iSoftStone Holdings Ltd (ADR) : iSoftStone Reports Financial and Operating Results for the Second Quarter 2012
08/17/2012| 09:37am US/Eastern
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BEIJING, Aug. 17,
2012/PRNewswire-Asia/ -- iSoftStone Holdings
Limited ("iSoftStone", or "the Company",
NYSE: ISS), a leading China-based IT services
provider, today reported its unaudited financial and
operating results for the second quarter ended June 30,
2012.
Second quarter 2012 financial and operating results
-
Net revenues increased 37.4% to $92.0
millionin the second quarter 2012 from $67.0
millionin the second quarter 2011.
-
Gross profit increased 22.2% to $30.2
millionin the second quarter 2012 from $24.7
millionin the second quarter 2011.
-
Net income in the second quarter 2012 decreased 38.5% to
$3.6 millionfrom $5.9 millionin
the second quarter 2011.
-
Non-GAAP net income (note 1) increased 4.5% to $8.2
millionin the second quarter 2012 from $7.9
millionin the second quarter 2011.
-
Diluted earnings per American Depositary Share
("ADS") were $0.06in the second
quarter 2012 compared with $0.10in the second
quarter 2011. Each ADS represents 10 ordinary shares.
-
Non-GAAP diluted earnings per ADS (note 1) were
$0.14in the second quarter 2012 and
$0.13in the second quarter 2011.
-
Total number of employees increased 34.1% to 13,348 as of
June 30, 2012from 9,956 as of June 30,
2011.
First half 2012 financial and operating results
-
Net revenues increased 44.0% to $178.4
millionin the first half 2012 from $123.9
millionin the first half 2011.
-
Gross profit increased 28.1% to $58.0
millionin the first half 2012 from $45.2
millionin the first half 2011.
-
Net income in the first half 2012 decreased 37.0% to
$7.0 millionfrom $11.0 millionin
the first half 2011.
-
Non-GAAP net income (note 1) increased 10.9% to $15.5
millionin the first half 2012 from $14.0
millionin the first half 2011.
-
Diluted earnings per ADS were $0.12in the
first half 2012 and $0.18in the first half
2011. Each ADS represents 10 ordinary shares.
-
Non-GAAP diluted earnings per ADS (note 1) were
$0.26in the first half 2012 and
$0.23in the first half 2011.
Mr. T.W. Liu, iSoftStone's Chairman and
Chief Executive Officer, said, "iSoftStone achieved
solid business growth in the second quarter 2012. The vast
majority of our growth was organic.
"We continued to execute our business strategies well
during the quarter, including optimizing our business mix,
balancing our geographic markets, focusing on our key
verticals, and improving our operational efficiency.
"Importantly, our Consulting and Solutions business
increased 66.8%, second quarter over second quarter. Our
major markets, Chinaand the U.S., grew well, as
did our major verticals, BFSI and ETP. In some of our newly
won and renewed projects, we increased contract values and
billing rates and shortened payment cycles.
"We will continue to strive to improve our operating and
financial efficiency to respond to the challenges of cost
pressures, market competition, and global economic slowing.
We believe we can achieve better performance in second half
of 2012 and in the years ahead.
"As the IT outsourcing industry continues to evolve
globally and consolidate in China, we continue
to seek ways to grow our business and deepen our most
significant client relationships. For example, we are
currently in negotiations about a possible joint venture with
Huawei Technologies Co., Ltd. ("Huawei"). Because
the negotiations with Huawei are ongoing, no details about
the possible joint venture can be disclosed. There can be no
assurance that a joint venture will be consummated between
iSoftStone and Huawei in the near term or at all."
Results of operations for the second quarter 2012
Net revenues
Net revenues increased $25.1 millionor 37.4% to
$92.0 millionin the second quarter 2012 from
$67.0 millionin the second quarter 2011, mainly
due to strong demand for IT services from customers from both
Greater Chinaand the United States.
Net revenues by service line
We derive net revenues by providing an integrated suite of IT
services and solutions, including: (a) IT Services, which
primarily includes application development and maintenance,
or ADM, as well as R&D services and infrastructure and
software services; (b) Consulting & Solutions; and (c)
Business Process Outsourcing, or BPO, services. The following
table shows our net revenues by service line.
|
US$ in thousands, except %
|
2011Q2
|
%
|
|
2012Q2
|
%
|
|
IT services
|
|
|
|
|
|
|
ADM
|
21,359
|
31.9%
|
|
29,321
|
31.9%
|
|
R&D
|
21,243
|
31.7%
|
|
25,892
|
28.1%
|
|
Infrastructure and software
|
3,152
|
4.7%
|
|
3,928
|
4.3%
|
|
IT services, total
|
45,754
|
68.3%
|
|
59,141
|
64.3%
|
|
Consulting & Solutions
|
17,807
|
26.6%
|
|
29,710
|
32.2%
|
|
BPO services
|
3,393
|
5.1%
|
|
3,162
|
3.5%
|
|
Total net revenues
|
66,954
|
100.0%
|
|
92,013
|
100.0%
|
Net revenues from IT Services increased $13.4
millionor 29.3% to $59.1 millionin the
second quarter 2012 from $45.8 millionin the
second quarter 2011. Net revenues from Consulting & Solutions
increased $11.9 millionor 66.8% to $29.7
millionin the second quarter 2012 from $17.8
millionin the second quarter 2011. The year-on-year
quarterly growth was largely contributed by winning two
public sector projects in Fujianand
Gansuprovinces and business intelligence
projects for a Chinadomestic bank. We expect
that these types of solutions businesses will continue to be
one of our growth drivers in the future. Net revenues from
BPO services decreased 6.8% to $3.2 millionin
the second quarter 2012 from $3.4 millionin the
second quarter 2011 primarily as a result of the completion
of a major project in the third quarter 2011.
