BEIJING, Nov. 17 /Xinhua-PRNewswire/ -- 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, 2008. Third Quarter 2008 Financial and
Operating Highlights -- Net revenues for the third quarter
increased to $27.7 million, up 53.3% from the third quarter of
2007. -- Gross profit rose to $10.9 million, up 55.0% from the
third quarter of 2007. Gross margin improved to 39.3%, up from
38.9% in the same period last year. -- Operating margin was 15.5%,
compared to 14.4% in the third quarter 2007. -- Net income was $4.3
million, compared to $2.9 million in the third quarter of 2007.
Non-GAAP net income, which excludes share-based compensation
expense, was $4.7 million, compared to $3.2 million a year ago. --
Diluted earnings per share ("EPS") were $0.11, and adjusted diluted
EPS (non-GAAP), which excludes share-based compensation expense,
was $0.12 in the third quarter. -- Employees totaled 4,975,
including 4,351 billable professionals, as of September 30, 2008.
"We are very pleased to see another great quarter with record
revenues and net profit despite the turbulence in the global
economy. Demand from the Chinese clients remained solid, and a
number of multinational customers continued to entrust us with more
responsibilities for high quality R&D work and cost effective
services," said Mr. Chris Chen, Chairman and Chief Executive
Officer of VanceInfo. "This is also a quarter in which
substantially all of our year-over-year growth came from organic
sources, and this strong growth was achieved in an increasingly
challenging economic environment, which further validates our
execution capabilities and the resilience of our business model. On
the supply side, we continue to benefit from the abundant supply of
IT talents with growing sophistication in all major cities across
China. We remain confident that our enhanced brand recognition
since the IPO and improved core competencies will continue to
support our growth in 2009 and beyond." Third Quarter 2008
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 2008 and the third quarter of 2007 as
in the following paragraphs. Net Revenues The third quarter of 2008
proved to be another seasonally strong quarter with net revenues of
$27.7 million, up 53.3% from $18.0 million in the third quarter of
2007. The increase in net revenues was primarily due to healthy
growth from domestic clients and continued revenue strength from a
number of key multinational accounts. Net Revenues by Service Lines
Net revenues from research and development services grew 67.3%
compared with the third quarter of 2007 and accounted for 59.0% of
the Company's net revenues. Telecom and wireless clients
contributed a significant portion of the growth to this service
line, with the remaining increase coming from both existing and new
clients in the technology sector. Net revenues from applications
development and maintenance had the strongest percentage growth in
the third quarter 2008, up 73.2% from the year-ago quarter, boosted
by a number of new clients acquired in the past 12 months. Three
Months Ended Three Months Ended September 30, 2008 September 30,
2007 (in thousands, except percentages) Research & development
services $16,340 59.0% $9,769 54.1% Globalization &
localization 1,157 4.2% 1,003 5.5% Enterprise solutions 3,961 14.3%
3,351 18.6% Application development & maintenance 4,592 16.6%
2,652 14.7% Quality assurance & testing 1,621 5.9% 1,273 7.1%
Total net revenues $27,671 100.0% $18,048 100.0% Net Revenues by
Geographic Markets Based on the location of our clients'
headquarters, the United States continued to be the Company's
largest geographic market, accounting for $14.5 million or 52.5% of
net revenues in the third quarter of 2008, followed by 25.0% from
clients headquartered in China, 14.1% in Europe and 8.0% in Japan.
The rising contribution from China headquartered clients is due to
the increased business generated by the Company's further
penetration into key China accounts and new clients gained with the
Company's improving brand recognition and deepened domain skills.
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 73.9% of net
revenues in the third quarter 2008, while the United States and
Japan accounted for 15.3% and 7.7%, respectively. The Company
provides this supplemental analysis to present an additional
measure for assessing the Company's geographic participation and
highlight its involvement in the expanding Chinese market, which is
relatively less affected by the economic tumult elsewhere in the
world. The considerable gain in contracts signed in China was
fueled by demand from both Chinese clients and multinationals'
operations in China. Largest Clients The total revenues from the
Company's five largest clients accounted for 54.1% of the Company's
net revenues in the third quarter of 2008, compared to 52.9% in the
previous quarter and 51.1% in the third quarter of 2007. While all
five accounts' revenues rose during the quarter, one of them grew
particularly strong as a result of the client's vendor
consolidation strategy and VanceInfo's superior delivery results on
this account. Gross Profit and Gross Margin Gross profit in the
third quarter of 2008 was $10.9 million, an increase of 55.0% from
$7.0 million in the third quarter of 2007. The impact from the
Beijing Olympic Games proved to be limited, and gross margin
remained healthy at 39.3%, compared to 38.9% in the third quarter
of 2007. Operating Expenses Sales and marketing expenses were $1.1
million in the third quarter of 2008, up from $0.7 million in the
third quarter of 2007 as the Company continued to invest in
business development efforts in order to capture future growth
opportunities. General and administrative expenses were $5.7
million in the third quarter of 2008, up 47.5% from $3.9 million a
year ago. The increase was primarily due to higher administrative
costs associated with being a public company as well as higher
operational spending on enterprise system architecture and
back-office support to position the Company for further growth in
the future. Operating Income and Operating Margin Operating income
in the third quarter of 2008 was $4.3 million, up 65.1% from $2.6
million in the third quarter 2007. Operating margin was 15.5% in
the third quarter of 2008, up from 14.4% in the year-ago period.
