-- Net revenues increased 64% year-over-year to US$34.7 million -- Income from operations increased 128% year-over-year to US$4.3 million -- Diluted earnings per American depositary share ("ADS") was US$0.17
BEIJING, Aug. 18 /PRNewswire-Asia-FirstCall/ -- HiSoft Technology International Limited, ("HiSoft" or the "Company") , a leading China-based provider of outsourced information technology and research and development services headquartered in Dalian, China, today announced its unaudited financial results for the second quarter ended June 30, 2010.
Second Quarter 2010 Highlights -- Net revenues increased 63.9% year-over-year to US$34.7 million for the second quarter of 2010 from US$21.2 million for the corresponding period in 2009 -- Gross margin for the second quarter of 2010 was 37.2%, compared to 35.8% for the corresponding period in 2009 -- Income from operations increased 127.7% year-over-year to US$4.3 million for the second quarter of 2010 from US$1.9 million for the corresponding period in 2009 -- Diluted earnings per ADS was US$0.17 for the second quarter of 2010, compared to US$0.09 for the corresponding period in 2009 -- Non-GAAP diluted earnings per ADS(1) was US$0.24 for the second quarter of 2010, compared to US$0.09 for the corresponding period in 2009 (1) Non-GAAP net income, Non-GAAP diluted earnings per ADS and related margins exclude share-based compensation expense, amortization of acquired intangible assets and change in fair value of contingent consideration payable for business acquisition. The non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying sections of "Non-GAAP Financial Measures" and "Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures" at the end of the press release.
"This was a very strong quarter as we continued along a robust growth trajectory," said HiSoft's Chief Executive Officer Tiak Koon Loh. "During the second quarter, we had positive momentum across all business sectors and higher levels of strategic engagement from our key customers. We are seeing a substantial increase in the volume of work coming from within the domestic China market. These results further substantiate the strength of the HiSoft model of leveraging best practices and know-how with our global clients to grow our domestic business with China enterprises."
HiSoft's Chief Financial Officer Christine Lu-Wong added, "We believe our second quarter growth is indicative of our strong position in the market. We recorded strong net revenues, generated strong operating cash flow and continued to maintain days sales outstanding at levels much lower than industry norms. Building upon this advantage, while maintaining disciplined cost control, will be our main priority in the quarters ahead."
Second Quarter 2010 Financial Results Net Revenues
Net revenues were US$34.7 million for the second quarter of 2010, an increase of 63.9% year-over-year from US$21.2 million for the corresponding period in 2009. The increase reflects a strong demand for the Company's information technology and research and development services.
Net Revenues by Geographic Markets
Based on the location of clients' headquarters, the Company's largest geographic market, the United States and European markets, accounted for US$23.4 million or 67.3% of net revenues during the second quarter of 2010, followed by 21.3% in Japan, 6.5% in Greater China and4.9% in Others.
Measuring the Company's revenues by geographic markets based on the location of the contract signing entities, Greater China accounted for 32.8% of net revenues in the second quarter of 2010, while the United States and European markets accounted for 26.4%, Japan accounted for 25.8% and Others accounted for 15.0%.
Largest Clients
Revenues from the Company's top client and top five clients accounted for 13.9% and 44.8% of net revenues, respectively, during the second quarter of 2010, compared to 15.3% and 44.5% respectively, for the corresponding period in 2009.
Gross Profit and Gross Margin
Gross profit was US$12.9 million for the second quarter of 2010, an increase of 70.1% year-over-year from US$7.6 million for the corresponding period in 2009. During the second quarter of 2010, gross margin was 37.2%, compared to 35.8% for the corresponding period in 2009. The Company noted that gross margin was driven by strong net revenue growth and productivity improvement in service delivery during the quarter.
Operating Expenses
Total operating expenses, which includes general and administrative expenses as well as sales and marketing expenses, were US$8.6 million for the second quarter of 2010, an increase of 50.9% year-over-year from US$5.7 million for the corresponding period in 2009. The year-over-year increases included US$1.0 million share-based compensation expense, US$0.2 million amortization expense of intangible assets and US$0.2 million change in fair value of contingent consideration payable for M&A incurred in the second quarter of 2010.
Operating Income and Operating Margin
Income from operations for the second quarter of 2010 was US$4.3 million, an increase of 127.7% year-over-year from US$1.9 million for the corresponding period in 2009. Operating margin increased to 12.4% for the second quarter of 2010, compared to 8.9% for the corresponding period in 2009. The year-over-year margin improvement was primarily due to economies of scale in line with strong revenue growth.