Net revenues by geographic markets
We classify our net revenues by the following geographic
markets: Greater China(which includes
China, Taiwan, Hong
Kong, and Macau) and Global (which
includes the United States, Europe,
Japan, and others) based on the headquarters
locations of our clients. The following table shows our net
revenues by geographic markets.
|
US$ in thousands, except %
|
2011Q2
|
%
|
|
2012Q2
|
%
|
|
Greater China
|
38,062
|
56.8%
|
|
55,912
|
60.8%
|
|
Global:
|
|
|
|
|
|
|
United States
|
17,613
|
26.3%
|
|
23,078
|
25.1%
|
|
Europe
|
5,181
|
7.7%
|
|
6,532
|
7.1%
|
|
Japan
|
5,932
|
8.9%
|
|
5,995
|
6.5%
|
|
Others
|
166
|
0.3%
|
|
496
|
0.5%
|
|
Global total
|
28,892
|
43.2%
|
|
36,101
|
39.2%
|
|
Total net revenues
|
66,954
|
100.0%
|
|
92,013
|
100.0%
|
Our net revenues from Greater Chinaclients
increased $17.9 millionor 46.9% to $55.9
millionin the second quarter 2012 from $38.1
millionin the second quarter 2011. Net revenues from
U.S. clients increased $5.5 millionor 31.0% to
$23.1 millionin the second quarter 2012 from
$17.6 millionin the second quarter 2011. Net
revenues from European clients increased $1.4
millionor 26.1% to $6.5 millionin the
second quarter 2012 from $5.2 millionin the
second quarter 2011. Net revenues from Japanese clients were
even on a year-on-year basis due to slow economic recovery in
Japan.
Net revenues by client industry
We focus on serving clients in four target industry
verticals, each with large and growing demand for IT services
and solutions: technology; communications; banking, financial
services and insurance, or BFSI; and energy, transportation
and public sector. The following table shows our net revenues
by client industry.
|
US$ in thousands, except %
|
2011Q2
|
%
|
|
2012Q2
|
%
|
|
Technology
|
20,332
|
30.4%
|
|
27,181
|
29.5%
|
|
Communications
|
26,174
|
39.1%
|
|
33,404
|
36.3%
|
|
BFSI
|
13,852
|
20.7%
|
|
19,235
|
20.9%
|
|
Energy, transportation, and public
|
2,719
|
4.0%
|
|
7,066
|
7.7%
|
|
Others
|
3,877
|
5.8%
|
|
5,127
|
5.6%
|
|
Total net revenues
|
66,954
|
100.0%
|
|
92,013
|
100.0%
|
Net revenues from technology clients increased $6.8
millionor 33.7% to $27.2 millionin the
second quarter 2012 from $20.3 millionin the
second quarter 2011. Net revenues from communications clients
increased $7.2 millionor 27.6% to $33.4
millionin the second quarter 2012 from $26.2
millionin the second quarter 2011. Net revenues from
BFSI clients increased $5.4 millionor 38.9% to
$19.2 millionin the second quarter 2012 from
$13.9 millionin the second quarter 2011. Net
revenues from energy, transportation, and public sector
clients increased $4.3 millionor 159.9% to
$7.1 millionin the second quarter 2012 from
$2.7 millionin the second quarter 2011 primarily
due to two new wins to develop cloud computing projects in
the Fujianand Gansuprovinces. Net
revenues from all other industries increased $1.3
millionto $5.1 millionin the second
quarter 2012 from $3.9 millionin the second
quarter 2011 resulting from new projects in the tobacco and
retail industries.
Net revenues by five largest clients
Net revenues from our top five clients totaled $41.0
millionor 44.6% of total net revenues in the second
quarter 2012 compared with $29.6 millionor 44.2%
in the second quarter 2011.
Net revenues by pricing method
We provide our services on a time-and-expense basis, a
fixed-price basis, or for certain BPO services, on the basis
of volume of work processed for our clients. The following
table shows our net revenues by pricing method.
|
US$ in thousands, except %
|
2011Q2
|
%
|
|
2012Q2
|
%
|
|
Time-and-expense basis
|
25,815
|
38.6%
|
|
34,528
|
37.5%
|
|
Fixed-price basis
|
39,920
|
59.6%
|
|
56,934
|
61.9%
|
|
Volume basis (BPO)
|
1,219
|
1.8%
|
|
551
|
0.6%
|
|
Total net revenues
|
66,954
|
100.0%
|
|
92,013
|
100.0%
|
Net revenues from time-and-expenses basis projects increased
$8.7 millionor 33.8% to $34.5
millionin the second quarter 2012 from $25.8
millionin the second quarter 2011. Net revenues from
fixed-price basis projects increased $17.0
millionor 42.6% to $56.9 millionin the
second quarter 2012 from $39.9 millionin the
second quarter 2011. Net revenues from volume basis decreased
$0.7 millionor 54.8% to $0.6
millionin the second quarter 2012 from $1.2
millionin the second quarter 2011 primarily due to the
completion of a major BPO project in the third quarter of
2011.
Cost of revenues, gross profit, and gross profit margin
Cost of revenues increased $19.6 millionor 46.3%
to $61.8 millionin the second quarter 2012 from
$42.3 million in the second quarter 2011
primarily due to service delivery employees and facilities
added to enable and match the growth of our business.
Gross profit increased $5.5 millionor 22.2% to
$30.2 millionin the second quarter 2012 from
$24.7 millionin the second quarter 2011. Gross
profit margin decreased to 32.8% in the second quarter 2012
from 36.9% in the second quarter 2011 primarily due to (a)
annual salary increases for delivery personnel effective
since January 2012or April 2012,
(b) more higher-end delivery employees and fresh college
graduates hired starting from the third quarter 2011, and (c)
expanded office facilities in several delivery centers, which
were partly offset by government subsidies recognized and
favorable business mix and efficiency improvements in the
second quarter 2012.
Operating expenses
Operating expenses increased by $6.9 millionor
36.7% to $25.7 millionin the second quarter 2012
from $18.8 millionin the second quarter 2011
primarily due to higher salary and compensation expenses, and
depreciation and office expenses in connection with expansion
in the number of employees and facilities to support our
business growth and annual salary increases for operations
employees effective since January 2012or
April 2012.
