BEIJING, May 9 /Xinhua-PRNewswire/ -- VanceInfo Technologies Inc.
(NYSE:VIT), an IT service provider and one of the leading offshore
software development companies in China, today reported its
unaudited financial results for the first quarter ended March 31,
2008. First Quarter 2008 Financial and Operating Highlights -- Net
revenues in the first quarter of 2008 increased 96.5% to US$20.5
million from the first quarter of 2007. -- Gross profit margin in
the first quarter was 38.0%, compared to 37.8% in the same period
in 2007. -- Net income for the first quarter of 2008 increased
138.3% to US$3.1 million from the first quarter of 2007. The net
margin for the first quarter of 2008 increased to 14.9% from 12.3%
in the first quarter of 2007. Non-GAAP net income, which excludes
share-based compensation expense, was $3.4 million, up 126.0% from
$1.5 million a year ago. -- Employees totaled 4,002, including
3,488 billable professionals, as of March 31, 2008. "Success at
winning new business, ability to execute well for our clients,
enhanced domain knowledge and effectiveness in managing our high
growth rate have resulted in our very good operating and financial
performance in the first quarter," said Mr. Chris Chen, Chairman
and Chief Executive Officer of VanceInfo. He continued, "The
Chinese economy continues to grow at a healthy pace and has enabled
us to increase our near-shore services with multinational companies
doing business in China. Meanwhile, our expanded sales efforts in
the United States have generated strong potential for additional
growth. Considering all the relevant factors, I continue to believe
that 2008 will be an outstanding year for VanceInfo." First 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 first quarter of 2008 and the first quarter of 2007 as
in the following paragraphs. Net Revenues Net revenues were $20.5
million in the first quarter of 2008, up 96.5% from $10.4 million
in the first quarter of 2007. The increase in net revenues was
primarily due to winning new customers, expanding our work with
current clients, and the addition of clients from our acquisitions
in 2007. Net Revenues by Service Lines Net revenues from research
& development services grew 79.3% during the first quarter of
2008 from the first quarter of 2007 and accounted for the majority
of the company's revenues. Net revenues from application
development & maintenance had the strongest growth in the first
quarter, up 260.6% from the first quarter of last year. The
continued strength in these two service lines compensated the
overall seasonal weakness during the first quarter. Three Months
Ended Three Months Ended March 31, 2008 March 31, 2007 (in US$
thousands, except percentages) Research & development services
$12,020 58.6% $6,705 64.3% Globalization & localization 901
4.4% 865 8.3% Enterprise solutions 2,352 11.5% 735 7.0% Application
development & maintenance 3,725 18.2% 1,033 9.9% Quality
assurance & testing 1,504 7.3% 1,097 10.5% Total net revenues
$20,502 100.0% $10,435 100.0% 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 $12.6 million or 61.5% of net revenues in the first
quarter of 2008, followed by 12.8% from clients headquartered in
Europe, 12.8% in China and 12.7% in Japan. Measuring the company's
revenues by geographic markets based on the location of the
contract signing entities, rather than the location of the clients'
headquarters, China accounted for 68.2% of net revenues in the
first quarter 2008, while the United States accounted for 18.3% and
Japan accounted for 9.0% in the same period. This supplemental
geographic analysis provides an additional measure for assessing
the company's geographic participation and highlights the company's
involvement in the expanding Chinese market. Accordingly, during
the first quarter, the company experienced limited effect from the
U.S. economic slowdown, and for the same reason, only 20.8% of the
company's net revenues in the first quarter of 2008 were subject to
any effect from the U.S. dollar depreciation. Largest Clients The
total revenues from the company's two largest clients, Microsoft
and IBM, accounted for 31.4% of the company's net revenues in the
first quarter of 2008, compared to 46.4% in the first quarter of
2007. Similarly, revenues from the top five clients totaled 51.1%
of net revenues in the quarter, compared to 65.7% in the first
quarter of 2007. Gross Profit and Gross Profit Margin Gross profit
in the first quarter of 2008 was $7.8 million, an increase of 97.5%
from $3.9 million in the first quarter of 2007. Gross profit margin
was 38.0% in the first quarter of 2008, up slightly from 37.8% in
the first quarter of 2007, as the company continued to optimize its
service mix with higher average billing rates while effectively
managing employee costs. Operating Expenses Sales and marketing
expenses were $1.0 million in the first quarter 2008, up 244.4%
from $0.3 million in the first quarter of 2007. The increase was
due to the hiring of several experienced sales professionals in the
United States in the second half of 2007. General and
administrative expenses were $4.3 million in the first quarter of
2008, up 85.7% from $2.3 million a year ago. The increase was
consistent with the company's growth as well as higher
administrative costs associated with being a public company.
