BEIJING, Feb. 24 /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
fourth quarter and full year ended December 31, 2008. Fourth
Quarter and Full Year 2008 Financial and Operating Highlights --
Net revenues for the fourth quarter 2008 increased to $30.1
million, up 56.1 % from the fourth quarter of 2007. -- Net income
for the fourth quarter 2008 was $5.2 million, up 67.7% from the
fourth quarter of 2007. Non-GAAP net income, which excludes
share-based compensation expense, was $5.6 million, compared to
$3.4 million a year ago. Diluted earnings per share ("EPS") and
non-GAAP diluted EPS for the quarter were $0.13 and $0.14,
respectively. -- Net revenues for the full year 2008 were $102.7
million, up 63.7% from 2007. -- Gross margin for the full year 2008
remained stable at 38.7%, compared to 38.5% in 2007. Operating
margin was 14.3% in 2008, compared to 14.1% in 2007. -- Net income
for full year 2008 was $16.2 million, up 69.0% from 2007. Non-GAAP
net income, which excludes share-based compensation expense, was
$17.6 million, up 66.2% from the previous year. Diluted EPS and
non-GAAP diluted EPS for 2008 were $0.40 and $0.43, respectively.
-- Employees totaled 5,457, including 4,841 billable professionals,
as of December 31, 2008. "We are very pleased to deliver these
strong quarterly and full year results to our investors in this
increasingly challenging economic environment," said Mr. Chris
Chen, Chairman and Chief Executive Officer of VanceInfo. "With
prudent expansion strategy and solid execution, VanceInfo continued
to exceed expectations in the fourth quarter and throughout 2008
despite the turbulence in the global economy. Looking forward, we
see continued demand and rising interest in our services from both
Chinese companies and multinationals seeking cost effective
solutions and geographic diversification. On the supply side, we
see an ever growing talent pool, including many western educated
returnees, with all levels of experience and expertise, ready to
take on the most sophisticated R&D and IT projects in the
world. The Chinese government has also solidified its support to
the outsourcing industry, providing various incentives to foster
the offshore outsourcing sector. We believe these favorable factors
will help mitigate the impact of a weak global economic environment
and support our relatively strong growth in 2009." Fourth 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 fourth quarter of 2008 and the fourth quarter of 2007
as in the following paragraphs. Net Revenues Net revenues in the
fourth quarter of 2008 increased to $30.1 million, up 56.1% from
$19.3 million in the fourth quarter of 2007. The increase was
primarily due to strong growth from domestic clients and stable
revenue streams from key multinational accounts. Net Revenues by
Service Lines VanceInfo's business includes two broad sets of
services, R&D Outsourcing Services ("RDS"), which include
research & development services and globalization &
localization, and IT Outsourcing Services ("ITS"), which include
the remaining three service lines in the table below. Net revenues
from RDS were $19.1 million for the fourth quarter of 2008, up
66.6% from the year-ago period and accounted for 63.6% of the
Company's net revenues. The remarkable growth came from healthy
increase of business from major technology clients as well as
significant contribution from customers in the telecommunications
industry. Net revenues from ITS were $11.0 million in the fourth
quarter, up 40.6% from the same period in 2007 and accounted for
36.4% of the business. Three Months Ended Three Months Ended
December 31, 2008 December 31, 2007 (US dollars in thousands,
except percentages) Research & development services $18,019
59.9% $10,524 54.6% Globalization & localization 1,096 3.7% 950
4.9% Enterprise solutions 3,845 12.8% 3,138 16.3% Application
development & maintenance 5,029 16.7% 3,351 17.4% Quality
assurance & testing 2,085 6.9% 1,304 6.8% Total net revenues
$30,074 100.0% $19,267 100.0% Net Revenues by Geographic Markets
Based on the location of our clients' headquarters, net revenues
from the United States accounted for 50.2% of the total in the
fourth quarter of 2008, followed by 26.4% from China, 16.5% from
Europe and 6.7% from Japan. Contribution from China headquartered
clients has been rising momentously through 2008, as VanceInfo
expanded business with existing key accounts and secured quality
new clients as a result of the Company's enhanced capabilities and
brand recognition. Measuring the revenues by geographic markets
based on the location of contract signing entities, China accounted
for 70.8% of net revenues in the fourth quarter 2008, while the
United States and Japan accounted for 18.9% and 7.0%, respectively.
This supplemental analysis presents an additional measure for
assessing the Company's geographic participation and highlights its
exposure to the relatively healthy Chinese market. Largest Clients
The total revenues from the Company's five largest clients
accounted for 56.0% of the Company's net revenues in the fourth
quarter of 2008, compared to 49.1% in the fourth quarter of 2007.