Excluding share-based compensation and amortization of
intangible assets from acquisitions, the non-GAAP operating
expenses (note 1) were $21.5 million, or 23.4%
of net revenues in the second quarter 2012 compared with
$17.0 million, or 25.5% of net revenues in the
second quarter 2011. The decrease of operating expenses as a
percentage of net revenues reflected our scale efficiencies
realized.
Income from operations
Income from operations decreased $2.0 millionor
31.7% to $4.3 millionin the second quarter 2012
from $6.3 millionin the second quarter 2011 due
to higher cost of revenues and higher operating expenses
explained above that resulted from more employees and
facilities added to support our expansion.
Non-GAAP income from operations (note 1) increased $0.7
millionor 8.0% to $8.9 millionin the
second quarter 2012 from $8.2 millionin the
second quarter 2011.
Income taxes
Income tax expense increased to $0.5 millionin
the second quarter 2012 from $0.4 millionin the
second quarter 2011 due to the expiration of tax exemptions
and holidays in certain operating entities in
Chinaby the end of 2011.We currently estimate
that the effective tax rate will be approximately 14.5% for
the year 2012. We previously estimated an effective tax rate
of 17.6% for the year 2012. The decrease in the estimated
effective tax rate for 2012 reflects receipt of a tax
exemption approval for one of our PRC legal entities in the
second quarter 2012.
Net income
Net income decreased $2.3 millionor 39.0% to
$3.6 millionin the second quarter 2012 from
$5.9 millionin the second quarter 2011. The
decrease in net income was primarily due to a $5.5
milliongross profit increase as we continued to grow
our revenues, offset by a $6.9 millionincrease
in operating expenses and increased interest expenses and
income taxes explained above. The $6.9
millionincrease in operating expenses primarily
consisted of $4.4 millionin higher salary
expenses for more employees added to support our expansion
and $2.4 millionin higher share-based
compensation, which were due to granting more stock options
and restricted shares to employees and consultants, and early
vesting of certain restricted shares of some consultants
during the second quarter 2012.
Non-GAAP net income (note 1) increased by $0.4
millionor 4.5% to $8.2 millionin the
second quarter 2012 from $7.9 millionin the
second quarter 2011.
Earnings per ADS
Basic earnings per ADS were $0.06in the second
quarter 2012 and $0.11in the second quarter
2011.
Diluted earnings per ADS were $0.06in the second
quarter 2012 and $0.10in the second quarter
2011.
Non-GAAP diluted earnings per ADS (note 1) were
$0.14in the second quarter 2012 and
$0.13in the second quarter 2011.
Cash and Cash Flow
As of June 30, 2012, we had a cash balance of
$60.1 million. Our net cash used in operating
activities in the second quarter 2012 was $9.9
million. Our net cash used in investing activities in
the second quarter 2012 was $1.8 million,
including capital expenditures of $3.7 million.
Days sales outstanding, or DSO, was 171 days for the second
quarter 2012 and 155 days for the second quarter 2011. DSO is
calculated by dividing average accounts receivable, net of
deferred revenues, by the period's gross revenues, and
multiplying by the number of days in the period. The longer
quarterly DSO in the second quarter 2012 was mainly due to
faster revenue growth from domestic Chinaclients
who tend to have longer payment cycles.
Results of operations for the first half 2012
Net revenues
Net revenues increased $54.5 millionor 44.0% to
$178.4 millionin the first half 2012 from
$123.9 millionin the first half 2011 due to
strong customer demand for IT services in both Greater
Chinaand the United States.
Net revenues by service line
The following table shows our net revenues by service line.
|
US$ in thousands, except %
|
First Half 2011
|
%
|
|
First Half 2012
|
%
|
|
IT services
|
|
|
|
|
|
|
ADM
|
42,052
|
33.9%
|
|
58,471
|
32.8%
|
|
R&D
|
39,445
|
31.8%
|
|
52,837
|
29.6%
|
|
Infrastructure and software
|
5,769
|
4.7%
|
|
5,686
|
3.2%
|
|
IT services, total
|
87,266
|
70.4%
|
|
116,994
|
65.6%
|
|
Consulting & Solutions
|
30,901
|
25.0%
|
|
55,285
|
31.0%
|
|
BPO services
|
5,704
|
4.6%
|
|
6,083
|
3.4%
|
|
Total net revenues
|
123,871
|
100.0%
|
|
178,362
|
100.0%
|
Net revenues from IT Services increased $29.7
millionor 34.1% to $117.0 millionin the
first half 2012 from $87.3 millionin the first
half 2011. Net revenues from Consulting & Solutions increased
$24.4 millionor 78.9% to $55.3
millionin the first half 2012 from $30.9
millionin the first half 2011. Net revenues from BPO
services increased 6.6% to $6.1 millionin the
first half 2012 from $5.7 millionin the first
half 2011. The growth of net revenue was primarily due to
deepening and broadening our engagements with existing
clients and new wins of public sector projects in the
Fujianand Gansuprovinces and in
Liaoyuan city.
Net revenues by geographic markets
The following table shows our net revenues by geographic
markets.
|
US$ in thousands, except %
|
First Half 2011
|
%
|
|
First Half 2012
|
%
|
|
Greater China
|
69,493
|
56.1%
|
|
107,351
|
60.2%
|
|
Global:
|
|
|
|
|
|
|
United States
|
31,949
|
25.8%
|
|
45,303
|
25.4%
|
|
Europe
|
10,314
|
8.3%
|
|
12,311
|
6.9%
|
|
Japan
|
11,802
|
9.5%
|
|
12,275
|
6.9%
|
|
Others
|
313
|
0.3%
|
|
1,122
|
0.6%
|
|
Global total
|
54,378
|
43.9%
|
|
71,011
|
39.8%
|
|
Total net revenues
|
123,871
|
100.0%
|
|
178,362
|
100.0%
|
|
|
|
|
|
|
|
Our net revenues from Greater Chinaclients
increased $37.9 millionor 54.5% to $107.4
millionin the first half 2012 from $69.5
millionin the first half 2011. Net revenues from U.S.
clients increased $13.4 millionor 41.8% to
$45.3 millionin the first half 2012 from
$32.0 millionin the first half 2011. Net
revenues from European clients increased $2.0
millionor 19.4% to $12.3 millionin the
first half 2012 from $10.3 millionin the first
half 2011. Net revenues from Japanese clients were relatively
even.
