HONG KONG, Nov. 14, 2010 /PRNewswire-Asia/ -- Longtop Financial Technologies Limited ("Longtop") , a leading software developer and solutions provider targeting the financial services industry in China, announced today unaudited financial results for the quarter ended September 30, 2010, which is the second quarter of its fiscal year ending March 31, 2011.
FINANCIAL HIGHLIGHTS -- Total Software Development Revenues of US$55.5 million, an Increase of 50.0% Year-on-Year (YoY); -- Total Revenues of US$60.5 million, an Increase of 41.2% YoY; -- Adjusted(1) Operating Income of US$28.7 million, an Increase of 38.4% YoY; -- Adjusted Net Income of US$25.7 million, an Increase of 19.8% YoY; -- Adjusted Diluted Earnings Per Share of US$0.44, Three Cents Ahead of Company Guidance; -- Operating Cash flow of US$31.6 million, an Increase of 67.6% YoY; -- Full Year Revenue Guidance Increased to US$242.5 million and Adjusted EPS Guidance Increased to US$ 1.76
(1) Explanation of the Company's Adjusted (i.e. non-GAAP) financial measures and the related reconciliations to GAAP financial measures are included in the accompanying "Non-GAAP Disclosure" and the "Consolidated Adjusted Statements of Operations".
"The financial results of the second fiscal quarter have exceeded our Company guidance. I am pleased to see the ongoing strength in demand from across the full spectrum of our customer base. The outstanding revenue contribution from Other Banks reaffirms the success over the past four years in diversifying and expanding our customer base as well as last year's acquisition of Giantstone and its core banking capabilities. We continue to be highly positive on our outlook for the second half of the 2011 fiscal year," commented Weizhou Lian, CEO of Longtop. "Longtop's growth momentum and expanding market leadership are based on customers' trust in our quality solutions and service, and we will work hard to continue to deserve their loyalty."
FISCAL SECOND QUARTER DETAILED FINANCIAL RESULTS Revenue Q2 and FY2011 Revenue - US$000s Three months ended September September % Change 30, 2009 30, 2010 (Decrease) -------- -------- ---------- Software Development $36,995 $55,477 50.0% Other Services $5,839 $4,987 (14.6%) Total Revenue $42,834 $60,464 41.2% ======= ======= Six months ended September September % Change 30, 2009 30, 2010 -------- -------- -------- Software Development $61,712 $94,221 52.7% Other Services $9,615 $15,129 57.3% Total Revenue $71,327 $109,350 53.3% ======= ========
Software development revenues of US$55.5 million in the second quarter represented an increase of 50.0% YoY and contributed 91.8% of total revenues. Giantstone, a leading core banking solution provider in China acquired by Longtop in the fourth quarter of fiscal 2010, contributed US$4.1 million in software revenues in the quarter ended September 30, 2010. Excluding Giantstone, software development revenues for the second quarter would have increased by 39.0%. Software development revenues, which were 86.2% of total revenues for the six months ended September 30, 2010, amounted to US$94.2 million, a YoY increase of 52.7%. Giantstone contributed US$9.3 million in software development revenues in the six months ended September 30, 2010. Excluding Giantstone, software development revenues in the six months ended September 2010 would have increased by 37.6%.
Revenues from other services in the second quarter were US$5.0 million, a decrease of 14.6% YoY. The YoY decrease in Other Service revenue is due to a decline in auxiliary services and the deconsolidation of the Non Financial Services IT Outsourcing Services Division on July 17, 2010, which went from being a wholly owned subsidiary to an equity-method investee. The 57.3% YoY increase in other services revenues for the six months ended September 30, 2010 was primarily due to US$2.9 million in revenue from the IT outsourcing business of Shenzhen Zhongbokechuang Information Technology Co., Ltd., or Zhongbo, which was acquired by Longtop in April 2010 and included within the Non Financial Services IT Outsourcing Services Division.
Software Development Revenue by customer type - US$000s Three months ended September September % Change 30, 2009 30, 2010 -------- -------- -------- Big Four Banks $17,793 $23,633 32.8% Other Banks $12,477 $22,239 78.2% Insurance $5,181 $7,316 41.2% Enterprises $1,544 $2,289 48.3% Total $36,995 $55,477 50.0% ======= ======= Six months ended September September % Change 30, 2009 30, 2010 -------- -------- -------- Big Four Banks $28,808 $38,562 33.9% Other Banks $21,874 $40,630 85.7% Insurance $7,886 $11,218 42.3% Enterprises $3,144 $3,811 21.2% Total $61,712 $94,221 52.7% ======= =======
Software development revenues from the Big Four Banks in the second quarter were US$23.6 million, an increase of 32.8% YoY and US$38.6 million for the six months ended September 30, 2010, an increase of 33.9% YoY. Big Four Banks accounted for 41.0% of software development revenues for the six months ended September 30, 2010, as compared to 46.7% in the corresponding year ago period.
