Camelot Information Systems Inc. Announces Second-Quarter 2011 Unaudited Financial Results

BEIJING, August 18, 2011 /PRNewswire-Asia-FirstCall/ -- Camelot Information Systems Inc. ("Camelot" or the "Company") (NYSE: CIS), a leading domestic provider of enterprise application services and financial industry information technology ("IT") services in China, today announced unaudited financial results for the second quarter ended June 30, 2011.

SECOND-QUARTER 2011 FINANCIAL AND OPERATING HIGHLIGHTS

• Net revenues increased 34.8% year-over-year to US$59.4 million, compared to US$44.1 million in the second quarter of 2010
• Adjusted operating income(1) increased 19.3% year-over-year to US$8.8 million from US$7.4 million in the second quarter of 2010
• U.S. GAAP operating income decreased 12.0% year-over-year to US$3.7 million from US$4.2 million in the second quarter of 2010
• Adjusted net income(1) attributable to Camelot increased 21.9% year-over-year to US$8.0 million from US$6.5 million in the second quarter of 2010. Adjusted diluted earnings per ADS(2) were US$0.16, as compared to diluted earnings per ADS of US$0.16 in the second quarter of 2010.
• U.S. GAAP net income attributable to Camelot decreased 14.5% year-over-year to US$2.9 million from US$3.4 million in the second quarter of 2010. Diluted earnings per ADS were US$0.06 in the second quarter of 2011, as compared to US$0.09 per ADS in the second quarter of 2010
• On May 26, the Company announced a share repurchase program of up to US$20 million continuing through the end of 2011. In the quarter, the Company purchased a total of 210,500 ADSs at a total price of US$3.0 million.

Mr. Simon Ma, Camelot's Chairman and Chief Executive Officer, commented, "The momentum we experienced in the first quarter has continued into the second quarter, with revenues approximating our guidance. We experienced a pick-up in the pace of deliveries in the second quarter and we continue to see traditional seasonal business patterns that call for an acceleration in the second half of the year."

"In the first half of this year, we leveraged our substantial competitive advantages to expand our leadership position further within key markets. In our EAS business line, we continue to implement complex, mission-critical systems, which create high barriers to entry that enable us to receive attractive pricing from our customers. Our customized and industry-leading solutions in our FIS service line help our customers to be innovative and the first to market, thus gaining market share and also minimizing risk. We continue to target our product development on what we believe will be the most attractive spending areas within the commercial banking industry. Our long-term business model focuses on scalability and margin expansion," continued Mr. Ma.

"Our adjusted net income in the second quarter of 2011 fell short of our target due to a delay in the signing of some contracts and a provision for certain other current assets. Due mainly to the temporary impact from the streamlining of a business unit, we are reducing full-year guidance for net-revenue of approximately US$244 million and net income attributable to Camelot of approximately US$34.0 million. We are also offering third-quarter revenue and adjusted net-income guidance of $63 million and $9.5 million, respectively," concluded Mr. Ma.

Second-Quarter 2011 Financial Results

Net Revenues

Net revenues in the second quarter of 2011 ended June 30, 2011 increased 34.8% to US$59.4 million from US$44.1 million in the second quarter of 2010.

Net Revenues by Service Line

Enterprise Application Services (EAS) revenues increased 45.1% year-over-year to US$42.0 million in the quarter, driven primarily by organic growth as Camelot continued to gain share within China's rapidly growing enterprise-application market.

Financial Industry IT Services (FIS) revenues were US$17.4 million in the second quarter, representing 15.0% year-over-year growth.

EAS and FIS accounted for 70.7% and 29.3% of total net revenues, respectively, in the second quarter of 2011, as compared to 65.7% and 34.3%, respectively, in the same period of the previous year. The trend continues towards a more balanced contribution from the two service lines reversed slightly in the second quarter due to the faster growth of EAS revenues.

Gross Profit and Gross Margin

Adjusted gross profit increased 39.2% to US$19.5 million, from US$14.0 million in the second quarter of 2010, as the Company continued its focus on higher-margin products and services. Adjusted gross margin in the second quarter of 2011 improved to 32.7%, as compared to 31.7% in the second quarter of 2010.