Net revenues by client industry
The following table shows our net revenues by client
industry.
|
US$ in thousands, except %
|
First Half 2011
|
%
|
|
First Half 2012
|
%
|
|
Technology
|
38,855
|
31.4%
|
|
52,077
|
29.2%
|
|
Communication
|
47,508
|
38.4%
|
|
66,342
|
37.2%
|
|
BFSI
|
25,719
|
20.8%
|
|
35,020
|
19.6%
|
|
Energy, transportation and public
|
4,425
|
3.5%
|
|
14,839
|
8.3%
|
|
Others
|
7,364
|
5.9%
|
|
10,084
|
5.7%
|
|
Total net revenues
|
123,871
|
100.0%
|
|
178,362
|
100.0%
|
Net revenues from technology clients increased $13.2
millionor 34.0% to $52.1 millionin the
first half 2012 from $38.9 millionin the first
half 2011. Net revenues from communications clients increased
$18.8 millionor 39.6% to $66.3
millionin the first half 2012 from $47.5
millionin the first half 2011. Net revenues from BFSI
clients increased $9.3 millionor 36.2% to
$35.0 millionin the first half 2012 from
$25.7 millionin the first half 2011. Net
revenues from energy, transportation, and public sector
clients increased $10.4 millionor 235.3% to
$14.8 millionin the first half 2012 from
$4.4 millionin the first half 2011, which was
largely due to recent public sector solution project wins in
various tier-2 and tier-3 cities. Net revenues from all other
industries increased $2.7 millionto $10.1
millionin the first half 2012 from $7.4
millionin the first half 2011 resulting from new
projects in the tobacco and retail industries.
Net revenues by five largest clients
Net revenues from our top five clients totaled $81.6
millionor 45.8% of total net revenues in the first
half 2012 compared with $53.9 millionor 43.6% in
the first half 2011.
Net revenues by pricing method
The following table shows our net revenues by pricing method.
|
US$ in thousands, except %
|
First Half 2011
|
%
|
|
First Half 2012
|
%
|
|
Time-and-expense basis
|
49,960
|
40.3%
|
|
63,917
|
35.9%
|
|
Fixed-price basis
|
72,491
|
58.5%
|
|
113,259
|
63.5%
|
|
Volume basis (BPO)
|
1,420
|
1.2%
|
|
1,186
|
0.6%
|
|
Total net revenues
|
123,871
|
100.0%
|
|
178,362
|
100.0%
|
Net revenues from time-and-expenses basis projects increased
$14.0 millionor 27.9% to $63.9
millionin the first half 2012 from $50.0
millionin the first half 2011. Net revenues from
fixed-price basis projects increased $40.8
millionor 56.2% to $113.3 millionin the
first half 2012 from $72.5 millionin the first
half 2011. Net revenues from volume basis projects decreased
$0.2 millionor 16.5% to $1.2
millionin the first half 2012 from $1.4
millionin the first half 2011.
Cost of revenues, gross profit, and gross profit margin
Cost of revenues increased $41.8 millionor 53.1%
to $120.4 millionin the first half 2012 from
$78.6 million in the first half 2011
primarily due to service delivery employees added to enable
and match the growth of our business.
Gross profit increased $12.7 millionor 28.1% to
$58.0 millionin the first half 2012 from
$45.2 millionin the first half 2011. Gross
profit margin decreased to 32.5% in the first half 2012 from
36.5% in the first half 2011 primarily due to (a) annual
salary increases for delivery personnel effective since
January 2012or April 2012, (b) more
higher-end delivery employees and fresh graduates hired
starting from the third quarter 2011, (c) expanded office
facilities in several delivery centers, and (d) less
government subsidies recognized as a percentage of net
revenues in the first half 2012, which were partly offset by
favorable business mix and efficiency improvements.
Operating expenses
Operating expenses increased $12.5 millionor
34.3% to $49.2 millionin the first half 2012
from $36.6 millionin the first half 2011
primarily due to higher salary and compensation expenses, and
depreciation and office expenses in connection with expansion
in the number of employees and in facilities to support the
company's business growth and annual salary increase for
operation personnel effectively since January
2012or April 2012.
Excluding share-based compensation and amortization of
intangible assets from acquisitions, the non-GAAP operating
expenses (note 1) were $41.6 million, or 23.3%
of net revenues in the first half 2012 compared with
$31.8 million, or 25.7% of net revenues in the
first half 2011. The decrease of operating expenses as a
percentage of net revenues reflected our scale efficiencies
realized.
Income from operations
Income from operations was $8.4 millionin the
first half 2012 compared with $9.9 millionin the
first half 2011 due to higher cost of revenues and higher
operating expenses explained above that are resulted from
more employees and facilities added to support our expansion.
Non-GAAP income from operations (note 1) increased $1.9
millionor 12.8% to $17.0 millionin the
first half 2012 from $15.1 millionin the first
half 2011.
Interest expense
Interest expense was $0.6 millionin the first
half 2012 and $1.4 millionin the first half
2011. Interest expense in the first half 2012 was interest on
short-term bank borrowings. Interest expense in the first
half 2011 included imputed interest of $0.7
millionaccrued for our convertible notes and
$0.7 millionof interest on short-term bank
borrowings.