Software development revenues from Other Banks in the second quarter were US$22.2 million, a YoY increase of 78.2%, and US$40.6 million in the six month ended September 30, 2010, an increase of 85.7% YoY. Excluding Giantstone, software development revenue from Other Banks would have increased by 45.8% and 43.2% YoY for the three and six month ended September 30, 2010. Other Banks accounted for 43.1% of software development revenues for the six months ended September 30, 2010, as compared to 35.4% in the corresponding year ago period.
Software development revenues from Insurance in the second quarter were US$7.3 million, a YoY increase of 41.2%, and US$11.2 million for the six months ended September 30, 2010, a YoY increase of 42.3%. Insurance accounted for 11.9% of software development revenues in the six months ended September 30, 2010, as compared to 12.8% in the corresponding year ago period.
Gross Margins ------------- Three months ended September September Change 30, 2009 30, 2010 (Decrease) -------- -------- ---------- Adjusted Software Development Gross Margin % 73.3% 68.4% (4.9%) Adjusted Other Services Gross Margin % 38.7% 17.9% (20.8%) Adjusted Total Gross Margin % 68.5% 64.3% (4.2%) US GAAP Software Development Gross Margin % 70.7% 45.4% (25.3%) US GAAP Other Services Gross Margin % 35.5% (171.0%) (206.5%) US GAAP Total Gross Margin % 65.9% 27.6% (38.3%) Six months ended September September Change 30, 2009 30, 2010 (Decrease) -------- -------- ---------- Adjusted Software Development Gross Margin % 71.6% 66.5% (5.1%) Adjusted Other Services Gross Margin % 31.4% 31.4% - Adjusted Total Gross Margin % 66.2% 61.6% (4.6%) US GAAP Software Development Gross Margin % 69.0% 51.3% (17.7%) US GAAP Other Services Gross Margin % 25.7% (32.2%) (57.9%) US GAAP Total Gross Margin % 63.1% 39.8% (23.3%)
Adjusted Software Gross Margin was 68.4% and 66.5% for the three and six months ended September 30, 2010, as compared to 73.3% and 71.6% in the corresponding year ago period. The YoY decline in Adjusted Software Gross Margin was primarily due to: i) the inclusion of newly acquired companies including Giantstone, which have lower gross margins than Longtop; (ii) in order to meet customer requirements, a larger percentage of the workforce are being located in Beijing where costs per employee are higher; and (iii) additional investments in delivery capabilities for Longtop's expanded solution offerings.
Operating Expenses ------------------ Three months ended September September % Change 30, 2009 30, 2010 -------- -------- -------- Adjusted Operating Expenses - US$000s $8,600 $10,115 17.6% Adjusted Operating Expenses -% of revenue 20.1% 16.7% US GAAP Operating Expenses - US$000s $10,000 $81,165 711.7% US GAAP Operating Expenses -% of revenue 23.4% 134.2% Six months ended September September % Change 30, 2009 30, 2010 -------- -------- -------- Adjusted Operating Expenses - US$000s $14,880 $19,519 31.2% Adjusted Operating Expenses -% of revenue 20.8% 17.8% US GAAP Operating Expenses - US$000s $17,542 $94,670 439.7% US GAAP Operating Expenses -% of revenue 24.6% 86.6%
Adjusted Operating Expenses of US$10.1 million were 16.7% of revenue for the three months ended September 30, 2010, as compared to 20.1% in the corresponding year ago period and less than Company guidance of 19.0%. Adjusted Operating Expenses increased by 31.2% YoY in the six month ended September 30, 2010, which was lower than the YoY total revenue growth of 53.3% during the period.
Operating and Net Income Three months ended % Change September September (Decrease) 30, 2009 30, 2010 ---------- -------- -------- Adjusted Operating Income - US$000s $20,760 $28,742 38.4% Adjusted Operating Income -% of revenue 48.5% 47.5% US GAAP Operating Income (Loss) - US$000s $18,242 $(64,498) (453.6%) US GAAP Operating Income (Loss) -% of revenue 42.6% (106.7%) Six months ended % Change September September (Decrease) 30, 2009 30, 2010 ---------- -------- -------- Adjusted Operating Income - US$000s $32,325 $47,871 48.1% Adjusted Operating Income -% of revenue 45.3% 43.8% US GAAP Operating Income (Loss) - US$000s $27,500 $(51,161) (286.0%) US GAAP Operating Income (Loss) -% of revenue 38.6% (46.8%)
Adjusted Operating Income of US$28.7 million in the second quarter represented an increase of 38.4% YoY and exceeded Company guidance of US$27.4 million. Adjusted Operating Margin of 47.5% in the second quarter was in line with Company guidance of 48% even with inclusion of the newly acquired lower margin businesses. Adjusted Operating Margin for the six months ended September 30, 2010 of 43.8% was lower than the corresponding year ago period due to the decline in Adjusted Total Gross Margin.
