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VanceInfo Reports Record Results in Fourth Quarter and Full Year 2010

BEIJING Feb. 28, 2011 China December 31, 2010

Fourth Q uarter and Full Year 2010 Financial and Operating Highlights

  • $59.6 million $43.3 million
  • $22.3 million $16.3 million
  • $0.19
  • $211.6 million
  • Operating margin for the full year 2010 was 15.1%, compared to 15.5% for 2009. Non-GAAP operating margin(1) for the full year 2010 was 17.5%, compared to 17.9% for 2009.
  • $29.9 million $34.9 million $0.69 $0.80
  • December 31, 2010

Chris Chen

Fourth Q uarter 2010 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 2010 and the fourth quarter of 2009 as in the following paragraphs.

Net R evenues

$59.6 million $43.3 million

Net R evenues by S ervice L ines

The Company provides three broad sets of services: R&D Outsourcing Services, IT Services and Other Solutions & Services. R&D Outsourcing Services consist of research & development service line and globalization & localization service line. IT Services consist of enterprise solutions, application development & maintenance ("ADM"), and quality assurance & testing ("Testing") service lines. Other Solutions & Services consist of business process outsourcing ("BPO") and system integration ("SI") services and other solutions.  

Net revenues from R&D Outsourcing Services accounted for 57.8% of the total revenues during the fourth quarter of 2010 and grew 21.3% compared to the fourth quarter of 2009. Net revenues from IT Services represented 40.1% of the revenues, up 74.2% from the same period of 2009. The growth in IT Services has been fueled by continued expansion in ADM and Testing businesses with existing clients and fast increase of new customers.

Three Months Ended

December 31 , 2010

Three Months Ended

December 31 , 2009

(in thousands, except percentages)

R& D Outsourcing S ervice s

Research & development service s

$ 3 2 , 891

5 5 . 2 %

$ 2 7 , 4 2

62 . 5 %

Globalization & localization

1, 56 9

2 . 6 %

1, 377

3. 2 %

IT Services

Enterprise solutions

5, 537

9 . 3 %

4 , 14 3

9 . 6 %

Application development & maintenance

1 4 , 37 6

2 4 . 1 %

7 , 158

16. 6 %

Quality assurance & testing

4 , 004

6 . 7 %

2 , 431

5 . 6 %

Other Solutions & S ervices

1 , 2 28

2 . 1 %

1 ,10 2

2 . 5 %

Total net revenues

$ 5 9 , 60 5

100 .0 %

$ 4 3 , 253

100 .0 %

Net R evenues by G eographic M arkets

Greater China China Hong Kong Taiwan $28.2 million the United States Europe Japan Greater China

Greater China the United States Japan

Largest C lients

Revenues from the top five clients totaled 54.0% of net revenues for the fourth quarter of 2010, compared to 56.9% for the fourth quarter of 2009.  The reduced concentration reflects encouraging growth from a broader client base.

Gross P rofit and G ross Margin

$22.3 million $16.3 million

Operating Expenses

$15.3 million $10.0 million

Operating Income and Operating Margin

$9.0 million $7.2 million

Provision for I ncome T axes

$0.4 million $0.7 million

Net Income and EPS

$8.4 million $6.7 million

$9.7 million $7.9

$0.19 $0.16 $0.22 $0.18

The non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying section of "About Non-GAAP Financial Measures" and the accompanying table of "Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures."

Cash and Cash Flow

December 31, 2010 $181.7 million $7.5 million $3.3 million

Days sales outstanding ("DSO") was 119 days (4) for the fourth quarter of 2010 and 118 days(4) for the full year 2010.