Income taxes
Income tax expense increased to $1.2 millionin
the first half 2012 from $0.7 millionin the
first half 2011 resulting from the expiration of the tax
exemptions and tax holidays in certain operating entities in
Chinaby the end of 2011. We currently estimate
that the effective tax rate should be approximately 14.5% for
the year 2012.
Net income
Net income decreased $4.0 millionor 36.4% to
$7.0 millionin the first half 2012 from
$11.0 millionin the first half 2011. The
decrease in net income was primarily due to a $12.7
milliongross profit increase as we continued to grow
our revenues, offset by a $12.5 millionoperating
expenses increase, higher income taxes as explained above,
and lower income from the change in the fair value of
convertible notes derivatives of $2.8 million.
All of our convertible notes were converted into ordinary
shares by March 2011and the conversions had no
financial impact on the statement of operations of the first
half 2012.
Non-GAAP net income (note 1) increased $1.5
millionor 10.9% to $15.5 millionin the
first half 2012 from $14.0 millionin the first
half 2011.
Earnings per ADS
Basic earnings per ADS were $0.12in the first
half 2012 and $0.20in the first half 2011.
Diluted earnings per ADS were $0.12in the first
half 2012 and $0.18in the first half 2011.
Non-GAAP diluted earnings per ADS (note 1) were
$0.26in the first half 2012 and
$0.23in the first half 2011.
Cash and Cash Flow
As of June 30, 2012, we had a cash balance of
$60.1 million. Our net cash used in operating
activities in the first half 2012 was $29.0
million. Our net cash used in investing activities in
the first half 2012 was $9.7 million, including
capital expenditures of $9.2 million.
Days sales outstanding was 167 days for the first half 2012
and 157 days for the first half 2011.
Recent Developments
Acquisition of Abovenet International Inc.
("Abovenet")
In June 2012, we acquired Abovenet, a business
intelligence and data management services provider based in
Canada, to further strengthen our strategy and
capabilities in business intelligence and big data. Total
consideration for the acquisition will be determined based on
Abovenet's income from operations for the 12 months
ending on December 31, 2012. The total
consideration is capped at $3.0 millionand will
be paid in cash in multiple installments during the next
three years.
Outlook for the third quarter of 2012 and full year 2012
For the third quarter 2012, iSoftStone expects to achieve the
following targets:
-
Net revenues for the third quarter 2012 to be at least
$98.0 million.
-
Net income for the third quarter 2012 to be at least
$6.3 million.
-
Non-GAAP net income for the third quarter 2012 to be at
least $10.0 million.
-
Non-GAAP diluted earnings per ADS for the third quarter
2012 to be at least $0.17, assuming 58.5
million average ADSs will be outstanding in the third
quarter 2012. One ADS represents 10 ordinary shares.
For the full year 2012, iSoftStone expects to achieve the
following targets:
-
Net revenues in 2012 to be at least $386.5
million.
-
Net income in 2012 to be at least $23.0
million.
-
Non-GAAP net income in 2012 to be at least $39.0
million.
-
Non-GAAP diluted earnings per ADS in 2012 to be at least
$0.65, assuming 60.0 million average ADSs will
be outstanding in 2012. One ADS represents 10 ordinary
shares.
The above quarterly and annual outlook of net income reflects
an estimated income tax rate of 14.5%.
The guidance for Non-GAAP net income for the third quarter
and year 2012 reflects estimated impacts from delays in
pricing adjustments from major customers, continuous cost
inflation, investment in future business drivers, and
one-time costs in connection with negotiating the joint
venture with Huawei.
Non-GAAP measures
To supplement our financial results presented in accordance
with U.S. generally accepted accounting principles
("GAAP"), we use various non-GAAP financial
measures, which are adjusted from results based on U.S. GAAP
to exclude share-based compensation, amortization of
intangible assets from acquisitions, interest expense of
convertible notes, changes in fair value of convertible notes
derivatives and changes in fair value of contingent
consideration in business combinations. Reconciliations of
our non-GAAP financial measures to our U.S. GAAP financial
measures are shown in tables at the end of this earnings
release, which provide more details about the non-GAAP
financial measures.
Our non-GAAP financial information is provided as additional
information to help our investors compare business trends
among different reporting periods on a consistent basis and
to enhance investors' overall understanding of the
historical and current financial performance of our
continuing operations and our prospects for the future. Our
non-GAAP financial information should be considered in
addition to results prepared in accordance with U.S. GAAP,
but should not be considered a substitute for or superior to
U.S. GAAP results. In addition, our calculation of this
non-GAAP financial information may be different from the
calculation used by other companies, and therefore
comparability may be limited.
Note 1
Our non-GAAP information (including non-GAAP operating
expenses, income from operations, net income and diluted
earnings per ADS) excluded share-based compensation, interest
expense of convertible notes, change in fair value of
convertible notes derivatives, changes in fair value of
contingent consideration in connection with business
combination, and amortization of intangible assets from
acquisitions. For a reconciliation of our non-GAAP measures
to our U.S. GAAP measures, please see the reconciliation
table at the end of this earnings release.
Conference Call on August17, 2012
iSoftStone will host an earnings conference call and live
webcast covering its second quarter 2012 financial results at
8:00 a.m. Eastern Daylight Time(New
York) on August 17, 2012(which is also
8:00 p.m.in Beijingand Hong
Kongon August 17).
The dial-in details for the live conference call are:
|
U.S.
toll-free
|
1 866 519 4004
|
|
U. K.
toll-free
|
080 8234 6646
|
|
Netherlands
|
08 000 221 931
|
|
Norway
toll-free
|
80 01 07 19
|
|
China
toll-free
|
800 819 0121
|
|
China toll-free
mobile
|
400 620 8038
|
|
Hong Kong
toll-free
|
800 930 346
|
|
Hong Kong
toll
|
+852 2475 0994
|
|
U.S.
toll
|
1 718 354 1231
|
|
International
toll
|
+65 6723 9381
|
|
Participant
password
|
ISS
|
A live webcast and archived webcast of the conference call
will be available on the Investors section of
iSoftStone's website at www.isoftstone.com. To join
the webcast, please go to iSoftStone's website at least
15 minutes before the start of the call to register and
download and install any necessary audio software.