Three months ended % Change September September (Decrease) 30, 2009 30, 2010 ---------- -------- -------- Adjusted Net Income - US$000s $21,427 $25,672 19.8% Adjusted Net Income per Diluted Share $0.40 $0.44 10.0% Adjusted Net Income -% of revenue 50.0% 42.5% US GAAP Net Income (Loss) - US$000s $18,909 $(67,637) (457.7%) US GAAP Net Income (Loss) per Diluted Share $0.35 $(1.19) (440.0%) US GAAP Net Income (Loss) -% of revenue 44.1% (111.9%) Six months ended % Change September September (Decrease) 30, 2009 30, 2010 ---------- -------- -------- Adjusted Net Income - US$000s $32,118 $43,557 35.6% Adjusted Net Income per Diluted Share $0.60 $0.75 25.0% Adjusted Net Income - % of revenue 45.0% 39.8% US GAAP Net Income (Loss) - US$000s $27,293 $(55,607) (303.7%) US GAAP Net Income (Loss) per Diluted Share $0.51 $(0.98) (292.2%) US GAAP Net Income (Loss) -% of revenue 38.3% (50.9%) Reconciliation between US GAAP Net Income/Loss and Adjusted Net Income Three months ended % Change September September (Decrease) 30, 2009 30, 2010 ---------- -------- -------- Adjusted Net Income $21,427 $25,672 19.8% Stock compensation $1,528 $89,124 5,732.7% Amortization of acquired intangible assets $900 $1,907 111.9% Amortisation of acquired deferred compensation from acquisitions $90 $867 863.3% Acquisition related expenses $- $1 Changes in fair value of purchase consideration liability $- $552 Loss on partial disposal of subsidiary $- $858 Sub-total $2,518 $93,309 3,605.7% ------ ------- US GAAP Net Income (Loss) $18,909 $(67,637) (457.7%) ======= ======== Six months ended % Change September September (Decrease) 30, 2009 30, 2010 ---------- -------- -------- Adjusted Net Income $32,118 $43,557 35.6% Stock compensation $3,003 $91,542 2,948.4% Amortization of acquired intangible assets $1,642 $4,351 165.0% Amortisation of acquired deferred compensation from acquisitions $180 $1,310 627.8% Acquisition related expenses $- $41 Changes in fair value of purchase consideration liability $- $1,062 Loss on partial disposal of subsidiary $- $858 Sub-total $4,825 $99,164 1,955.2% ------ ------- US GAAP Net Income (Loss) $27,293 $(55,607) (303.7%) ======= ========
Adjusted Net Income for the quarter ended September 30, 2010, of US$25.7 million or US$0.44 per fully diluted share represented a YoY increase of 19.8% and exceeded Company guidance of US$24.3 million or US$0.41 per fully diluted share. The YoY Adjusted Net Income growth of 19.8% in the second quarter of fiscal 2011 was less than the YoY Adjusted Operating Income growth of 38.4% primarily because Adjusted Net Income in the second quarter of fiscal 2010 included US$3.0 million (Q2 2011: US$0.0) for a refund of the previous calendar year's income taxes related to qualification as a Key Software Company.
Longtop recorded a US GAAP net loss of US$67.6 million for the quarter ended September 30, 2010, as compared to a US GAAP net income of US$18.9 million in the corresponding year ago period due primarily to a non cash share-based compensation expense of US$79.5 million recorded in the second quarter of fiscal 2011. The US$79.5 million share-based compensation expense resulted in significant year-on-year increase in US GAAP cost of revenues and operating expenses which resulted in significant year-on-year declines in US GAAP gross margin and US GAAP operating income. In July 2010, a trust established by Bloomwell International Limited, which is wholly owned by Hiu Kung Ka (also referred to by his Mandarin name of as Xiaogong Jia), our co-founder and chairman of our board of directors, gifted Longtop shares with a value of US$79.5 million to a number of our current employees. The shares are fully vested with restrictions on sale over a period of time. Because Mr. Ka is considered a principal shareholder of our Company and Longtop will benefit from such incentive grants, for US GAAP reporting purposes we have recorded the US$79.5 million grant-date fair value as share-based compensation expense in the quarter ended September 30, 2010. The US$79.5 million share-based compensation expense did not increase the total shares outstanding and had no impact on the cash flow or net assets of the Company.
Unrestricted cash balances at September 30, 2010, were US$379.0 million, giving the Company significant resources for potential acquisitions in the still fragmented financial IT services sector in China.
"Our Company performance has once more exceeded guidance for both top and bottom line results. Our order intake, margins and cash flow from operations which was US$31.6 million significantly improved in the second quarter as we had anticipated. On the back of strong demand and execution, we are now raising our fiscal 2011 revenue guidance to US$242.5 million up from 225.0 million at the beginning of our fiscal year and Adjusted Earnings Per Share of US$1.76 up from US$1.64." commented Derek Palaschuk, CFO of Longtop.
BUSINESS OUTLOOK Longtop anticipates, for the quarter ending December 31, 2010:
Total revenues, of US$73.5 million, Adjusted Operating Income of US$38.0 million, Adjusted Net Income of US$33.1 million and Adjusted Diluted Earnings Per Share of US$0.56. Giantstone is expected to contribute US$3.5 million of software development revenues.