Two of the top five accounts grew significantly in the second half
of 2008 as a result of expanded client relationship during the
period. Gross Profit and Gross Margin Gross profit in the fourth
quarter of 2008 was $11.5 million, an increase of 55.2% year over
year. Gross margin maintained at 38.3%, compared to 38.6% in the
fourth quarter of 2007. Operating Income and Operating Margin
Operating income in the fourth quarter of 2008 was $4.1 million, up
53.4% from $2.7 million in the fourth quarter 2007. Operating
margin maintained at 13.7% in the fourth quarter of 2008, compared
to 13.9% in the year-ago period. Provision for Income Taxes For the
first three quarters of 2008, the Company applied a 12.5% income
tax rate for its main Chinese operating entity assuming the entity
did not qualify as a High and New Technology Enterprise ("HNTE")
due to uncertainties under the new PRC tax laws. In the fourth
quarter, the entity was reaffirmed of the HNTE status. Accordingly,
the entity has used the reduced applicable tax rate of 7.5% in the
calculation of current and deferred tax balances for years 2008 to
2010. As a result, the Company recorded an income tax reversal of
approximately $0.7 million in the fourth quarter of 2008. Net
Income and EPS Net income in the fourth quarter of 2008 was $5.2
million, up 67.7% from $3.1 million in the fourth quarter of 2007.
Net margin was 17.4% in the fourth quarter of 2008, up from 16.2%
in the fourth quarter of 2007. Non-GAAP net income, which excludes
share-based compensation expense, was $5.6 million, up 63.9% from
$3.4 million a year ago. Non-GAAP net margin was 18.5%, up from
17.7% in the prior year period. Diluted EPS was $0.13, and non-GAAP
diluted EPS, which excludes share-based compensation expense, was
$0.14 in the fourth 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."
Full Year 2008 Financial Results Net Revenues Net revenues for the
year 2008 were $102.7 million, up 63.7% from $62.7 million in 2007.
The increase was driven primarily by strong organic growth from
further penetration and cross selling into key clients and the
addition of quality new customers. Net Revenues by Service Lines
Net revenues generated from RDS in 2008 were $65.1 million, up
63.1% compared with 2007 and accounted for 63.4% of the Company's
net revenues for the year. Net revenues from ITS grew 64.8%
compared with 2007, as the Company expanded its service offerings
and moved aggressively into new accounts, particularly China-based
clients, during the year. Largest Clients Net revenues from the
five largest clients accounted for 53.8% of the Company's net
revenues in 2008, compared to 53.7% in 2007. Gross Profit and Gross
Margin Gross profit for the full year 2008 was $39.8 million, an
increase of 64.5% from 2007. Gross margin was 38.7% in 2008,
compared to 38.5% in 2007. Operating Income and Operating Margin
Operating income in 2008 was $14.7 million, up 66.2% from $8.9
million for the year 2007. Operating margin maintained at 14.3% in
2008, compared to 14.1% in 2007. Provision for Income Taxes For the
full year 2008, the Company incurred income tax expenses of $1.3
million with an effective tax rate of approximately 7.5%. Excluding
a $0.2 million reversal of prior year income tax provision due to
the Company's newly obtained preferential tax status, the effective
tax rate for 2008 would have been 8.9%. Net Income and EPS Net
income for the full year 2008 was $16.2 million, up 69.0% from $9.6
million in 2007. Net margin was 15.8% in 2008, an improvement of 50
basis points from 15.3% in 2007. Non-GAAP net income, which
excludes share-based compensation expense, was $17.6 million, up
from $10.6 million in 2007. Non- GAAP net margin for the full year
2008 was 17.1%, compared with 16.8% in 2007. Diluted EPS was $0.40,
and non-GAAP diluted EPS, which excludes share-based compensation
expenses, was $0.43 for the full year 2008. Recent Developments
Acquisition of Professional Team in Support of Huawei On January 1,
2009, VanceInfo acquired a team of engineers from Guangzhou Kernel
Technology Limited. ("Kernel"), a small China-based supplier
providing customized application development services to Huawei
Technologies in the areas of Business Support Systems ("BSS"),
Operation Support Systems ("OSS"), Business Intelligence and Color
Ring Back Tone Platform. Over 150 IT professionals from Kernel's
offices in Guangzhou, Shenzhen and Nanjing joined the Company in
connection with the transaction. The acquisition further
strengthens VanceInfo's relationship with Huawei, which is
consolidating service providers in an effort to achieve higher
efficiency and service quality. VanceInfo will leverage Kernel's
team to launch its Guangzhou office to expand its service coverage
in southern China. The acquisition consideration is not material to