A telephone replay of the call will be available about two
hours after the conclusion of the conference call through
11:59 p.m. Eastern Daylight Timeon August
24, 2012. The dial-in details for the telephone replay
are as follows:
|
U.S.
toll-free
|
1 866 214 5335
|
|
U. K.
toll-free
|
0 800 731 7846
|
|
China
toll-free
|
10 80 0714 0386
|
|
Hong Kong
toll-free
|
800 901 596
|
|
Singapore
toll-free
|
800 616 3021
|
|
International
toll
|
+61 2 8235 5000
|
|
U.S.
toll
|
1 718 354 1232
|
|
Replay
ID
|
1342 0582
|
Safe harbor statement
This news release contains "forward-looking"
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and as defined
in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include our preliminary
unaudited results for the second quarter 2012 and the first
half 2012, our financial outlook for the third quarter and
full year of 2012, our possible joint venture with Huawei and
the continued success of our strategy (including the success
of our focus on optimizing business mix, enhancing service
capabilities, industry vertical focus, geographic balance,
and improving operational efficiency), and our ability to
make continued long-term investments, particularly in light
of a challenging global economic environment and slowdown of
the Chinaeconomy.
Our forward-looking statements are not historical facts but
instead represent only our belief regarding expected results
and events, many of which, by their nature, are inherently
uncertain and outside of our control. Our actual results and
other circumstances may differ, possibly materially, from the
anticipated results and events indicated in these
forward-looking statements. Announced results for the second
quarter 2012 and the first half 2012 are preliminary,
unaudited, and subject to audit adjustment. In addition, we
may not meet our financial outlook for the third quarter and
full year of 2012, continue to realize operational and
delivery efficiencies and continued strong client demand or
achieve a diversified revenue base, effectively capitalize on
our growth opportunities and strategies, enter targeted
markets, or otherwise grow our business in the manner
planned, successfully complete planned acquisitions,
strategic investments or joint ventures or recognize the
anticipated benefits of our acquisitions, strategic
investments or joint venture, on a timely basis or at all.
Our customers may vary their purchasing patterns in response
to the economic environment in Greater Chinaand
globally. In addition, other risks and uncertainties that
could cause our actual results to differ from what we
currently anticipate include: our ability to effectively
manage our rapid growth; intense competition from
China-based and international IT services
companies; our ability to attract and retain sufficiently
trained professionals to support our operations; and our
ability to anticipate and develop new services and enhance
existing services to keep pace with rapid changes in
technology and in our selected industries. For additional
information on these and other important factors that could
adversely affect our business, financial condition, results
of operations, and prospects, please see "Risk
Factors" that begins on page 7 of our 2011 Annual Report
on Form 20-F that we filed with the U.S. Securities and
Exchange Commission on April 27, 2012, which can
be found on our website at www.isoftstone.com and at http://www.sec.gov/.
All projections (including our third quarter 2012 and year
2012 financial outlook) in this release are based on limited
information currently available to us, which is subject to
change. Although these projections and the factors
influencing them will likely change, we undertake no
obligation to update or revise these forward-looking
statements, whether as a result of new information, future
events, or otherwise, except as required by law. Such
information speaks only as of the date of this release.
About iSoftStone Holdings Limited
Founded in 2001, iSoftStone is a leading
China-based IT services provider serving both
greater Chinaand global clients. iSoftStone
provides an integrated suite of IT services and solutions
including consulting & solutions, IT services, and business
process outsourcing services. The company focuses on industry
verticals that include technology, communications, banking,
financial services, insurance, energy, transportation, and
public sectors.
iSoftStone's American depositary shares began trading on
the New York Stock Exchange on December 14,
2010.
For more information, please visit www.isoftstone.com.
iSoftStone Holdings Limited
Mr. Jonathan Zhang
Chief Financial Officer
ir@isoftstone.com
Christensen