Excluding the impact of new acquisitions, US GAAP net income is expected to be approximately US$26.8 million or US$0.46 per diluted share, which is US$6.3 million less than Adjusted Net Income due to Non GAAP adjustments normally made.
For its fiscal year ending March 31, 2011:
Total revenues of US$242.5 million, Adjusted Operating Income of US$110.0 million, Adjusted Net Income of US$103,5 million and Adjusted Diluted Earnings Per Share of US$1.76. Giantstone is expected to contribute US$16 million of software development revenues.
Excluding the impact of new acquisitions, US GAAP net loss is expected to be approximately US$8.3 million, or US$0.18 per diluted share which is US$111.8 million less than Adjusted Net Income which includes the US$79.5 million share gift as well as the other Non GAAP adjustments normally made.
CONFERENCE CALL AND WEBCAST
Longtop's senior management team will host a conference call and audio web cast at 8:00 AM Eastern Time (or 5:00 AM U.S. Pacific Time and 21:00 PM Beijing/Hong Kong time) on November 15, 2010. The conference call will last for approximately one hour.
The dial-in numbers for the conference call are as follows: U.S. Toll Free: 1866 549 1292 (back-up number: +852 3005 2050) China Toll Free: 400 681 6949 (back-up number: +852 3005 2050) Hong Kong and International: +852 3005 2050. Passcode: 765115#
Additionally, a live and archived web cast of this call will be available on Longtop's website at http://en.longtop.com/
NON-GAAP DISCLOSURE ("ADJUSTED")
To supplement the unaudited consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Longtop's management reports and uses non-GAAP ("Adjusted") measures of cost of revenues, operating expenses, net income and fully diluted net income per share, which are adjusted from results based on GAAP. To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures to exclude certain business combination accounting entries and expenses related to acquisitions, as well as other significant expenses including stock-based compensation, exclusion of which we believe is helpful in understanding our past financial performance and our future results. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Management believes these non-GAAP financial measures enhance the user's overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP financial measures provide useful information to both management and investors by excluding certain items that we believe are not indicative of our core operating results. The presentation of this additional information is not meant to be considered superior to, in isolation from or as a substitute for results prepared in accordance with US GAAP. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures contained in this release and which we discuss below. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies.
Definitions of Non-GAAP Measures
Adjusted Cost of Revenue is defined as cost of revenue excluding, if applicable: (1) non-cash compensation expense and (2) amortization and charges for impairment of acquired intangibles.
Adjusted Gross Margin is defined as Total Revenue less Adjusted Cost of Revenue.
Adjusted Operating Expenses is defined as operating expenses excluding, if applicable: (1) non-cash compensation expense, (2) amortization of acquired intangibles, deferred compensation arising on acquisition and goodwill and intangible asset impairment, (3) acquisition related expenses such as fees paid to investment bankers, due diligence and legal costs paid to third parties which would have, prior to April 1, 2009, been included as a cost of acquisition under GAAP; (4) post acquisition adjustments to the fair value of contingent consideration which would have, prior to April 1, 2009, been included as a cost of acquisition under GAAP or (5) gains or losses on the disposal of businesses or (6) one-time items.
Adjusted Operating Income is defined as Adjusted Gross Margin less Adjusted Operating Expenses.
Adjusted Net Income is defined as Adjusted Operating Income plus/minus other income/(expenses), less income taxes, excluding if applicable: (1) one-time items and (2) discontinued operations.
Adjusted EPS is defined as Adjusted Net Income divided by diluted shares.
One-Time Items, if applicable, are excluded from Adjusted Operating Income and Adjusted Net Income. These items are one-time in nature and non-recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years. GAAP results include one-time items.
Expenses That Are Excluded From Our Non-GAAP Measures
Non-cash compensation expense consists principally of expense associated with grants, including unvested grants assumed in acquisitions, of restricted stock, restricted stock units and stock options. These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding which, for restricted stock units and stock options, are included on a treasury method basis. Longtop's management believes excluding the share-based compensation expense from its non-GAAP financial measure is useful for itself and investors. Although share-based compensation is a key incentive offered to our employees and especially our senior management, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, as share-based compensation expense does not involve any upfront or subsequent cash outflow, Longtop does not factor this in when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, the monthly financial results for internal reporting and any performance measure for commission and bonus are based on non-GAAP financial measures that exclude share-based compensation expense. If we had included share-based compensation expenses in our Non-GAAP Adjusted Net Income in Q2 2011, Adjusted Net Income would have been US$89.1 million lower or Adjusted Net Loss of US$63.5 million for the three months ended September 30, 2010, and our Adjusted Net Income margin would have been negative.
Goodwill and intangible asset impairment and amortization of acquired intangibles is a non-cash expense relating to acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as backlog, customer relationships, and intellectual property, are valued and amortized over their estimated lives. While it is likely that we will have significant intangible amortization expense as we continue to acquire companies, we have excluded the effect of amortization of intangible assets from our non-GAAP financial measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to revenues earned during the periods presented and will contribute to future period revenues as well.
