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