Mr. Tom Myers
+86 139 1141 3520
tmyers@christensenir.com
http://www.isoftstone.com/
|
iSoftStone Holdings Limited
|
|
Unaudited Condensed Consolidated Statement of
Operations
|
|
(US dollars in thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
June 30
|
|
June 30
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
Revenues
|
68,238
|
|
94,021
|
|
126,282
|
|
181,793
|
|
Business tax
|
(1,284)
|
|
(2,008)
|
|
(2,411)
|
|
(3,431)
|
|
Net revenues
|
66,954
|
|
92,013
|
|
123,871
|
|
178,362
|
|
Cost of revenues
|
(42,253)
|
|
(61,835)
|
|
(78,625)
|
|
(120,403)
|
|
Gross profit
|
24,701
|
|
30,178
|
|
45,246
|
|
57,959
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
(11,743)
|
|
(16,169)
|
|
(23,215)
|
|
(30,814)
|
|
Selling and marketing expenses
|
(6,130)
|
|
(8,192)
|
|
(11,515)
|
|
(16,136)
|
|
Research and development expenses
|
(943)
|
|
(1,363)
|
|
(1,891)
|
|
(2,219)
|
|
Total operating expenses
|
(18,816)
|
|
(25,724)
|
|
(36,621)
|
|
(49,169)
|
|
Change in fair value of contingent
consideration in connection with business
combination
|
(24)
|
|
(111)
|
|
(82)
|
|
(510)
|
|
Other income (expenses)
|
255
|
|
(117)
|
|
339
|
|
(178)
|
|
Government subsidies
|
168
|
|
93
|
|
1,040
|
|
309
|
|
Income from operations
|
6,284
|
|
4,319
|
|
9,922
|
|
8,411
|
|
Interest income
|
373
|
|
140
|
|
651
|
|
515
|
|
Interest expense
|
(226)
|
|
(284)
|
|
(1,406)
|
|
(571)
|
|
Change in fair value of convertible notes
derivatives
|
-
|
|
-
|
|
2,832
|
|
-
|
|
Income before provision for income taxes and
loss in equity method investments, net of income
taxes
|
6,431
|
|
4,175
|
|
11,999
|
|
8,355
|
|
Income tax expense
|
(368)
|
|
(465)
|
|
(693)
|
|
(1,167)
|
|
Income after income tax before loss in equity
method investments, net of income taxes
|
6,063
|
|
3,710
|
|
11,306
|
|
7,188
|
|
Loss in equity method investments, net of
income tax
|
(166)
|
|
(84)
|
|
(258)
|
|
(233)
|
|
Net income
|
5,897
|
|
3,626
|
|
11,048
|
|
6,955
|
|
Less: Net income attributable to noncontrolling
interest
|
77
|
|
35
|
|
82
|
|
76
|
|
Net income attributable to iSoftstone Holdings
Limited
|
5,820
|
|
3,591
|
|
10,966
|
|
6,879
|
|
|
|
|
|
|
|
|
|
Earnings per share (in US$)
|
|
|
|
|
|
|
|
|
Basic
|
0.01
|
|
0.01
|
|
0.02
|
|
0.01
|
|
Diluted
|
0.01
|
|
0.01
|
|
0.02
|
|
0.01
|
|
Earnings per ADS (in US$)
|
|
|
|
|
|
|
|
|
Basic
|
0.11
|
|
0.06
|
|
0.2
|
|
0.12
|
|
Diluted
|
0.1
|
|
0.06
|
|
0.18
|
|
0.12
|
|
Weighted average shares (in thousands)
|
|
|
|
|
|
|
|
|
Basic
|
548,048
|
|
562,906
|
|
539,370
|
|
560,767
|
|
Diluted
|
598,796
|
|
583,677
|
|
598,531
|
|
587,462
|
|
|
|
|
|
|
|
|
|
iSoftStone Holdings Limited
|
|
Unaudited Condensed Consolidated Statement of
Comprehensive Income
|
|
(US dollars in thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
June 30
|
|
June 30
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
Net income
|
5,897
|
|
3,626
|
|
11,048
|
|
6,955
|
|
Other comprehensive income, net of tax of
nil
|
|
|
|
|
|
|
|
|
Change in cumulative foreign currency
translation adjustment
|
2,129
|
|
(1,880)
|
|
3,005
|
|
(2,470)
|
|
Comprehensive income
|
8,026
|
|
1,746
|
|
14,053
|
|
4,485
|
|
Less: comprehensive income attributed to the
noncontrolling interest
|
91
|
|
16
|
|
104
|
|
56
|
|
Comprehensive income attributed to iSoftstone
Holdings Limited
|
7,935
|
|
1,730
|
|
13,949
|
|
4,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iSoftStone Holdings Limited
|
|
Condensed Consolidated Balance Sheets
|
|
(US dollars in thousands)
|
|
|
|
|
|
December
|
|
June
|
|
31, 2011
|
30, 2012
|
|
|
|
(Unaudited)
|
|
Cash
|
101,196
|
|
60,072
|
|
Restricted Cash
|
1,581
|
|
843
|
|
Accounts receivable, net of allowance
|
152,663
|
|
200,374
|
|
Other current assets
|
23,052
|
|
25,140
|
|
Total current assets
|
278,492
|
|
286,429
|
|
Property and equipment
|
55,791
|
|
57,206
|
|
Land use rights
|
3,242
|
|
3,176
|
|
Intangible assets
|
4,688
|
|
7,574
|
|
Goodwill
|
24,597
|
|
26,741
|
|
Other non-current assets
|
11,246
|
|
9,379
|
|
Total assets
|
378,056
|
|
390,505
|
|
|
|
|
|
Accounts payable
|
15,924
|
|
16,114
|
|
Deferred revenues
|
8,387
|
|
6,632
|
|
Short-term borrowings
|
15,094
|
|
14,954
|
|
Other current liabilities
|
40,454
|
|
40,551
|
|
Total current liabilities
|
79,859
|
|
78,251
|
|
Other non-current liabilities
|
3,438
|
|
4,126
|
|
Total liabilities
|
83,297
|
|
82,377
|
|
|
|
|
|
iSoftStone Holdings Limited Shareholders'
equity (note a)
|
293,160
|
|
306,036
|
|
Noncontrolling interest
|
1,599
|
|
2,092
|
|
Total liabilities and equity
|
378,056
|
|
390,505
|
|
|
|
|
|
Note a:
|
|
|
|
|
As of June 30, 2012, the number of ordinary
shares issued and outstanding was 567,749,392.