VanceInfo. Huawei Technologies is a leader in the next generation
telecommunications networks. In March 2008, Huawei Software ranked
VanceInfo as its Number One vendor for R&D services. Share
Repurchase Plan On February 21, 2009, the Company's Board of
Directors approved a share repurchase program authorizing the
Company to acquire up to $10 million worth of the Company's
outstanding American Depositary Shares ("ADSs") within the next 12
months. The repurchases will be made from time to time at
management's discretion in the open market or in negotiated
transactions in accordance with Rule 10b-18 under the Securities
Exchange Act of 1934, subject to market conditions, the trading
price of the ADSs and other factors. VanceInfo's management expects
to implement the share repurchase plan in a manner consistent with
the market conditions and the best interest of the Company and its
shareholders. Outlook for the First Quarter and Full Year 2009
Based on current global economic weakness and uncertain outlook,
the Company now expects: -- First quarter 2009 net revenues to be
between $27.5 million and $28.5 million, representing a 34% to 39%
increase from the corresponding period in 2008. -- First quarter
2009 diluted EPS to be between $0.08 and $0.09 on a GAAP basis, and
non-GAAP diluted EPS excluding share-based compensation to be
between $0.09 and $0.10, based on 40.3 million total ADS-equivalent
average shares outstanding. -- The first quarter guidance reflects
strong seasonality effect from the extended Chinese New Year
holiday as the Company's revenue contribution from China increased
significantly during the past year. -- 2009 net revenues to be at
least $123 million, up at least 20% from 2008. -- 2009 diluted EPS
to be at least $0.46 on a GAAP basis, and at least $0.49 on a
non-GAAP basis, based on 40.6 million total ADS-equivalent average
shares outstanding. -- The EPS outlook assumes an effective income
tax rate between 8% and 10%. "We recognize the challenges of
providing a credible guidance in light of the unprecedented
uncertainties we all face today," Mr. Chris Chen commented,
"Through dialogues with our existing and potential customers, we
continue to see signs of a profound shift toward China-based
outsourcing, driven by globalization, diversification and cost
optimization initiatives. Nevertheless, we have eliminated
substantially all potential upside from our guidance that we feel
is without clear visibility. Should the macro economic environment
stabilize later this year, we believe that VanceInfo is among the
best positioned to capture this remarkable trend and resume a
faster pace of growth than the current guidance. The newly approved
share repurchase program is reflective of our confidence, and we
believe it is in the best interest of VanceInfo and its
shareholders in this highly volatile market environment."
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, February 24, 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 Number: +1
800-901-5231 -- International Dial-in Number: +1 617-786-2961 --
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 March 3, 2009 at +1
888-286-8010 or +1 617-801-6888; Passcode: 19165372 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 First Quarter and 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, including its registration statement on Form F-1. All
information provided in this news release and in the attachments is
as of February 24, 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 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. The reconciliations of the
forward-looking 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 we
can reasonably predict. VanceInfo Technologies Inc. Condensed
Consolidated Balance Sheets (Unaudited) (US dollars in thousands)
December 31 December 31 2008 2007 Assets Current assets Cash and
cash equivalents $79,963 $76,835 Term deposit 1,466 1,371 Accounts
receivable 36,827 24,708 Other current assets 3,369 5,879 Total
current assets 121,625 108,793 Property and equipment, net 11,260
7,999 Goodwill and other intangible assets 19,445 11,701 Other
long-term assets 2,871 583 Total assets $155,201 $129,076
Liabilities, minority interest, and shareholders' equity Current
liabilities $23,339 $17,114 Other liabilities 1,886 954 Total
liabilities 25,225 18,068 Minority interest -- 630 Shareholders'
equity (a) 129,976 110,378 Total liabilities, minority interest,
and shareholders' equity $155,201 $129,076 Note: (a) As of December
31, 2008, there were 37,336,575 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 Years ended December 31,
December 31, 2008 2007 2008 2007 Net revenues $30,074 $19,267
$102,663 $62,714 Cost of revenues (1) 18,549 11,839 62,911 38,544
Gross profit 11,525 7,428 39,752 24,170 Selling and marketing
expenses (1) 1,152 905 4,280 2,342 General and administrative