Acquisition proceeds allocated to deferred compensation arises where a portion of the purchase price paid to shareholders is considered compensation expense rather than purchase price under US GAAP. Deferred compensation arising on acquisition is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of deferred compensation arising on acquisition contributed to revenues earned during the periods presented and will contribute to future period revenues as well.
Prior to April 1, 2009, acquisition-related expenses such as fees paid to investment bankers, due diligence and legal costs paid to third parties, were capitalized as part of the cost of the acquisition. Subsequent to April 1, 2009, such costs are required to be recorded as an operating expense when incurred. These acquisition-related expenses are not related to the performance of our business lines, are inconsistent in amount and frequency and are significantly affected by the timing and size of our acquisitions.
Prior to April 1, 2009, contingent consideration was generally recorded as an additional purchase price when the contingencies resolved and the consideration became payable. Subsequent to April 1, 2009, we are required to estimate and record the fair value of contingent acquisition consideration as of the acquisition date. Contingent consideration is re-measured at fair value in each reporting period with changes in fair value recognized in earnings. The contingent acquisition consideration is inconsistent in amount and frequency, and is significantly affected by the timing and size of our acquisitions.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
It is currently expected that the Business Outlook will not be updated until the release of Longtop's next quarterly earnings announcement; however, Longtop reserves the right to update its Business Outlook at any time for any reason.
This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including those with respect to our anticipated operating results for the quarter ending Sept 30, 2010 and fiscal year ending March 31, 2011, efforts taken to improve efficiency, strengthen management, manage the Company's growth and the Company's competitive position. In some cases, you can identify forward-looking statements by such terms as 'believes,' 'expects,' 'anticipates,' 'intends,' 'estimates,' the negative of these terms, or other comparable terminology. Factors that could cause actual results to differ include the growth of the financial services industry in China; the amount and seasonality of IT spending by banks and other financial services companies; competition and potential pricing pressures; our revenue growth and solution and service mix; our ability to successfully develop, introduce and market new solutions and services; our ability to effectively manage our operating costs and expenses; our reliance on a limited number of customers that account for a high percentage of our revenues; a possible future shortage or limited availability of employees; general economic and business conditions; the volatility of our operating results and financial condition; our ability to attract or retain qualified senior management personnel and research and development staff; the outbreak of health epidemics; the relocation of our headquarters; People's Republic of China, or PRC, regulatory changes and interpretations; and other risks detailed in the Company's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the companies and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. Our actual results of operations for the quarter and six month ended September 30, 2010, are not necessarily indicative of our operating results for any future periods. Any projections in this release are based on limited information currently available to us, which is subject to change.
About Longtop Financial Technologies Limited
Longtop is a leading software development and solutions provider targeting the financial services industry in China. Longtop develops and delivers a comprehensive range of software applications and solutions with a focus on meeting the rapidly growing IT needs of the financial services institutions in China. Longtop is the highest ranked Chinese financial technology provider on the Global FinTech 100 survey of top technology partners to the financial services industry. Independent research firm IDC has also named Longtop the No.1 market share leader in China's Banking IT solution market and the No.2 market share leader in China's Insurance IT solution market in calendar year 2009. Headquartered in Beijing, Longtop has six solution delivery centers, three research and development centers and 95 ATM service centers located in 27 out of 31 provinces in China. For more information, please visit: http://en.longtop.com/.