U.S. GAAP gross profit for the second quarter increased 41.4% to US$18.9 million from US$13.4 million in the year-ago quarter. The difference between adjusted and GAAP gross profit represents US$0.03 million in share-based compensation and $0.5 million in amortization of intangible assets relating to acquisitions. Gross margin for the second quarter of 2011 was 31.9%, compared to 30.5% in the second quarter of 2010.

Operating Expenses

Adjusted operating expenses were US$10.7 million in the second quarter of 2011, representing a 61.3% year-over-year increase compared to the same period in 2010. The increase was primarily attributable to the Company's continuing business expansion, further investment in sales and marketing to expand its revenue base, higher investment in research and development, the expansion of operational infrastructure to support the Company's publicly listed status, and a one-time provision of US$1.2 million for certain other current assets.

U.S. GAAP operating expenses increased 65.6% to US$15.3 million from US$9.2 million in the second quarter of 2010. The difference between adjusted and GAAP operating expenses includes US$3.3 million in share-based compensation, US$1.0 million in amortization of intangible assets relating to acquisitions, and US$0.3 million changes in fair value of contingent consideration incurred from acquisitions.

Operating Income and Operating Margin

Adjusted operating income in the second quarter of 2011 increased 19.3% to US$8.8 million, from US$7.4 million in the second quarter of 2010. Adjusted operating margin was 14.8%, compared to 16.7% in the second quarter of 2010.

U.S. GAAP operating income in the second quarter of 2011 decreased 12.0% to US$3.7 million, as compared to US$4.2 million in the comparable period of the previous year. Operating margin for the second quarter of 2011 was 6.2%, as compared to 9.5% in the year-ago period.

Net Income Attributable to Camelot and Earnings per ADS

Adjusted net income attributable to Camelot for the quarter ended June 30, 2011 increased 21.9% to US$8.0 million from US$6.5 million in the year-ago quarter. Adjusted net profit margin was 13.5% in the second quarter of 2011, compared to 14.9% in the year-ago quarter. U.S. GAAP net income attributable to Camelot for the quarter ended June 30, 2011 decreased 14.5% to US$2.9 million from US$3.4 million in the same period last year. U.S. GAAP net profit margin was 4.9% in the second quarter of 2011, compared to 7.7% in the year-ago period.

Adjusted diluted earnings per ADS were US$0.16, compared to adjusted diluted earnings per ADS of US$0.16 in the year-ago period. For the second quarter of 2011, U.S. GAAP diluted earnings per ADS were US$0.06, as compared with US$0.09 in the second quarter of 2010.

Cash and Cash Flow

As of June 30, 2011, the Company had US$109.2 million in cash and cash equivalents, versus US$118.9 million as of March 31, 2011, the decrease primarily due mainly related to US$7.7 million in earn-out payments for acquisitions and stock repurchases. Operating cash flow in the second quarter of 2011 was an outflow of approximately US$3.0 million.

In June 2011, the Company purchased a total of 210,500 ADSs at a total price of US$3.0 million.

Days' sales outstanding(3) ("DSO") were 159 days for the second quarter of 2011, which is within the normal historical range.

Employees

As of June 30, 2011, the Company's headcount totaled 4,369, comprised of 3,736 information technology (IT) professionals, representing a 40.2% increase in total employees and a 42.3% increase in the number of IT professionals as compared to employee headcount from June 30, 2010. With regard to IT professionals, EAS employee headcount was 1,943, and FIS employee headcount was 1,793 as of June 30, 2011.

BUSINESS AND OPERATIONAL HIGHLIGHTS

Impact of Japan Disasters on Overall Business

On March 14, 2011, the Company announced that, based on its assessment at that time, it did not anticipate any material impact from the recent earthquake in Japan on its overall business. Up to now, the Company has experienced only minimal disruption from the disasters and continues to expect no material impact on its overall business.

THIRD-QUARTER AND FULL-YEAR 2011 GUIDANCE

Third Quarter of 2011

Camelot expects net revenues for the third quarter of 2011 to be approximately US$63 million, representing a 17.8% increase from the third quarter of 2010.