Provision for Income Taxes
The provision for income taxes was US$0.7 million for the second quarter of 2010, compared to US$0.2 million for the corresponding period in 2009. For the second quarter of 2010, the effective tax rate was 14.7%, compared to 12.6% for the corresponding period in 2009. The increase in effective tax rate was due to a new tax circular: Further Clarification on Implementation of Preferential EIT Rate ("Circular 157"), issued by the State Administration of Taxation on April 21, 2010. Circular 157, appears to have the effect that an HNTE entity in a tax holiday period is entitled to pay tax at either the lower of 15% or50% of the applicable PRC tax rate. Circular 157 is unclear as to whether its effect is retrospective but the Company notes that the State Administration of Taxation has recently taken the position that the Circular applies only to tax years commencing from January 1, 2010. Depending on the interpretation of the circular by the local tax authority, the applicable tax rate for the Company's Beijing operating subsidiary in 2010 may increase to 12.5% from the 7.5% rate that the subsidiary used in the first quarter of 2010. The Company has now provided for a 12.5% income tax rate for the subsidiary in the first half of 2010 and will seek to determine the appropriate interpretation with the relevant tax authority during the second half of the year.
Net Income and Earnings per ADS
Net income was US$3.8 million for the second quarter of 2010, an increase of 122.7% from US$1.7 million for the corresponding period in 2009. Diluted earnings per ADS was US$0.17 for the second quarter of 2010, compared to US$0.09 for the corresponding period in 2009.
Non-GAAP net income was US$5.4 million for the second quarter of 2010, an increase of 187.1% from US$1.9 million for the corresponding period in 2009. Non-GAAP diluted earnings per ADS was US$0.24 for the second quarter of 2010, compared to US$0.09 for the corresponding period in 2009.
Cash and Cash Flow
As of June 30, 2010, HiSoft had cash and cash equivalents and restricted cash totaling US$51.9 million. Operating cash flow for the second quarter of 2010 was an inflow of approximately US$3.1 million.
Days sales outstanding was 85 days for the second quarter of 2010, compared to 82 days for the corresponding period in 2009.
First Half 2010 Financial Results Net Revenues
Net revenues were US$65.2 million for the first half of 2010, an increase of 52.7% year-over-year from US$42.7 million for the corresponding period in 2009.
Gross Profit and Gross Margin
Gross profit was US$24.0 million for the first half of 2010, an increase of 56.7% year-over-year from US$15.3 million for the corresponding period in 2009. For the first half of 2010, gross margin was 36.8%, compared to 35.9% for the corresponding period in 2009.
Operating Expenses
Total operating expenses were US$16.4 million, an increase of 32.1% year-over-year from US$12.4 million for the corresponding period in 2009.
Operating Income and Operating Margin
Income from operations for the first half of 2010 was US$7.6 million, an increase of 162.8% year-over-year from US$2.9 million for the corresponding period in 2009. Operating margin improved to 11.6% for the first half of 2010, compared to 6.8% for the corresponding period in 2009.
Net Income and Earnings per ADS
Net income was US$6.7 million for the first half of 2010, an increase of 135.2% from US$2.9 million for the corresponding period in 2009. Diluted earnings per ADS was US$0.30 for the first half of 2010, compared to US$0.15 for the corresponding period in 2009.
Non-GAAP net income was US$9.3 million for the first half of 2010, an increase of 183.3% from US$3.3 million for the corresponding period in 2009. Non-GAAP diluted earnings per ADS was US$0.41 for the first half of 2010, compared to US$0.17 for the corresponding period in 2009.
Recent Business Developments
On June 30, 2010, HiSoft completed an initial public offering of a total of 8,510,000 ADSs at a public offering price of US$10.00 per ADS. The Company sold a total of 7,261,667 ADSs and the selling shareholders sold a total of 1,248,333 ADSs. Net proceeds to the Company from the offering were approximately US$66.4 million, after deducting underwriting discounts and commissions as well as offering expenses payable by the Company. These proceeds were received in July of 2010.