Full Year 20 10 Financial Results

Net Revenues

$211.6 million $148.1 million

Net Revenues by Service Lines

Year Ended

December 31 , 2010

Year Ended

December 31 , 2009

(in thousands, except percentages)

R&D Outsourcing Services

Research & development service s

$ 1 24 , 181

58 . 7 %

$ 90 ,5 81

6 1 . 2 %

Globalization & localization

6 , 060

2 . 9 %

5 , 118

3. 5 %

IT Services

Enterprise solutions

1 9 , 725

9. 3 %

1 4 , 4 2 9

9. 7 %

Application development & maintenance

43 , 825

20 . 7 %

26 , 373

1 7 . 8 %

Quality assurance & testing

13 , 3

6 . 2 %

7 , 807

5. 3 %

Other Solutions & S ervices

4 , 7 5 6

2. 2 %

3 , 758

2.5%

Total net revenues

$ 2 11 , 550

100 .0 %

$ 14 8 , 066

100 .0 %

Largest Clients

Revenues from the top five clients totaled 55.5% of the Company’s net revenues in 2010, compared to 56.3% in 2009.

Gross Profit and Gross Margin

$78.6 million $55.9 million July 2009

Operating Expenses, Operating Income and Operating Margin

$51.9 million $34.7 million $31.9 million $22.9 million

Net Income and EPS

$29.9 million $21.5 million $34.9 million $25.1

$0.69 $0.52 $0.80 $0.60 (2)

Recent Development s

Acquisition of Remaining Equity in Viatt

February 2010 $0.4 million China January 2011 $1.5 million China

Appointment of Executive Vice Chairman of the Board

February 24, 2011 David Lifeng Chen

Outlook for the First Quarter and Full Year 20 11

The Company expects:

  • $56 million and $57 million
  • $0.19 November 2010
  • $270 million
  • $0.94
  • The EPS outlook assumes an effective income tax rate between 12% and 15%.  The higher end of the tax rate assumes that the Company’s main operating subsidiary will be taxed at a 15% income tax rate in 2011, although it may receive a potential tax rebate of 5% at the end of the year if the entity continues to be qualified as a Key Software Enterprise, a status that is subject to annual approval by the Chinese government.  The subsidiary has received such status in the past three years.
  • $0.08 to $0.11

Conference Call

7:30 AM Eastern Standard Time Monday, February 28, 2011 8:30 PM Hong Kong

The dial-in details for the live conference call are as follows:

– U.S. Toll Free Dial-in Number: + 1 8 66 .7 13 . 8310

– International Dial-in Number: +1 617. 597 . 5308

– Hong Kong Dial-in Number: +852 3002 . 1672

Passcode: 96882936

http://ir.vanceinfo.com

March 7, 2011

About VanceInfo

China China

The Company ranked number one among Chinese offshore software development service providers for the North American and European markets as measured by 2009 revenues, according to International Data Corporation.

the United States Europe Japan Greater China

Safe Harbor

China February 28, 2011

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: non-GAAP income from operations, net income, diluted EPS and related margins exclude share-based compensation expense, amortization of acquired intangible assets, a non-recurring transitional loss associated with the Expedia account in the third quarter of 2009, and change in fair value of contingent consideration payable for business acquisition. The non-GAAP income from operations, net income, diluted EPS and related margins 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. 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. 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 income from operations, net income, diluted EPS and related margins 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. The reconciliations of the forward-looking guidance for 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 the Company can reasonably predict.

(1) Non-GAAP income from operations, net income, EPS and related margins exclude share-based compensation expense, amortization of acquired intangible assets, a non-recurring transitional loss associated with the Expedia account in the third quarter of 2009 and c hange in f air v alue of contingent consideration payable for business acquisition . The non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying section of " About N on-GAAP Financial Measures" and the accompanying table of "Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures at the end of the press release."

( 2 ) Adjustments have been made to non-GAAP measures in prior periods to be consistent with current period presentation.

( 3 ) Short-dated investments refer to investments that will mature within 18 months.

( 4 ) Calculated by dividing a verage accounts receivable, net of a dvance from customer s and deferred revenues, by the period s gross revenues before business tax, and multiplying by the number of days in the period.

( 5 ) Each American depository share represents one ordinary share.

VANCEINFO TECHNOLOGIES INC.

Condensed Consolidated Balance Sheets (Unaudited)

(US dollars in thousands, except share data)

December 31,

December 31,

2010

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