Provision for Income Taxes The provision for income taxes was $0.6
million in the third quarter of 2008, compared to a tax credit of
$0.1 million in the third quarter of 2007. As a "new and
high-technology enterprise", the Company's main operating entity in
China was entitled to a three-year tax exemption from year 2005 to
2007 and a 50% reduction from the 15% preferential tax rate from
year 2008 to 2010. Under the new Chinese Enterprise Income Tax
Regulation that became effective in 2008, however, all new and
high-technology enterprises are required to re- apply for the
status. Prior to receiving the official approval of this status,
the Company calculates income tax expense based on the 25%
statutory tax rate, instead of the 15% preferential tax rate, and a
50% reduction, resulting in a 12.5% income tax rate for the main
operating entity in the first three quarters of 2008. Net Income
and EPS Net income in the third quarter of 2008 was $4.3 million,
up 49.3% from $2.9 million in the third quarter of 2007. The net
margin was 15.7% in the third quarter of 2008, down from 16.1% in
the third quarter of 2007 primarily due to the higher income tax
provisions in 2008. Non-GAAP net income, which excludes share-based
compensation expense, was $4.7 million, up from $3.2 million a year
ago. Non-GAAP net margin was 16.9%, compared to 17.5% in the prior
year period. Diluted EPS was $0.11, and non-GAAP diluted EPS, which
excludes share- based compensation expense, was $0.12 in the third
quarter of 2008. The non-GAAP measures are described below and
reconciled to the corresponding GAAP measures in the section below
titled "About Non-GAAP Financial Measures." 2008 Year to Date
Financial Results Net Revenues Net revenues in the first nine
months of 2008 were $72.6 million, up 67.1% from $43.4 million in
the first nine months of 2007. Gross Profit and Gross Margin Gross
profit for the first nine months of 2008 was $28.2 million, an
increase of 68.6% from $16.7 million in the same period of 2007.
Gross margin was 38.9% in the first nine months of 2008, up from
38.5% in the prior year period. Operating Income and Operating
Margin Operating income for the first nine months of 2008 was $10.6
million, up 71.7% from $6.2 million in the prior year period.
Operating margin was 14.6% in the first nine months of 2008, an
improvement of 40 basis points from 14.2% in the same period of
2007. Net Income and EPS Net income for the first nine months of
2008 was $11.0 million, up 69.6% from $6.5 million in the same
period of 2007. Net margin was 15.1% in the first nine months of
2008, up from 14.9% in the first nine months last year. Non-GAAP
net income, which excludes share-based compensation expense, was
$12.0 million, up from $7.2 million a year ago. Non-GAAP net margin
was 16.5%, compared with 16.5% in the prior year period. Diluted
EPS was $0.27, and non- GAAP diluted EPS, which excludes
share-based compensation expenses, was $0.30 for the first nine
months of 2008. Recent Developments Achievement of CMMI Level 5
Certification In September 2008, the Company achieved the Software
Engineering Institute's (SEI) Capability Maturity Model Integration
(CMMI) Level 5 certification in Engineering Capability at one of
its key development centers. CMMI is a single framework of maturity
standards that guide an organization to improve quality and reduce
software development costs by using reliable and repeatable
processes. It is graded in five levels of increasing maturity and
capability, with Level 5 representing the highest level of maturity
for software development processes and practices. This achievement
signifies VanceInfo's well-developed and integrated processes in
software engineering and demonstrates the Company's commitment to
delivering higher quality services to its customers worldwide.