Outlook for Third Quarter and Full Year 2010
For the third quarter 2010, based on current market and operating conditions, the Company expects:
-- Net revenues to be in the estimated range of US$35.5 million to US$36.5 million, representing an expected growth rate between 56.0% to 60.4% year-over-year -- Diluted earnings per ADS to be in the estimated range of US$0.13 to US$0.14, representing an expected growth rate of between 30.0% to 40.0% year-over-year, based on 30.0 million weighted average ADSs outstanding -- Non-GAAP diluted earnings per ADS to be in the estimated range of US$0.17 to US$0.18, representing an expected growth rate of between 54.5% to 63.6% year-over-year, based on 30.0 million weighted average ADSs outstanding
For the full year 2010, based on current market and operating conditions, the Company expects:
-- Net revenues to be in the estimated range of US$139 million to US$142 million, representing an expected growth rate between 52.0% to 55.3% year-over-year -- Diluted earnings per ADS to be in the estimated range of US$0.56 to US$0.59representing an expected growth rate between 55.6% to 63.9% year-over-year, based on 26.5 million weighted average ADSs outstanding -- Non-GAAP diluted earnings per ADS to be in the estimated range of US$0.74 to US$0.77, representing an expected growth rate of between 76.2% to 83.3% year-over-year, based on 26.5 million weighted average ADSs outstanding
The diluted earnings per ADS outlook assumes an effective income tax rate between 13% to 15%.
Second Quarter 2010 Conference Call Details
HiSoft management will hold an earnings conference call at 8:00 a.m. US Eastern Time on August 19, 2010 (8:00 p.m. Beijing/Hong Kong Time on August 19, 2010). Management will discuss results and highlights of the quarter and answer questions from investors.
The dial-in numbers for the conference call are as follows: U.S. Toll Free: +1-877-887-1134 International Toll Number: +1-412-317-0794
The conference call will be broadcast live over the Internet and can be accessed by clicking the following link: http://www.corpasia.net/cancast/us/index.php?id=usHSFT_8&version=e
Additionally, an archived web cast of this call will be available on the Investor Relations section of the HiSoft web site at http://www.hisoft.com/ .
About HiSoft Technology International Limited
HiSoft Technology International Limited is a leading China-based provider of outsourced information technology and research and development services headquartered in Dalian, China. HiSoft provides its services to leading companies around the world through a combination of onshore and offshore delivery capabilities. HiSoft leverages its skilled technology specialists and client-centric delivery centers to offer customers reliable and high-quality technology solutions. For more information about HiSoft, please visit http://www.hisoft.com/ .
Safe Harbor Statement
This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "target," "going forward," "outlook" and similar statements. Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond HiSoft's control, which may cause HiSoft's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in HiSoft's filings with the U.S. Securities and Exchange Commission. HiSoft 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.
Non-GAAP Financial Measures
To supplement HiSoft's consolidated financial results presented in accordance with GAAP, HiSoft uses the following measures defined as non-GAAP financial measures by the SEC: net income and diluted earnings per ADS which exclude share-based compensation expense, amortization of acquired intangible assets and change in fair value of contingent consideration payable for business acquisition. Non-GAAP net income and diluted earnings per ADS 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.
HiSoft 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 earnings per ADS is that these non-GAAP measures exclude the share-based compensation charges, amortization of acquired intangible assets and change in fair value of contingent consideration payable for business acquisition 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.