In addition, Camelot expects third-quarter 2011 adjusted net income attributable to Camelot to be approximately US$9.5 million, representing an 8.3% decrease from the third quarter of 2010.

Finally, Camelot expects third-quarter 2011 adjusted diluted earnings per ADS² to be approximately US$0.20 based on 48.4 million weighted average ADSs outstanding, compared to US$0.23 for the third quarter of 2010.

Full-Year 2011 Guidance

The Company expects net revenues of approximately US$244 million, representing a 26.5% increase from 2010.

Camelot expects full-year 2011 adjusted net income attributable to Camelot to be approximately US$34.0 million, representing a 7.9% increase from 2010.

Full-year 2011 adjusted diluted earnings per ADS² is expected to be approximately US$0.69 based on 49.2 million weighted average ADSs, compared to adjusted diluted earnings per ADS of US$0.76 in 2010.

CONFERENCE-CALL INFORMATION

Camelot's management will host a conference call at 8:00 a.m. (U.S. Eastern Daylight Time) / 5:00 a.m. (U.S. Pacific Daylight Time) / 8:00 p.m. (Beijing / Hong Kong time) on Thursday, August 18, 2011 to discuss the Company's second-quarter 2011 financial results and provide a business update.

The conference call may be accessed by calling:

Passcode: Camelot

Please dial in approximately 10 minutes before the scheduled time of the call.

A replay of the conference call may be accessed by phone at the following numbers until Thursday, August 25, 2011:

Passcode: 37531069

A live webcast of the conference call and recording of the conference call will be available on the investor-relations page of Camelot's website at www.camelotchina.com.

USE OF NON-GAAP FINANCIAL MEASURES

To supplement the unaudited consolidated financial statements presented in accordance with U.S. GAAP, Camelot uses the non-GAAP ("adjusted") financial measures of gross profit and margin, operating expenses, operating income and margin, net income attributable to Camelot Information

Systems Inc. and margin, and diluted earnings per share and diluted earnings per ADS, which are adjusted from results based on U.S. GAAP to exclude share-based compensation, acquisition-related intangible amortization, and changes in fair value of contingent consideration. The non-GAAP financial measures are 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 our current financial performance and prospects for the future. The non-GAAP financial measures 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 the non-GAAP financial measures may differ from the calculations used by other companies, and therefore comparability may be limited.

STATEMENT REGARDING UNAUDITED FINANCIAL INFORMATION

The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company's year-end financial statements, which could result in significant differences from this unaudited financial information.

ABOUT CAMELOT INFORMATION SYSTEMS INC.

Camelot is a leading domestic provider of enterprise application services and financial industry information technology ("IT") services in China, focusing on the high end of the IT value chain. The Company is the largest domestic provider of SAP-based Enterprise Resource Planning services in China as measured by 2009 revenue and by number of SAP consultants as of December 31, 2009. Camelot also operates in other areas of the Asia Pacific region, including Taiwan and Japan. The Company provides services to a wide range of industries, including financial services, resources and energy, manufacturing and automobile, technology, as well as telecommunication, media and education. For more information about Camelot Information Systems Inc., please visit www.camelotchina.com.

SAFE HARBOR

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, 2011 financial outlook and quotations from management in this announcement, as well as strategic and operational plans, contain forward-looking statements. Camelot may also make written or oral forward-looking statements in periodic reports to the Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to second parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Camelot's anticipated growth strategies; Camelot's future business development, results of operations and financial condition; expected changes in the Company's revenues and certain cost or expense items; Camelot's ability to attract customers and leverage its brand; trends and competition in the software industry; the Company's ability to control expenses and maintain profit margins; the Company's ability to hire, train and retain qualified managerial and other employees; the Company's ability to develop new software and launch new business models at desirable locations in a timely and cost-effective manner; the performance of third parties under contracts with the Company; the expected growth of the Chinese economy software market in retail and consumer goods industries; and Chinese governmental policies relating to private managers and operators of software and applicable tax rates.

Further information regarding these and other risks is included in Camelot's filings with the SEC. All information provided in this press release and in the attachments is as of August 18, 2011, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.

- financial tables follow -