Operating Income and Operating Profit Margin Operating income in
the first quarter of 2008 was $2.6 million, up 97.5% from $1.3
million in the first quarter 2007. Operating profit margin was
12.7% in the first quarter of 2008, compared with 12.6% in the
first quarter of 2007. Provision for income taxes The provision for
income taxes was $0.6 million in the first quarter of 2008,
compared to $0.1 million in the first quarter of 2007. The
provision was higher than expected due to uncertainties in
implementing the new Chinese Enterprise Income Tax Regulation that
became effective in 2008. The provision in the first quarter of
2008 assumes that the company's main operating entity would not
receive the renewal of its High and New Technology Enterprise
status under the new regulation in current year and, therefore,
cannot enjoy the preferential tax rates in 2008. Net Income and EPS
Net income in the first quarter of 2008 was $3.1 million, up 138.3%
from $1.3 million in the first quarter of 2007. The net margin was
14.9% in the first quarter of 2008, a significant increase over the
12.3% net margin achieved in the first quarter of 2007. Non-GAAP
net income, which excludes share-based compensation expense, was
$3.4 million, up 126.0% from $1.5 million a year ago. Non-GAAP net
margin was 16.6%, compared to 14.4% in the prior year period. The
increase in net income was primarily due to higher operating
income, higher interest income and foreign exchange gains, partly
offset by the higher provision for income taxes. Diluted earnings
per share ("EPS") were $0.08 in the first quarter, compared to
$0.02 in the first quarter 2007. Non-GAAP diluted EPS, which
excludes share-based compensation expense, was $0.08 in the first
quarter, compared to $0.05 in the first quarter 2007, assuming
conversion of the preferred shares for the prior year period. The
non-GAAP measures are described below and reconciled to the
corresponding GAAP measures in the section below titled "About
Non-GAAP Financial Measures." Recent Developments Increased Equity
Ownership in Shanghai Solutions On April 10, 2008, VanceInfo signed
a definitive agreement to acquire an additional 10% of Shanghai
Solutions, a 75% owned subsidiary of the company, from NEC System
Technologies Ltd. ("NECST"), a subsidiary of NEC Corporation. In
connection with the transaction, NECST will receive $0.1 million in
cash and 58,348 ordinary shares of VanceInfo Technologies Inc.,
which will be subject to a staggered lockup period of up to three
years. The transaction will further strengthen the relationship
between VanceInfo and NECST, which is one of the company's top 10
customers. Opening of New Delivery Center During the first quarter
of 2008, the company opened a new delivery center in Chengdu, a
city in southwest China. The opening of the new office is part of
the company's strategy to further expand into select second-tier
cities in China to utilize the local engineering talents with
relatively lower costs in the regions. Acquisition of Professional
Team in Support of Huawei On April 30, 2008, the company acquired a
team of engineers from Shenzhen Createam Software Development Co.,
Ltd. ("Createam"), a small Shenzhen-based supplier to Huawei
Technologies. Approximately 80 experienced IT professionals joined
the company in connection with the transaction, which enhanced
VanceInfo's workforce in Shenzhen, where Huawei is headquartered.
The move provides the opportunity to further strengthen VanceInfo's
relationship with Huawei, which is consolidating service providers
in an effort to achieve higher efficiency and service quality. The
acquisition consideration is not material to VanceInfo. Huawei
Technologies is a leader in the next generation telecommunications
networks. VanceInfo provides software development and testing
services to Huawei in business software, mobile terminals, wireless
systems and IT services. In March 2008, Huawei Software ranked
VanceInfo as its Number One vendor for R&D services.
Enhancement in Management Structure David Chen, previously Chief
Operating Officer of VanceInfo, was appointed President of the
company effective March 7, 2008. He is also a member of the newly
formed CEO Office, along with CEO Chris Chen and CFO Sidney Huang.
During the first quarter 2008, the company established a Corporate
Planning Department that reports directly to the CEO Office and
helps drive the implementation of the company's strategic
initiatives. Outlook for the Second Quarter and Full Year 2008
VanceInfo expects to generate net revenues between US$22 million
and US$23 million in the second quarter of 2008, representing a 47%
to 54% increase from the second quarter of 2007. Second quarter
diluted EPS is expected to be approximately US$0.08 on a GAAP basis
and US$0.09 on a non-GAAP basis, which excludes share-based
compensation, based on 40.5 million total ADS-equivalent average
shares outstanding. Strong fundamental outlook is partially offset
by lower interest income and higher potential income tax
provisions. Based on the company's current understanding of the new
Chinese Enterprise Income Tax Regulation, the company estimates its
effective tax rate for 2008 at this time to be between 8% and 16%.
There are currently divergent views on how the new regulation will
be implemented. The company's ultimate applicable tax rate will
depend on many factors, including whether its main operating entity
will receive a renewal of its High and New Technology Enterprise
status under the new regulation and whether any of the proposed
preferential tax rules for software enterprises are materialized.
