YTEC Yucheng Technologies Limited - Ordinary Shares (MM)

BEIJING, Aug. 15, 2012 /PRNewswire-Asia/ -- Yucheng Technologies Limited (Nasdaq: YTEC) ("Yucheng," the "Company," "we," "us" and "our"), a leading provider of IT Solutions to the financial services industry in China, today announced unaudited financial results for the second quarter ended June 30, 2012.

• Second quarter software & solutions revenues of US$20.4 million, an increase of 48.7% year over year;
• Second quarter total revenues of US$21.5 million, an increase of 35.7% year over year, and second quarter net revenues (Non-GAAP)(6)(1) were the same as total revenues; 
• Second quarter operating income of US$2.5 million, an increase of 25.5% year over year, and second quarter operating income (Non-GAAP)(4) of US$3.1 million, an increase of 40.0% year over year;
• Second quarter operating margin of revenue of 11.5%, as compared to 12.4% in the prior year period, and second  quarter operating margin of net revenue (Non-GAAP)(5) of 14.5%, as compared to 14.1% in the prior year period;
• Second  quarter net income of US$1.2 million, or US$0.06 per share, as compared to net income of US$1.6 million, or US$0.08 per share in the prior year period, and second quarter net income (Non-GAAP)(6) of US$1.9 million, or US$0.10 per share, as compared to US$1.9 million, or US$0.10 per share in the prior year period;

"We continued the strong revenue growth in software & solutions revenues while seeing continued declining revenues in platform & maintenance services businesses. On the other hand, the trend of rising wages continues to increase although the consumer price index (CPI) has dropped to a much more reasonable level, reflecting the intense competition for talent in our industry, which caused further declining gross margin compared with last year. We do not expect the trend of wage inflation to reverse before the end of the year," said Mr. Weidong Hong, CEO of Yucheng Technologies. "All though we are in a difficult period with increasing competition and rising costs, we are still optimistic about the longer term potential of the company with our leading position in the industry as evidenced by No. 1 ranking by the latest IDC industry research report."

Second Quarter 2012 Financial Results

Total revenues for the second quarter of 2012 were US$21.5 million, an increase of 35.7% year over year and a increase of 29.8% sequentially. Net revenues (non-GAAP) for the second quarter of 2012 were the same as total revenues, an increase of 35.7% year over year and an increase of 29.8% sequentially. The year over year increase in revenues was primarily due to the strong demand from our customers for our software solutions.

Gross margin for the second quarter of 2012 was 42.1%, compared to 49.1% in the prior year period and 43.8% in the previous quarter. Gross margin of net revenues (non-GAAP)(2) for the second quarter of 2012 was 42.1%, compared to 49.1% in the prior year period and 43.8% in the previous quarter. The decrease in gross margin year over year was due mainly to the increase in labor costs, the decrease of resale services and increased subcontracting to our strategic partner where our margin is significantly lower.

Software & solutions revenues for the second quarter of 2012 were US$20.4 million, an increase of 48.7% year over year and an increase of 36.1% sequentially.  Gross margin of the software & solutions business for the second quarter of 2012 was 42.1%, compared to 46.1% in the prior year period and 43.0% in the previous quarter. The decrease in the gross margin was primarily due to the increase in labor costs and increased subcontracting to our strategic partner where our margin is significantly lower.

Platform & maintenance services revenues for the second quarter of 2012 were US$1.0 million, compared to US$2.1 million in the prior year period and US$1.5 million in the previous quarter. Net revenues of platform & maintenance services (non-GAAP) for the second quarter of 2012 were US$1.0 million, compared to US$2.1 million in the prior year period and US$1.5 million in the previous quarter, the decrease in platform & maintenance services (non-GAAP) was due mainly to the decrease of resale services.  

Gross margin of platform & maintenance services business for the second quarter of 2012 was 43.0%, compared to 69.1% in the prior year period and 51.2% in the previous quarter. Gross margin of net revenues (non-GAAP) for platform maintenance services in second quarter of 2012 was 43.0%, compared to 69.1% in the prior year period and 51.2% in the previous quarter. The decrease in gross margin (non-GAAP) was due mainly to the decrease of resale services.

Total operating expenses for the second quarter of 2012 increased 13.2% year over year and decreased 6.5% sequentially to US$6.6 million. Total operating expenses (non-GAAP)(3) for the second quarter of 2012 increased 6.8% year over year and decreased 7.3% sequentially to US$5.9 million. The year-over-year increase was attributable mainly to the increase of sales bonus.

Income from continuing operations for the second quarter of 2012 was US$2.5 million, compared to US$2.0 million in the prior year period and US$0.2 million in the previous quarter. Income from continuing operations (non-GAAP) for the second quarter of 2012 was US$3.1 million, compared to US$2.2 million in the prior year period and US$0.9 million in the previous quarter.

Operating margin of total revenue was 11.5% for the second quarter of 2012, compared to 12.4% in the prior year period and 1.2% in the previous quarter. Operating margin of net revenues (non-GAAP) was 14.5% for the second quarter of 2012, compared to 14.1% in the prior year period and 5.2% in the previous quarter.

In the second quarter of 2012, the company recorded net income of US$1.2 million, or US$0.06 per diluted share, compared to US$1.6 million, or US$0.08 per diluted share in the prior year period and net loss of US$0.5 million, or loss of US$0.03 per diluted share in the previous quarter.

Net income (non-GAAP) was US$1.9 million in the second quarter of 2012 or US$0.10 per diluted share. Net income (non-GAAP) in the prior year period was US$1.9 million or US$0.10 per diluted share. Net income (non-GAAP) in the previous quarter was US$0.1 million or US$0.01 per diluted share.