expenses (1) 6,416 4,564 21,625 13,838 Other operating income 155
721 858 860 Income from operations 4,112 2,680 14,705 8,850
Interest income 334 386 2,028 1,032 Interest expenses 2 27 69 47
Foreign currency exchange gains 441 185 703 317 Change in fair
value of warrants -- -- -- 357 Income before income taxes, earnings
in equity investment and minority interest 4,885 3,224 17,367 9,795
Provision for income taxes (318) 143 1,298 174 Income before
earnings in equity investment and minority interest 5,203 3,081
16,069 9,621 Minority interest -- 33 84 (52) Earnings in equity
investment 20 -- 20 -- Net income $5,223 $3,114 $16,173 $9,569
Earnings per share Basic - ordinary shares $0.14 $0.08 $0.43 $0.22
Basic - Series A convertible redeemable preferred shares N/A 0.12
N/A 0.40 Basic - Series B-1 convertible redeemable preferred shares
N/A 0.12 N/A 0.40 Basic - Series B-2 convertible redeemable
preferred shares N/A 0.16 N/A 0.51 Basic - Series B-3 convertible
redeemable preferred shares N/A 0.08 N/A 0.22 Diluted - ordinary
shares 0.13 0.07 0.40 0.19 Weighted average shares outstanding (in
thousands) Basic - ordinary shares 37,315 15,254 37,276 11,426
Basic - Series A convertible redeemable preferred shares N/A 5,980
N/A 6,860 Basic - Series B-1 convertible redeemable preferred
shares N/A 2,503 N/A 2,867 Basic - Series B-2 convertible
redeemable preferred shares N/A 5,340 N/A 6,118 Basic - Series B-3
convertible redeemable preferred shares N/A 308 N/A 78 Diluted -
ordinary shares 40,238 18,266 40,680 13,446 Note: (1) Depreciation
and amortization expenses totaled $1,138 and $746 for the three
months ended December 31, 2008 and 2007, respectively, and $3,917
and $2,474 for the years ended December 31, 2008 and 2007,
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 December 31, 2008 GAAP Adjustments Non-GAAP Net income $5,223
$351 (a) $5,574 Net margin 17.4% 1.1% (a) 18.5% Average shares (e)
40,238 -- 40,238 Diluted EPS $0.13 $0.01 (f) $0.14 Twelve Months
Ended December 31, 2008 GAAP Adjustments Non-GAAP Net income
$16,173 $1,391 (b) $17,564 Net margin 15.8% 1.3% (b) 17.1% Average
shares (e) 40,680 -- 40,680 Diluted EPS $0.40 $0.03 (f) $0.43 Three
Months Ended December 31, 2007 GAAP Adjustments Non-GAAP Net income
$3,114 $287 (c) $3,401 Net margin 16.2% 1.5% (c) 17.7% Average
shares (e) 18,266 15,466 33,732 Diluted EPS $0.07 $0.03 (f) $0.10
Twelve Months Ended December 31, 2007 GAAP Adjustments Non-GAAP Net
income $9,569 $996 (d) $10,565 Net margin 15.3% 1.5% (d) 16.8%
Average shares (e) 13,446 17,453 30,899 Diluted EPS $0.19 $0.15 (f)
$0.34 Notes: (a) Adjustment to exclude share-based compensation of
$351 from operations of which $76 was reported in cost of revenues,
$39 was reported in selling and marketing expenses and $236 was
reported in general and administrative expenses in the unaudited
condensed consolidated statements of operations. (b) Adjustment to
exclude share-based compensation of $1,391 from operations of which
$265 was reported in cost of revenues, $176 was reported in selling
and marketing expenses and $950 was reported in general and
administrative expenses in the unaudited condensed consolidated
statements of operations. (c) Adjustment to exclude share-based
compensation of $287 from operations of which $43 was reported in
cost of revenues, $39 was reported in selling and marketing
expenses and $205 was reported in general and administrative
expenses in the unaudited condensed consolidated statements of
operations. (d) Adjustment to exclude share-based compensation of
$996 from operations of which $111 was reported in cost of
revenues, $76 was reported in selling and marketing expenses and
$809 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, B-2 and B-3 convertible redeemable preferred
shares as of the beginning of the prior year period. VanceInfo
Technologies Inc. Reconciliations of Forward-Looking Guidance for
Non-GAAP Financial Measures to Comparable GAAP Measures (US dollars
in thousands, except per share data) (Unaudited) Three Months Ended
Twelve Months Ended March 31, 2009 December 31, 2009 GAAP
Adjustments Non-GAAP GAAP Adjustments Non-GAAP Range of Range of
Estimate Estimate From To From To Diluted $0.08 $0.09 $0.01 (B)
$0.09 $0.10 $0.46 $0.03 (B) $0.49 EPS(A) (A) Based on 40.3 million
and 40.6 million total ADS-equivalent average shares outstanding
for the first quarter and full year 2009, respectively. (B)
Reflects estimated adjustment for share-based compensation expense
of approximately $0.3 million for the first quarter 2009 and $1.3
million for the full year 2009. DATASOURCE: VanceInfo Technologies
Inc. CONTACT: Melissa Ning, Director, Investor Relations of
VanceInfo Technologies Inc., +86-10-8282-5330, or Web site:
http://ir.vanceinfo.com/
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