|
|
|
|
|
|
iSoftStone Holdings Limited
|
|
Unaudited Condensed Consolidated Statements of
Cash Flows
|
|
(US dollars in thousands)
|
|
Three months ended
|
|
Six months ended
|
|
June 30
|
|
June 30
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
5,897
|
|
3,626
|
|
11,048
|
|
6,955
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
1,333
|
|
3,831
|
|
3,883
|
|
6,870
|
|
Depreciation of property and equipment
|
1,639
|
|
2,325
|
|
3,059
|
|
4,562
|
|
Amortization of intangible assets
|
654
|
|
820
|
|
1,292
|
|
1,454
|
|
Amortization of land use rights
|
-
|
|
18
|
|
-
|
|
36
|
|
Provision of allowance for doubtful
accounts
|
549
|
|
154
|
|
999
|
|
93
|
|
Loss on equity method investments
|
166
|
|
84
|
|
258
|
|
233
|
|
Loss (gain) on disposal of property and
equipment
|
(10)
|
|
68
|
|
50
|
|
113
|
|
Changes in fair value for contingent
consideration in connection with business
combinations
|
24
|
|
111
|
|
82
|
|
510
|
|
Changes in fair value of convertible notes
derivatives
|
-
|
|
-
|
|
(2,832)
|
|
-
|
|
Imputed interest expense in connection with
convertible notes
|
-
|
|
-
|
|
654
|
|
-
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
(12,538)
|
|
(30,235)
|
|
(26,429)
|
|
(48,831)
|
|
Other assets
|
(1,547)
|
|
3,872
|
|
(4,878)
|
|
(1,109)
|
|
Accounts payable
|
1,788
|
|
3,895
|
|
(2,177)
|
|
(31)
|
|
Other liabilities
|
7,354
|
|
1,569
|
|
2,676
|
|
139
|
|
Net cash provided by (used in) operating
activities
|
5,309
|
|
(9,862)
|
|
(12,315)
|
|
(29,006)
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
(15,420)
|
|
(3,717)
|
|
(17,211)
|
|
(9,205)
|
|
Cost of long-term investments
|
(4,291)
|
|
-
|
|
(4,367)
|
|
-
|
|
Proceeds from sales of long-term
investments
|
-
|
|
577
|
|
-
|
|
577
|
|
Purchase of intangible assets
|
(107)
|
|
-
|
|
(107)
|
|
-
|
|
Consideration paid for business
acquisitions
|
(258)
|
|
(1,750)
|
|
(258)
|
|
(1,750)
|
|
Restricted cash
|
(231)
|
|
3,069
|
|
1,592
|
|
718
|
|
Net cash used in investing activities
|
(20,307)
|
|
(1,821)
|
|
(20,351)
|
|
(9,660)
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of ordinary shares
|
-
|
|
-
|
|
211
|
|
-
|
|
Payment of offering cost in connection with the
issuance of ordinary shares
|
(125)
|
|
-
|
|
(1,485)
|
|
-
|
|
Proceeds from exercise of options
|
2,251
|
|
224
|
|
2,789
|
|
1,793
|
|
Capital contribution from noncontrolling
interest shareholder
|
-
|
|
-
|
|
-
|
|
436
|
|
Proceeds from short-term borrowings
|
-
|
|
-
|
|
-
|
|
1,585
|
|
Payments of short-term borrowings
|
(37,627)
|
|
-
|
|
(37,627)
|
|
(1,585)
|
|
Deferred and contingent consideration paid for
business acquisitions
|
(469)
|
|
(197)
|
|
(2,324)
|
|
(3,980)
|
|
Net cash (used in) provided by financing
activities
|
(35,970)
|
|
27
|
|
(38,436)
|
|
(1,751)
|
|
Effect of exchange rate changes
|
630
|
|
(144)
|
|
958
|
|
(707)
|
|
Net decrease in cash and cash
equivalents
|
(50,338)
|
|
(11,800)
|
|
(70,144)
|
|
(41,124)
|
|
Cash at beginning of period
|
161,274
|
|
71,872
|
|
181,080
|
|
101,196
|
|
Cash at end of period
|
110,936
|
|
60,072
|
|
110,936
|
|
60,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iSoftStone Holdings Limited
|
|
|
|
|
|
Reconciliation of Non-GAAP financial measures
to comparable GAAP measures
|
|
|
|
|
|
(US dollars in thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.Reconciliation of Non-GAAP financial
operating expenses, income from operations and net
income to comparable GAAP measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Three months ended
|
|
|
|
|
|
June 30, 2011
|
June 30, 2012
|
|
|
|
|
|
GAAP
|
|
Adjustments
|
|
Non-GAAP
|
|
GAAP
|
|
Adjustments
|
|
Non-GAAP
|
|
|
|
|
|
Operating expenses
|
(18,816)
|
|
1,770 (a)
|
|
(17,046)
|
|
(25,724)
|
|
4,234 (c)
|
|
(21,490)
|
|
|
|
|
|
Income from operations
|
6,284
|
|
1,955 (a)(b)
|
|
8,239
|
|
4,319
|
|
4,577 (c)(d)
|
|
8,896
|
|
|
|
|
|
Net income
|
5,897
|
|
1,955 (a)(b)
|
|
7,852
|
|
3,626
|
|
4,577 (c)(d)
|
|
8,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
Six months ended
|
|
|
|
|
|
June 30, 2011
|
June 30, 2012
|
|
|
|
2. Reconciliation of diluted
EPS to Non-GAAP diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2011
|
|
Three months ended June 30, 2012
|
|
GAAP
|
|
|
|
Non-GAAP
|
|
GAAP
|
|
|
|
Non-GAAP
|
|
measures
|
|
Adjustments
|
|
measures
|
measures
|
|
Adjustments
|
|
measures
|
|
Weighted average ordinary shares
outstanding used in computing
diluted EPS (in thousands)
|
598,796
|
|
-
|
|
598,796
|
|
583,677
|
|
-
|
|
583,677(a)
|
|
Diluted earnings per share (in US$)
|
0.01
|
|
|
|
0.01
|
|
0.01
|
|
|
|
0.01
|
|
Diluted earnings per ADS (in US$)
|
0.10
|
|
|
|
0.13
|
|
0.06
|
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) In the earning release for the
first quarter 2012, we estimated 60.0 million average
ADSs or 600.0 million shares will be outstanding in
the second quarter 2012. The difference with the
actual number of 583.7 million shares was primarily
due to the delay of new option grants and the less
impact of existing stock options resulting from a
lower stock price than our original estimates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2011
|
|
Six months ended June 30, 2012
|
|
GAAP
|
|
|
|
Non-GAAP
|
|
GAAP
|
|
|
|
Non-GAAP
|
|
measures
|
|
Adjustments
|
|
measures
|
measures
|
|
Adjustments
|
|
measures
|
|
Weighted average ordinary shares
outstanding used in computing
diluted EPS (in thousands)
|
598,531
|
|
-
|
|
598,531
|
|
587,462
|
|
-
|
|
587,462
|
|
Diluted earnings per share (in US$)
|
0.02
|
|
|
|
0.02
|
|
0.01
|
|
|
|
0.03
|
|
Diluted earnings per ADS (in US$)
|
0.18
|
|
|
|
0.23
|
|
0.12
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
SOURCE iSoftStone Holdings Limited
distributed by
|
|
Recommend :