Completion of the Equity Investment in Link Result On October 1,
2008, VanceInfo completed the purchase of a 33% equity interest in
Link Result Limited, a China-based company providing IT outsourcing
services to multinational financial institutions. The purchase
agreement was signed in August 2008 as disclosed previously in the
Company's press release. Completion of Wireless Info Tech
Acquisition On October 1, 2008, VanceInfo completed the purchase of
100% equity interest in Wireless Info Tech Ltd., a U.S. based
mobile testing and application development services provider. As
disclosed previously in the Company's press release, the
acquisition is expected to strengthen VanceInfo's position in the
fast growing mobile sector and help expand the Company's onshore
sales and delivery capabilities in the United States. Outlook for
the Fourth Quarter and Full Year 2008 For the fourth quarter and
full year 2008, the Company has raised its guidance and expects
that: -- 2008 net revenues to be between $100 million and $101
million, representing a 59% to 61% increase from 2007. -- 2008
diluted EPS to be between $0.37 and $0.39 on a GAAP basis, and
non-GAAP diluted EPS excluding share-based compensation to be
between $0.4 and $0.43, based on 40.6 million total ADS-equivalent
average shares outstanding. -- Fourth quarter diluted EPS to be
between $0.10 and $0.12 on a GAAP basis, and non-GAAP diluted EPS
excluding share-based compensation to be between $0.11 and $0.13,
based on 40.9 million total ADS-equivalent average shares
outstanding. -- Total headcount by the end of 2008 to be
approximately 5,300. The full-year EPS will be impacted by the
income tax provision for the year. Based on the Company's current
understanding of the new Chinese Enterprise Income Tax Regulation,
the Company's estimate of its effective tax rate for 2008 is
between 8% and 14%. For the first nine months ended September 30,
2008, the Company accrued income tax provision at an effective tax
rate of approximately 13%. The ultimate applicable tax rate of the
Company will depend on many factors, including whether its main
operating entity will receive the approval of its High and New
Technology Enterprise status under the new regulation, which is
expected to be known in the first quarter of 2009. Conference Call
VanceInfo will host a conference call and live webcast to discuss
the quarter's results and outlook at 8:00 a.m. Eastern Standard
Time (9:00 p.m. Beijing/Hong Kong time) on Monday, November 17,
2008. Please dial-in five to ten minutes prior to the call to
register and receive further instructions. The dial-in details for
the live conference call are: -- U.S. Toll Free Number: +1
800-322-5044 -- International dial-in number: +1 617-614-4927 --
Hong Kong dial-in number: +852 3002-1672 Passcode: VanceInfo The
conference call will be available live by 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 9:00 p.m. EST, November 24,
2008 at +1 888-286-8010 or +1 617-801-6888; Passcode: 82490092.
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 2007 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, and globalization & localization. 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
Fourth Quarter and Full Year 2008" 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 overall economic
status 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, including its registration
statement on Form F-1. All information provided in this news
release and in the attachments is as of November 17, 2008, 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 excluding share-based compensation expenses, and
diluted EPS excluding share-based compensation expenses. 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 from a cash
perspective. 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 excluding share-based compensation expenses, and diluted EPS
excluding share- based compensation expenses is that these non-GAAP
measures exclude the share- based compensation charges 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. VanceInfo Technologies Inc. Condensed
Consolidated Balance Sheets (Unaudited) (In US dollars in
thousands) September 30 December 31 2008 2007 Assets Current assets
Cash and cash equivalents $80,063 $76,835 Accounts receivable
32,560 24,708 Other current assets 3,076 7,250 Total current assets
115,699 108,793 Property and equipment, net 10,453 7,999 Goodwill
and other intangible assets 15,081 11,701 Other long-term assets
1,620 583 Total assets $142,853 $129,076 Liabilities, minority
interest, and shareholders' equity Current liabilities $16,893
$17,114 Other liabilities 1,487 954 Total liabilities 18,380 18,068
Minority interest -- 630 Shareholders' equity (a) 124,473 110,378
Total liabilities, minority interest, and shareholders' equity