For the full year 2008, the company maintains the guidance that it
provided in its fourth quarter 2007 earnings release and expects:
-- Net revenues to be between US$92 million and US$96 million,
representing a 47% to 53% increase from 2007. -- Diluted EPS to be
between US$0.34 and US$0.38 on a GAAP basis, and non-GAAP diluted
EPS excluding share-based compensation to be between US$0.37 and
US$0.41, based on 40.6 million total ADS-equivalent average shares
outstanding. -- Total headcount by the end of 2008 to be between
4,800 and 5,000. Conference Call VanceInfo will host a conference
call and live webcast to discuss the quarter's results and outlook
at 8:30 a.m. Eastern Standard Time (8:30 p.m. Beijing/Hong Kong
time) on May 9, 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:
+1 866-800-8649 -- International dial-in number: +1 617-614-2703 --
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 12:00 p.m. EST, May 16,
2008 at +1 888-286-8010 or +1 617-801-6888; Passcode: 68101204.
About VanceInfo VanceInfo Technologies Inc. is an IT service
provider and one of the leading offshore software development
companies in China. VanceInfo ranked among the top three Chinese
offshore software development service providers for the North
American and European markets as measured by 2006 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 Second 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 growth 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 May 9, 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) March 31 December 31 2008 2007 Assets Current assets
Cash and cash equivalents $76,836 $78,206 Accounts receivable
27,608 24,708 Other current assets 5,953 5,879 Total current assets
110,397 108,793 Property and equipment, net 9,157 7,999 Goodwill
and other intangible assets 14,669 11,701 Other long-term assets
1,079 583 Total assets $135,302 $129,076 Liabilities, minority
interest, and shareholders' equity Current liabilities $18,310
$17,114 Other liabilities 1,159 954 Total liabilities 19,469 18,068
Minority interest 606 630 Shareholders' equity (a) 115,227 110,378
Total liabilities, minority interest, and shareholders' equity
$135,302 $129,076 (a) As of March 31, 2008, there were 37,198,907
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
March 31, 2008 2007 Net revenues $20,502 $10,435 Cost of revenues
(1) 12,718 6,493 Gross Profit 7,784 3,942 Selling and marketing
expenses (1) 978 284 General and administrative expenses (1) 4,343
2,339 Other operating income 144 1 Income from operations 2,607
1,320 Interest Income 667 210 Interest expenses 23 -- Foreign
currency exchange gains (losses) 376 (73) Change in fair value of
warrants -- 41 Income before income taxes and minority interest
3,627 1,416 Provision for income taxes 591 107 Income before
minority interest 3,036 1,309 Minority Interest 24 (25) Net Income
$3,060 $1,284 Earnings per share Basic - ordinary share $0.08 $0.02
Basic - Series A convertible redeemable preferred share N/A 0.06
Basic - Series B-1 convertible redeemable preferred share N/A 0.06
Basic - Series B-2 convertible redeemable preferred share N/A 0.08
Diluted - ordinary share 0.08 0.02 Weighted average shares
outstanding Basic - ordinary share 37,199 8,802 Basic - Series A
convertible redeemable preferred share -- 7,175 Basic - Series B-1
convertible redeemable preferred share -- 2,990 Basic - Series B-2
convertible redeemable preferred share -- 6,380 Diluted - ordinary
share 40,188 9,669 (1) Depreciation and amortization expenses
totaled $0.8 million and $0.4 million for the three months ended
March 31, 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 March 31, Three Months Ended March
31, 2008 2007 GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Net income $3,060 $346 (a) $3,406 $1,284 $223 (b) $1,507 Net margin
14.9% 1.7% (a) 16.6% 12.3% 2.1% (b) 14.4% Average shares (c) 40,188
-- 40,188 9,669 18,141 27,810 Diluted EPS $0.08 -- (d) $0.08 $0.02
$0.03 (d) $0.05 Notes: (a) Adjustment to exclude share-based
compensation of $346 from operations of which $58 was reported in
cost of revenues, $45 was reported in selling and marketing
expenses and $243 was reported in general and administrative
expenses in the unaudited condensed consolidated statements of
operations. (b) Adjustment to exclude share-based compensation of
$223 from operations of which $18 was reported in cost of revenues,
$10 was reported in selling and marketing expenses and $195 was
reported in general and administrative expenses in our unaudited
condensed consolidated statements of operations. (c) Represent
weighted average number of ordinary and dilutive shares outstanding
(d) Non-GAAP diluted EPS is computed by dividing Non-GAAP net
income by the weighted average number of ordinary and dilutive
shares outstanding for the respective periods plus the number of
ordinary shares resulting from the assumed conversion of the Series
A, B-1, B-2 and B-3 convertible redeemable preferred shares as of
the beginning of the prior year period. For further information,
please contact: Melissa Ning Director, Investor Relations VanceInfo
Technologies Inc. Tel: +86-10-8282-5330 Email: Tip Fleming
Christensen Tel: +852-2117-0861 Email: Peter Homstaad Christensen
Tel: +1-480-614-3000 Email: DATASOURCE: VanceInfo Technologies Inc.
CONTACT: Melissa Ning, Director, Investor Relations of VanceInfo
Technologies Inc., +86-10-8282-5330, or ; Tip Fleming of
Christensen, +852-2117-0861, or ; Peter Homstaad of Christensen,
+1-480-614-3000, or Web Site: http://ir.vanceinfo.com/
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