Contact us For Investors: Longtop Financial Technologies Limited Charles Zhang, CFA Email: ir@longtop.com Phone: +86 10 8421 7758 For Media: IR Inside BV Caroline Straathof Email: caroline.straathof@irinside.com Phone: +31 6 5462 4301 UNAUDITED CONSOLIDATED BALANCE SHEETS March 31, September 30, 2010 2010 ---- ---- (In U.S. dollar thousands, except share and per share data) Assets Current assets: Cash and cash equivalents $331,889 $378,960 Restricted cash 8,904 1,952 Accounts receivable, net 65,581 86,963 Inventories 6,381 5,818 Amounts due from related parties 1,029 2,822 Deferred tax assets 250 273 Other current assets 13,967 12,500 ------ ------ Total current assets 428,001 489,288 Fixed assets, net 26,343 27,271 Prepaid land use right 5,064 5,103 Intangible assets, net 45,676 47,768 Goodwill 96,323 103,832 Investment in an associate - 4,831 Deferred tax assets 1,443 1,234 Other assets 3,334 2,219 ----- ----- Total assets $606,184 $681,546 ======== ======== Liabilities and equity Current liabilities: Short-term borrowings $169 $16,026 Accounts payable 14,963 16,612 Deferred revenue 25,725 22,370 Amounts due to related parties 156 234 Deferred tax liabilities 1,430 1,885 Accrued and other current liabilities 44,380 58,088 ------ ------ Total current liabilities 86,823 115,215 Long-term liabilities: Deferred tax liabilities 6,842 7,653 Other non-current liabilities 22,517 21,940 ------ ------ Total liabilities 116,182 144,808 ------- ------- Equity: Ordinary shares $0.01 par value (1,500,000,000 shares authorized, 56,231,188 and 56,855,403 shares issued and outstanding as of March 31, 2010 and September 30, 2010, respectively) $562 $569 Additional paid-in capital 381,262 474,592 Retained earnings 88,542 32,935 Accumulated other comprehensive income 19,636 28,642 ------ ------ Total equity 490,002 536,738 ------- ------- Total liabilities and equity $606,184 $681,546 ======== ======== UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended ------------------ September September 30,2009 30,2010 ---------- ---------- (In U.S. dollar thousands, except share and per share data) Revenues: Software development $36,995 $55,477 Other services 5,839 4,987 ----- ----- Total revenues 42,834 60,464 ------ ------ Cost of revenues: Software development 10,825 30,280 Other services 3,767 13,517 ----- ------ Total cost of revenues 14,592 43,797 ------ ------ Gross profit 28,242 16,667 ------ ------ Operating expenses: Research and development 1,962 7,280 Sales and marketing 5,304 23,376 General and administrative 2,734 50,509 ----- ------ Total operating expenses 10,000 81,165 ------ ------ Income (loss) from operations 18,242 (64,498) ------ ------- Other income (expenses): Interest income 992 1,448 Interest expense (178) (221) Other income (expense), net 220 (1) --- --- Total other income 1,034 1,226 ----- ----- Income (loss) before income tax expense 19,276 (63,272) Income tax expense (367) (4,317) Loss from investment in an associate - (48) --- --- Net income (loss) 18,909 (67,637) ====== ======= Net income (loss) per share: Basic ordinary share $0.37 $(1.19) Diluted $0.35 $(1.19) Shares used in computation of net income (loss) per share: Basic ordinary share 51,461,241 56,628,591 Diluted 53,375,287 56,628,591 Includes share-based compensation related to: Cost of revenues software development $485 $11,885 Cost of revenues other services 69 9,391 General and administrative expenses 419 45,606 Sales and marketing expenses 452 16,984 Research and development expenses 103 5,258 Six Months Ended ---------------- September September 30,2009 30,2010 ---------- ---------- (In U.S. dollar thousands, except share and per share data) Revenues: Software development $61,712 $94,221 Other services 9,615 15,129 ----- ------ Total revenues 71,327 109,350 ------ ------- Cost of revenues: Software development 19,144 45,847 Other services 7,141 19,994 ----- ------ Total cost of revenues 26,285 65,841 ------ ------ Gross profit 45,042 43,509 ------ ------ Operating expenses: Research and development 3,479 9,500 Sales and marketing 8,563 30,644 General and administrative 5,500 54,526 ----- ------ Total operating expenses 17,542 94,670 ------ ------ Income (loss) from operations 27,500 (51,161) ------ ------- Other income (expenses): Interest income 2,000 2,942 Interest expense (194) (253) Other income (expense), net 305 62 --- --- Total other income 2,111 2,751 ----- ----- Income (loss) before income tax expense 29,611 (48,410) Income tax expense (2,318) (7,149) Loss from investment in an associate - (48) --- --- Net income (loss) 27,293 (55,607) ====== ======= Net income (loss) per share: Basic ordinary share $0.53 $(0.98) Diluted $0.51 $(0.98) Shares used in computation of net income (loss) per share: Basic ordinary share 51,326,441 56,509,584 Diluted 53,306,623 56,509,584 Includes share-based compensation related to: Cost of revenues software development $923 $12,751 Cost of revenues other services 138 9,535 General and administrative expenses 859 46,093 Sales and marketing expenses 880 17,755 Research and development expenses 203 5,408 UNAUDITED CONSOLIDATED ADJUSTED STATEMENTS OF OPERATIONS Three Months Ended ------------------ September September 30,2009 30,2010 ---------- ---------- (In U.S. dollar thousands, except share and per share data) Revenues: Software development 36,995 55,477 Other services 5,839 4,987 Total revenues 42,834 60,464 ------ ------ Cost of revenues: Software development 10,825 30,280 Other services 3,767 13,517 Total cost of revenues 14,592 43,797 ------ ------ Cost of revenue adjustments: Share-based compensation software development (485) (11,885) Share-based compensation other services (69) (9,391) Amortization of acquired intangible assets other services (87) - Amortization of acquired intangible assets software development (387) (313) Amortization of acquisition related deferred compensation other services (33) (33) Amortization of acquisition related deferred compensation software development (57) (568) Impairment of Intangible assets other services - Adjusted cost of revenues: Software development 9,896 17,514 Other services 3,578 4,093 ----- ----- Total adjusted cost of revenues 13,474 21,607 ---------------------- ------ ------ Gross profit 28,242 16,667 ------ ------ Adjusted gross profit 29,360 38,857 --------------------- ------ ------ Operating expenses: Research and development 