HISOFT TECHNOLOGY INTERNATIONAL LIMITED Condensed Consolidated Balance Sheets (Unaudited) (U.S. dollars in thousands, except ADS data and per ADS data) June December 30, 2010 31, 2009 ASSETS Current Assets Cash and cash equivalents 51,515 54,842 Restricted cash 376 335 Account receivable, net 35,783 24,473 Other current assets 62,682 2,215 Total current assets 150,356 81,865 Property, plant and equipment, net 7,176 7,203 Goodwill and intangible assets, net 16,334 12,126 Other long-term assets 4,355 3,048 Total assets 178,221 104,242 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities 33,866 24,750 (including current liabilities of the consolidated variable interest entity without recourse to HiSoft Technology International Limited of $228 and $227 as of June 30, 2010 and December 31, 2009, respectively) Other liabilities 1,810 1,401 Total liabilities 35,676 26,151 Convertible redeemable preferred shares -- 89,031 Total HiSoft Technology International Limited shareholder's (deficit)/Equity 142,545 (10,940) Total liabilities, Convertible redeemable preferred shares and (Deficit)/Equity 178,221 104,242 HISOFT TECHNOLOGY INTERNATIONAL LIMITED Condensed Consolidated Statements of Operations (Unaudited) (U.S. dollars in thousands, except ADS data and per ADS data) Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 Net revenues 34,694 21,168 65,231 42,705 Cost of revenues (21,794) (13,583) (41,212) (27,375) Gross profit 12,900 7,585 24,019 15,330 Operating expenses (8,588) (5,691) (16,438) (12,445) Income from operations 4,312 1,894 7,581 2,885 Other income 117 47 243 395 Net income before income tax expenses 4,429 1,941 7,824 3,280 Income tax expenses (650) (244) (1,078) (412) Net income 3,779 1,697 6,746 2,868 Net income per ADS Basic 0.18 0.09 0.32 0.15 Diluted 0.17 0.09 0.30 0.15 Weighted average ADS used in calculating net income per ADS Basic 5,085,958 4,507,097 4,909,644 4,495,370 Diluted 22,613,190 19,857,869 22,477,048 19,490,613 HISOFT TECHNOLOGY INTERNATIONAL LIMITED Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures (U.S. dollars in thousands, except per ADS data, ADS data and percentages) Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 GAAP operating income 4,312 1,894 7,581 2,885 GAAP operating margin 12.4% 8.9% 11.6% 6.8% Adjustments: - Share-based compensation 1,227 188 1,816 406 - Amortization of acquired intangible assets 200 -- 363 -- - Change in fair value of contingent consideration payable for M&A 205 -- 349 -- Non-GAAP operating income 5,944 2,082 10,109 3,291 Non-GAAP operating margin 17.1% 9.8% 15.5% 7.7% GAAP net income 3,779 1,697 6,746 2,868 GAAP net margin 10.9% 8.0% 10.3% 6.7% Adjustments: - Share-based compensation 1,227 188 1,816 406 - Amortization of acquired intangible assets 200 -- 363 -- - Change in fair value of contingent consideration payable for M&A 205 -- 349 -- Non-GAAP net income 5,411 1,885 9,274 3,274 Non-GAAP net margin 15.6% 8.9% 14.2% 7.7% Non-GAAP net income per ADS Basic 0.26 0.10 0.44 0.17 Diluted 0.24 0.09 0.41 0.17 Weighted average ADS used in calculating Non-GAAP net income per ADS Basic 5,085,958 4,507,097 4,909,644 4,495,370 Diluted 22,613,190 19,857,869 22,477,048 19,490,613 HISOFT TECHNOLOGY INTERNATIONAL LIMITED Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures (U.S. dollars in thousands, except per ADS data, ADS data and percentages) Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 GAAP basic net income per ADS 0.18 0.09 0.32 0.15 Adjustments: - Share-based compensation 0.06 0.01 0.09 0.02 - Amortization of acquired intangible assets 0.01 -- 0.02 -- - Change in fair value of contingent consideration payable for M&A 0.01 -- 0.01 -- Non-GAAP basic net income per ADS 0.26 0.10 0.44 0.17 GAAP diluted net income per ADS 0.17 0.09 0.30 0.15 Adjustments: - Share-based compensation 0.05 -- 0.08 0.02 - Amortization of acquired intangible assets 0.01 -- 0.02 -- - Change in fair value of contingent consideration payable for M&A 0.01 -- 0.01 -- Non-GAAP diluted net income per ADS 0.24 0.09 0.41 0.17 For investor and media inquiries please contact: In China: Mr. Ross Warner HiSoft Technology International Limited Tel: +86-10-5987-5827 Email: investor_relations@hiSoft.com Mr. Agustin Bautista Ogilvy Financial, Beijing Tel: +86-10-8520-6166 Email: hsft@ogilvy.com In the U.S.: Ms. Jessica Barist Cohen Ogilvy Financial, New York Tel: +1-646-460-9989 Email: hsft@ogilvy.com
HiSoft Technology International Limited
CONTACT: In China: Mr. Ross Warner, HiSoft Technology International
Limited, +86-10-5987-5827, or investor_relations@hisoft.com; or Mr. Agustin
Bautista, Ogilvy Financial, Beijing, +86-10-8520-6166, or hsft@ogilvy.com; or
In the U.S.: Ms. Jessica Barist Cohen, Ogilvy Financial, New York,
+1-646-460-9989, or hsft@ogilvy.com
Web site: http://www.hisoft.com/
http://www.corpasia.net/