As of June 30, 2012, Yucheng had cash and cash equivalents and restricted cash totaling US$14.7 million, compared to US$14.1 million as of March 31, 2012 and US$20.0 million as of June 30, 2011.Operating cash flow in the second quarter of 2012 was a net inflow of US$0.3 million.

Business Outlook

For the quarter ending September 30, 2012, Yucheng expects net revenue (non-GAAP) to be approximately US$22.0 million and net income (non-GAAP) per share of US$0.12.

Second quarter 2012 Conference Call Details

Yucheng Management will conduct a conference call to discuss the financial results of the three-month period ended June 30, 2012 on August 15, 2012 at 8:00AM EDT/ 8:00PM BJT.

To participate, please dial one of the local access numbers, listed below, ten minutes prior to the scheduled start of the call. The conference call identification number is 8800.

A recording of the call will be accessible within 48 hours on the Investor Relations section of Yucheng's website at http://www.yuchengtech.com/english/success.php?classid=41.

About Yucheng Technologies Limited

Yucheng Technologies Limited (NASDAQ: YTEC) is a leading IT service provider to the Chinese financial service providers. Headquartered in Beijing, China, Yucheng services clients from its nationwide network with approximately 2,800 employees. Yucheng provides a comprehensive suite of IT solutions to Chinese Banks including: (i) Channel Solutions, such as e-banking and call centers; (ii) Business Solutions, such as core banking systems and loan management; and (iii) Management Solutions, such as risk analytics and business intelligence. The independent research firm IDC named Yucheng the No. 1 market share leader in China's Banking IT solution market in 2010 and 2011. For more information about Yucheng Technologies Limited, please visit www.yuchengtech.com.

Reconciliation of non-GAAP Measures

This earnings release presents the following "non-GAAP financial measures" as defined by applicable U.S. securities regulations. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. The non-GAAP financial measures are provided as additional information to help both management and investors compare business trends among different reporting periods on a consistent and more meaningful basis and enhance investors' overall understanding of the Company's current financial performance and prospects for the future.  These non-GAAP measures have limitations, however, because they do not include all items of income and expenses that impact the Company's operations.  Management compensates for these limitations by also considering the Company's GAAP results.  The non-GAAP financial measures the Company uses are not prepared in accordance with, and should not be considered an alternative to measurements required by GAAP and should not be considered measures of the Company's liquidity.  Pursuant to relevant regulatory requirements, we are providing the following reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures.  

(1) Net revenue (non-GAAP)

Yucheng's net revenue (non-GAAP) represents total revenue net of third party hardware and software costs that are passed through to our customers. We believe total revenues net of third party hardware and software costs more accurately reflects our core business, which is the provision of software solutions and services, and provides transparency to our investors. It is also the same measure used by our management to evaluate the competitiveness and development of our business.

(2) Gross margin of net revenue (non-GAAP)

Gross margin of net revenues (non-GAAP) is calculated by dividing gross profit by net revenue (non-GAAP). We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance. Management uses the gross margin of net revenue (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP gross margin and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(3) Operating expenses (non-GAAP)

Operating expenses (non-GAAP) excludes stock-based compensation and amortization of acquired intangible assets related to previous acquisitions. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the operating expenses (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP operating expenses and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(4) Operating income (non-GAAP)

Operating income (non-GAAP) excludes stock-based compensation and amortization of acquired intangible assets related to previous acquisitions. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the operating income (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP operating income and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(5) Operating margin of net revenue (non-GAAP)

Operating margin of net revenue (non-GAAP) is calculated by dividing operating income, excluding amortization of acquired intangible assets and stock-based compensation expenses, divided by net revenue (non-GAAP). We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the operating margin of net revenue (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP operating margin and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(6) Net income (non-GAAP)

Net income(non-GAAP) excludes stock-based compensation and amortization of acquired intangible assets related to the previous acquisitions.  We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the net income (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes the Company's net income (non-GAAP) measure, when read in conjunction with the Company's GAAP net income measure and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.

(7) Net income (non-GAAP)per diluted share

Net income (non-GAAP) per diluted share is calculated by dividing net income (non-GAAP) (which as discussed above excludes stock-based compensation expenses and amortization of acquired intangible assets) by the same number of weighted average shares outstanding used in the computation of net income per diluted share. Management believes that net income (non-GAAP) per diluted share, when used in conjunction with the Company's GAAP net income per diluted share, provides useful information to investors for the same reasons discussed above regarding net income (non-GAAP). In addition, net income (non-GAAP) per diluted share allows investors to evaluate the Company's operating performance from period to period on a per share basis, thus providing a useful basis for assessing the Company's value on a per share basis.

Cautionary Note Regarding Forward-Looking Statements

The information contained in this document is as of August 15, 2012.Yucheng assumes no obligation to update any forward-looking statements contained in this document as a result of new information or future events or developments.

This press release includes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward looking statements are statements that are not historical facts. Forward-looking statements generally can be identified by the use of forward looking terminology, such as ''may,'' ''will,'' ''expect,'' ''intend,'' ''estimate,'' ''anticipate,'' ''believe,'' ''project'' or ''continue'' or the negative thereof or other similar words. Such forward-looking statements, based upon the current beliefs and expectations of Yucheng's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: current dependence on the PRC banking industry demand for the products and services of Yucheng; competition from other service providers in the PRC and international consulting firms; the ability to update and expand product and service offerings; retention and hiring of qualified employees; protection of intellectual property; creating and maintaining quality product offerings; and operating a business in the PRC with its changing economic and regulatory environment. A further list and description of these risks, uncertainties, and other matters can be found in our Annual Report on Form 20-F for the fiscal year ended December 31, 2011, and in our interim current reports on Form 6-K filed with the United States Securities and Exchange Commission and available at www.sec.gov.

For more information about Yucheng, please visit www.yuchengtech.com.

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