1,962 7,280 Sales and marketing 5,304 23,376 General and administrative 2,734 50,509 Total operating expenses 10,000 81,165 ------ ------ Operating expense adjustments: Share-based compensation research and development (103) (5,258) Share-based compensation sales and marketing (452) (16,984) Share-based compensation general and administrative (419) (45,606) Amortization of acquired intangible assets sales and marketing (360) (1,487) Amortization of acquired intangible assets general and administrative (66) (107) Acquisition related expenses general and administrative - (1) Amortization of acquisition related deferred compensation sales and marketing - (81) Amortization of acquisition related deferred compensation general and administrative - (185) Changes in fair value of purchase consideration liability - (483) Loss on partial disposal of subsidiary - (858) Adjusted operating expenses: Research and development 1,859 2,022 Sales and marketing 4,492 4,824 General and administrative 2,249 3,269 Total adjusted operating expenses 8,600 10,115 ------------------------ ----- ------ Income (loss) from operations 18,242 (64,498) ------ ------- Adjusted income from operations 20,760 28,742 -------------------- ------ ------ Other income (expenses): Interest income 992 1,448 Interest expense (178) (221) Other (expenses) income, net 220 (1) Total other income 1,034 1,226 ----- ----- Other income (expenses) adjustments: Changes in fair value of purchase consideration liability - 69 Adjusted other income (expenses): Interest income 992 1,448 Interest expense (178) (152) Other income (expenses), net 220 (1) --- --- Total adjusted other income 1,034 1,295 --------------------------- ----- ----- Income (loss) before income tax expense 19,276 (63,272) ------ ------- Adjusted income before income tax expense 21,794 30,037 ----------------------------- ------ ------ Income tax expense (367) (4,317) Loss from investment in an associate - (48) Net income (loss) 18,909 (67,637) ====== ======= Adjusted net income 21,427 25,672 ------------------- ------ ------ Net income (loss) per share: Basic ordinary share $0.37 $(1.19) Diluted $0.35 $(1.19) Adjusted net income (loss) per share: Basic ordinary share $0.42 $0.45 Diluted $0.40 $0.44 ------- ----- ----- Shares used in computation of net income (loss) per share: Basic ordinary share 51,461,241 56,628,591 Diluted 53,375,287 56,628,591 Shares used in computation of adjusted net income per share: Basic ordinary share 51,461,241 56,628,591 Diluted 53,375,287 58,411,376 Six Months Ended ---------------- September September 30,2009 30,2010 ---------- ---------- (In U.S. dollar thousands, except share and per share data) Revenues: Software development 61,712 94,221 Other services 9,615 15,129 Total revenues 71,327 109,350 ------ ------- Cost of revenues: Software development 19,144 45,847 Other services 7,141 19,994 Total cost of revenues 26,285 65,841 ------ ------ Cost of revenue adjustments: Share-based compensation software development (923) (12,751) Share-based compensation other services (138) (9,535) Amortization of acquired intangible assets other services (344) (15) Amortization of acquired intangible assets software development (578) (610) Amortization of acquisition related deferred compensation other services (66) (66) Amortization of acquisition related deferred compensation software development (114) (904) Impairment of Intangible assets other services Adjusted cost of revenues: Software development 17,529 31,582 Other services 6,593 10,378 Total adjusted cost of revenues 24,122 41,960 ---------------------- ------ ------ Gross profit 45,042 43,509 ------ ------ Adjusted gross profit 47,205 67,390 --------------------- ------ ------ Operating expenses: Research and development 3,479 9,500 Sales and marketing 8,563 30,644 General and administrative 5,500 54,526 Total operating expenses 17,542 94,670 ------ ------ Operating expense adjustments: Share-based compensation research and development (203) (5,408) Share-based compensation sales and marketing (880) (17,755) Share-based compensation general and administrative (859) (46,093) Amortization of acquired intangible assets sales and marketing (590) (3,538) Amortization of acquired intangible assets general and administrative (130) (188) Acquisition related expenses general and administrative - (41) Amortization of acquisition related deferred compensation sales and marketing - (118) Amortization of acquisition related deferred compensation general and administrative - (222) Changes in fair value of purchase consideration liability - (930) Loss on partial disposal of subsidiary - (858) Adjusted operating expenses: Research and development 3,276 4,092 Sales and marketing 7,093 9,233 General and administrative 4,511 6,194 Total adjusted operating expenses 14,880 19,519 ------------------------ ------ ------ Income (loss) from operations 27,500 (51,161) ------ ------- Adjusted income from operations 32,325 47,871 -------------------- ------ ------ Other income (expenses): Interest income 2,000 2,942 Interest expense (194) (253) Other (expenses) income, net 305 62 Total other income 2,111 2,751 ----- ----- Other income (expenses) adjustments: Changes in fair value of purchase consideration liability - 132 Adjusted other income (expenses): Interest income 2,000 2,942 Interest expense (194) (121) Other income (expenses), net 305 62 Total adjusted other income 2,111 2,883 --------------------------- ----- ----- Income (loss) before income tax expense 29,611 (48,410) ------ ------- Adjusted income before income tax expense 