used in the computation of net income per diluted share. Management believes that net income (non-GAAP) per diluted share, when used in conjunction with the Company's GAAP net income per diluted share, provides useful information to investors for the same reasons discussed above regarding net income (non-GAAP). In addition, net income (non-GAAP) per diluted share allows investors to evaluate the Company's operating performance from period to period on a per share basis, thus providing a useful basis for assessing the Company's value on a per share basis.

Cautionary Note Regarding Forward-Looking Statements

The information contained in this document is as of November 10 ,2011. Yucheng assumes no obligation to update any forward-looking statements contained in this document as a result of new information or future events or developments.

This press release includes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward looking statements are statements that are not historical facts. Forward-looking statements generally can be identified by the use of forward looking terminology, such as ''may,'' ''will,'' ''expect,'' ''intend,'' ''estimate,'' ''anticipate,'' ''believe,'' ''project'' or ''continue'' or the negative thereof or other similar words. Such forward-looking statements, based upon the current beliefs and expectations of Yucheng's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: current dependence on the PRC banking industry demand for the products and services of Yucheng; competition from other service providers in the PRC and international consulting firms; the ability to update and expand product and service offerings; retention and hiring of qualified employees; protection of intellectual property; creating and maintaining quality product offerings; and operating a business in the PRC with its changing economic and regulatory environment. A further list and description of these risks, uncertainties, and other matters can be found in our Annual Report on Form 20-F for the fiscal year ended December 31, 2010, and in our interim current reports on Form 6-K filed with the United States Securities and Exchange Commission and available at www.sec.gov.

For more information about Yucheng, please visit www.yuchengtech.com.

For investor and media inquiries, please contact:

In China:

Mr. Steve Dai
Yucheng Technologies Limited
Tel: +86-10-5913-7889
Email: [email protected]

SOURCE Yucheng Technologies Limited