$142,853 $129,076 (a) As of September 30, 2008, there were
37,303,710 ordinary shares issued and outstanding. VanceInfo
Technologies Inc. Condensed Consolidated Statements of Operations
(Unaudited) (In US dollars in thousands, except per share data)
Three months ended Nine months ended September 30, September 30,
2008 2007 2008 2007 Net revenues $27,671 $18,048 $72,589 $43,446
Cost of revenues (1) 16,796 11,033 44,362 26,704 Gross profit
10,875 7,015 28,227 16,742 Selling and marketing expenses (1) 1,109
657 3,128 1,437 General and administrative expenses (1) 5,726 3,881
15,209 9,274 Other operating income 244 118 703 139 Income from
operations 4,284 2,595 10,593 6,170 Interest income 487 218 1,694
647 Interest expenses 20 20 67 20 Foreign currency exchange gains
(losses) 171 325 262 132 Change in fair value of warrants -- 230 --
357 Income before income taxes and minority interest 4,922 2,888
12,482 6,572 Provision for income taxes 588 (60) 1,616 31 Income
before minority interest 4,334 2,948 10,866 6,541 Minority
interest, net of tax (3) (47) 84 (85) Net income $4,331 $2,901
$10,950 $6,456 Earnings per share Basic - ordinary share $0.12
$0.07 $0.29 $0.14 Basic - Series A convertible redeemable preferred
share N/A 0.12 N/A 0.27 Basic - Series B-1 convertible redeemable
preferred share N/A 0.12 N/A 0.27 Basic - Series B-2 convertible
redeemable preferred share N/A 0.15 N/A 0.35 Diluted - ordinary
share 0.11 0.06 0.27 0.13 Weighted average shares outstanding (in
thousands) Basic - ordinary share 37,333 10,876 37,228 10,098 Basic
- Series A convertible redeemable preferred share -- 7,145 -- 7,158
Basic - Series B-1 convertible redeemable preferred share -- 2,990
-- 2,990 Basic - Series B-2 convertible redeemable preferred share
-- 6,380 -- 6,380 Diluted - ordinary share 40,569 12,716 40,489
11,394 (1) Depreciation and amortization expenses totaled $916 and
$678 for the three months ended September 30, 2008 and 2007,
respectively, and $2,779 and $1,728 for the nine months ended
September 30, 2008 and 2007, respectively. VanceInfo Technologies
Inc. Reconciliations of Non-GAAP Financial Measures to Comparable
GAAP Measures (In US dollars in thousands, except per share data
and percentages) Three Months Ended Three Months Ended September
30, 2008 September 30, 2007 GAAP Adjustments Non-GAAP GAAP
Adjustments Non-GAAP Net income $4,331 $351 (a) $4,682 $2,901 $250
(c) $3,151 Net margin 15.7% 1.2% (a) 16.9% 16.1% 1.4% (c) 17.5%
Average shares (e) 40,569 -- 40,569 12,716 18,110 30,826 Diluted
EPS $0.11 $0.01 (f) $0.12 $0.06 $0.05 (f) $0.11 Nine Months Ended
Nine Months Ended September 30, 2008 September 30, 2007 GAAP
Adjustments Non-GAAP GAAP Adjustments Non-GAAP Net income $10,950
$1,040 (b) $11,990 $6,456 $709 (d) $7,165 Net margin 15.1% 1.4% (b)
16.5% 14.9% 1.6% (d) 16.5% Average shares (e) 40,489 -- 40,489
11,394 18,123 29,517 Diluted EPS $0.27 $0.03 (f) $0.30 $0.13 $0.12
(f) $0.25 Notes:(a) Adjustment to exclude share-based compensation
of $351 from operations of which $74 was reported in cost of
revenues, $46 was reported in selling and marketing expenses and
$231 was reported in general and administrative expenses in the
unaudited condensed consolidated statements of operations. (b)
Adjustment to exclude share-based compensation of $1,040 from
operations of which $188 was reported in cost of revenues, $137 was
reported in selling and marketing expenses and $715 was reported in
general and administrative expenses in the unaudited condensed
consolidated statements of operations. (c) Adjustment to exclude
share-based compensation of $250 from operations of which $31 was
reported in cost of revenues, $17 was reported in selling and
marketing expenses and $202 was reported in general and
administrative expenses in the unaudited condensed consolidated
statements of operations. (d) Adjustment to exclude share-based
compensation of $709 from operations of which $68 was reported in
cost of revenues, $38 was reported in selling and marketing
expenses and $603 was reported in general and administrative
expenses in the unaudited condensed consolidated statements of
operations. (e) Represent weighted average number of dilutive
ordinary shares outstanding (f) Non-GAAP diluted EPS is computed by
dividing Non-GAAP net income by the weighted average number of
dilutive ordinary shares outstanding for the respective periods
plus the number of ordinary shares resulting from the assumed
conversion of the Series A, B-1 and B-2 convertible redeemable
preferred shares as of the beginning of the prior year period.
DATASOURCE: VanceInfo Technologies Inc. CONTACT: Melissa Ning,
Director, Investor Relations, VanceInfo Technologies Inc.,
+86-10-8282-5330, or Web site: http://ir.vanceinfo.com/
Copyright