34,436 50,754 ----------------------------- ------ ------ Income tax expense (2,318) (7,149) Loss from investment in an associate - (48) Net income (loss) 27,293 (55,607) ====== ======= Adjusted net income 32,118 43,557 ------------------- ------ ------ Net income (loss) per share: Basic ordinary share $0.53 $(0.98) Diluted $0.51 $(0.98) Adjusted net income (loss) per share: Basic ordinary share $0.63 $0.77 Diluted $0.60 $0.75 ------- ----- ----- Shares used in computation of net income (loss) per share: Basic ordinary share 51,326,441 56,509,584 Diluted 53,306,623 56,509,584 Shares used in computation of adjusted net income per share: Basic ordinary share 51,326,441 56,509,584 Diluted 53,306,623 58,369,589 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended ------------------ September September 30, 30, 2009 2010 ---- ---- (In U.S. dollar thousands) Cash flows from operating activities: Net income (loss) $18,909 $(67,637) Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 1,528 89,124 Depreciation of fixed assets 719 856 Amortization of intangible assets 984 2,008 Loss on partial disposal of subsidiary - 858 Loss from investment in an associate - 48 Provision for doubtful accounts 57 (550) Change in fair value of contingent consideration - 485 Loss on disposal of fixed assets and intangible assets - 58 Deferred income taxes (341) 299 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (14,909) (14,746) Inventories (272) 2,447 Other current assets (1,569) 6,707 Amounts due from related parties (86) (3) Prepaid land use right 28 28 Other non-current assets 91 339 Other non-current liabilities 57 473 Accounts payable 3,529 3,066 Deferred revenue 3,250 272 Amounts due to related parties 41 - Accrued and other current liabilities 6,832 7,465 ----- ----- Net cash provided by operating activities 18,848 31,597 ------ ------ Cash flows from investing activities: Change in restricted cash (498) 246 Purchase of fixed assets (4,929) (1,850) Purchase of intangible assets (84) (105) Acquisitions, net of cash acquired - (7,389) Deposit made on acquisition - - Proceeds from partial disposal of subsidiary, net of cash divested - 3,669 Amounts due from related parties - (1,714) --- ------ Net cash used in investing activities (5,511) (7,143) ------ ------ Cash flows from financing activities: Proceeds from short-term borrowings - 15,951 Repayment of short-term borrowings - (8,954) Stock options exercised 1,927 750 Payment of capital lease obligations (81) (3) Payment of acquisition consideration (3,949) - ------ --- Net cash provided by (used in) financing activities (2,103) 7,744 ------ ----- Effect of exchange rates differences 75 4,333 --- ----- Net increase (decrease) in cash and cash equivalents 11,309 36,531 Cash and cash equivalents, beginning of period 215,121 342,429 Cash and cash equivalents, end of period $226,430 $378,960 ======== ======== Supplemental disclosure of cash flow information: Income taxes paid (refunded) $(1,377) $(1,116) Interest paid $59 $111 Six Months Ended ---------------- September September 30, 30, 2009 2010 ---- ---- (In U.S. dollar thousands) Cash flows from operating activities: Net income (loss) $27,293 $(55,607) Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 3,002 91,542 Depreciation of fixed assets 1,422 1,731 Amortization of intangible assets 1,817 4,578 Loss on partial disposal of subsidiary - 858 Loss from investment in an associate - 48 Provision for doubtful accounts 31 (396) Change in fair value of contingent consideration - 932 Loss on disposal of fixed assets and intangible assets 5 291 - - Deferred income taxes (34) 547 - - Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (26,256) (21,820) Inventories 544 651 Other current assets (7,226) 2,042 Amounts due from related parties (584) 538 Prepaid land use right 55 56 Other non-current assets 182 392 Other non-current liabilities 61 (2,523) Accounts payable 2,708 625 Deferred revenue 2,976 (3,909) Amounts due to related parties 60 47 Accrued and other current liabilities 4,864 10,484 ----- ------ Net cash provided by operating activities 10,920 31,107 ------ ------ Cash flows from investing activities: Change in restricted cash (73) 6,952 Purchase of fixed assets (8,831) (2,464) Purchase of intangible assets (222) (146) Acquisitions, net of cash acquired (16,779) (10,288) Deposit made on acquisition - (2,708) Proceeds from partial disposal of subsidiary, net of cash divested - 3,669 Amounts due from related parties - (1,714) --- ------ Net cash used in investing activities (25,905) (6,699) ------- ------ Cash flows from financing activities: Proceeds from short-term borrowings 4,391 24,745 Repayment of short-term borrowings - (8,954) Stock options exercised 2,751 1,795 Payment of capital lease obligations (268) (169) Payment of acquisition consideration (3,949) (564) ------ ---- Net cash provided by (used in) financing activities 2,925 16,853 ----- ------ Effect of exchange rates differences 195 5,810 --- ----- Net increase (decrease) in cash and cash equivalents (11,865) 47,071 Cash and cash equivalents, beginning of period 238,295 331,889 Cash and cash equivalents, end of period $226,430 $378,960 ======== ======== Supplemental disclosure of cash flow information: Income taxes paid (refunded) $94 $721 Interest paid $75 $111
Longtop Financial Technologies Limited
CONTACT: For Investors: Charles Zhang, CFA, Longtop Financial
Technologies Limited at ir@longtop.com or +86-10-8421-7758; For Media:
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+31-6-5462-4301
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