China TransInfo Announces Third Quarter 2010 Results

BEIJING, Nov. 12, 2010 /PRNewswire-Asia-FirstCall/ -- China TransInfo Technology Corp. (Nasdaq: CTFO) ("China TransInfo" or the "Company"), a leading provider of comprehensive intelligent transportation solutions and traffic information services in China through its affiliate, China TransInfo Technology Group Co., Ltd. (the "Group Company"), today reported its unaudited financial results for the third quarter ended September 30, 2010.

Third Quarter 2010 Highlights

• Revenue increased 82.8% year-over-year to $35.0 million
• Gross profit increased 43.7% year-over-year to $10.6 million
• Operating income increased 20.9% year-over-year to $5.1 million
• Net income increased 6.9% year-over-year to $4.3 million, or $0.17 per diluted share
• Adjusted net income, which excludes non-cash stock based compensation expense of $416,278 and amortization expense of intangibles from acquisitions of $47,482, increased 16.4% year-over-year to $4.7 million, or $0.19 per diluted share*
• The Company was awarded electronic toll collection ("ETC") contracts totaling RMB 44.6 million (approximately $6.7 million) in Shanxi Province, Shandong Province and Sichuan Province

"We continued to experience strong demand for our solutions and services during the third quarter, which resulted in continued growth in our revenues," commented by Mr. Shudong Xia, Chairman and Chief Executive Officer. "The transportation information industry in China is growing rapidly due to increased demand from both government and the public for advanced transportation information solutions and services to support more effective and efficient transportation networks in China.  China TransInfo is uniquely positioned to take advantage of the many opportunities in this market.  Currently, all of our revenues fall under our government solutions business, whose revenue model is project-based.  We expect continued strong growth in our existing government solutions business, but also in our services business, which we expect to begin contributing to our revenues by the end of 2010.  

"Within our services business, we are particularly excited about our fleet management business, which targets a vast potential market opportunity of over 10 million commercial vehicles nationally.  As we previously announced, China TransInfo received authorization from the PRC Ministry of Transportation to construct a national fleet management service system and was awarded the position of sole service provider of this national system. This authorization includes constructing the provincial fleet management service system and providing fleet management services in the following 12 provinces and municipalities: Beijing, Tianjin, Hebei, Henan, Hunan, Guizhou, Hainan, Guangxi, Qinghai, Shaanxi, Gansu and Xinjiang.  Other services businesses that we expect to contribute to our revenues include our consumer service business, where we look forward to providing dynamic traffic information services and other value-added services to vehicles and drivers in China through in-car terminals and/or smart phones. We believe the addition of our services business to our existing project-based government solutions business will improve the profitability and predictability of our future financial performance, because our services business is higher margin and has a recurring revenue business model."  

(*) See the table following this press release for a reconciliation of net income and diluted EPS to exclude non-cash stock based compensation expense and amortization expense of intangibles from acquisitions.

Third Quarter 2010 Results

For the quarter ended September 30, 2010, revenue increased 82.8% to $35.0 million from $19.2 million in the comparable period of 2009. Approximately 79.1% of this increase is attributable to the increase in transportation revenue mainly resulting from the Company's expanded business as a result of the acquisition of UNISITS.  Revenue from products and applications in the transportation business sector was $29.9 million, or 85.4% of total revenue, compared to $17.4 million, or 90.7% of total revenue, in the same period last year.  The remainder of revenue was derived from the digital city, land & resources, and other business sectors.  For the third quarter, UNISITS contributed approximately $21.8 million of sales.    

The Company's gross profit increased 43.7% to $10.6 million in the third quarter of 2010 compared to $7.4 million in the same period of 2009. Gross margin declined to 30.2% from 38.4% in the third quarter of 2009. The decrease in gross margin resulted from the consolidation of UNISITS' financials.  UNISITS' business involves more hardware components, which have much lower gross margins when compared to the products and services of the Company's non-UNISITS transportation business.  

Operating expenses were $5.4 million compared to $3.1 million in the third quarter of 2009. The increase was primarily due to the Company's expansion initiatives, enhanced research and development efforts, and higher staffing and professional fees.  Selling expenses increased 12.5% to $0.63 million, or 1.8% of sales, in the third quarter of 2010, from $0.56 million, or 2.9% of sales, during the same period of 2009.  The decrease in selling expenses as a percentage of sales was primarily because the Company won many contracts from repeat customers due to its technology leadership and reputation rather than through aggressive sales and marketing efforts.

Operating income increased 20.9% to $5.1 million compared to $4.3 million in the third quarter of 2009.

Non-operating income was $0.4 million in the third quarter of 2010 compared to $0.2 million in the third quarter of 2009.  The increase was mostly due to subsidy income related to government high technology grants.

Net income increased 6.9% to $4.3 million, or $0.17 per diluted share, compared to $4.0 million, or $0.18 per diluted share, in the same period of 2009. Adjusted net income, which excludes non-cash stock based compensation expense of $416,278 and amortization expense of intangibles from acquisitions of $47,482, increased 16.4% to $4.7 million, or $0.19 per diluted share, compared to $4.0 million, or $0.18 per diluted share, in the comparable period of 2009.* Weighted average diluted shares outstanding increased to 25.3 million shares from 22.6 million shares in the third quarter of 2009.

(*) See the table following this press release for a reconciliation of net income and diluted EPS to exclude non-cash stock based compensation expense and amortization expense of intangibles from acquisitions.  

Nine Months Results

Revenue for the nine months ended September 30, 2010, increased 138.2% to $84.0 million compared to $35.3 million in the same period of 2009. Gross profit increased 86.8% to $28.7 million from $15.4 million a year ago.  Operating income grew 56.5% to $13.4 million from $8.6 million in the first nine months of 2009.  Net income increased 17.0% to $9.6 million, or $0.39 per diluted share compared to net income of $8.2 million, or $0.37 per diluted share, in the first nine months of 2009. Adjusted net income, which excludes non-cash stock based compensation expense of $1,247,043 and amortization expense of intangibles from acquisitions of $141,657, increased 30.5% to $11.0 million, or $0.45 per diluted share, compared to $8.4 million, or $0.38 per diluted share, in the first nine months of 2009.* Weighted average diluted shares outstanding increased to 24.5 million shares from 22.5 million shares in the first nine months of 2009.

(*) See the table following this press release for a reconciliation of net income and diluted EPS to exclude non-cash stock based compensation expense and amortization expense of intangibles from acquisitions.  

Financial Condition

As of September 30, 2010, cash and cash equivalents totaled $22.0 million compared to $27.4 million as of December 31, 2009. Working capital increased to $67.3 million compared to $44.4 million as of December 31, 2009.  Stockholders' equity was $102.3 million compared to $77.8 million as of December 31, 2009.  Cash used in operating activities was $12.9 million, primarily the result of an increase in accounts receivable due to increased sales, seasonally slow collections, and an increase in other receivables and certain prepaid expenses.   The Company believes these are all seasonal factors and expects cash flow from operations to turn positive in the fourth quarter of 2010.  

Recent Events

• Effective October 31, 2010, Mr. Troy (Zhihai) Mao resigned from his position as the Company's Chief Financial Officer for personal health reasons.  The Company has engaged a qualified CFO replacement with extensive U.S. GAAP accounting, finance, capital markets, managerial and U.S. and China business experience.  He has worked in the finance function at a Fortune 500 company and at a Big Four audit firm, and is a U.S. Certified Public Accountant. The Company plans to formally announce the new CFO by the end of the year, shortly before he officially joins the Company.  
• On October 25, 2010, the Company announced that Deloitte Touche Tohmatsu included China TransInfo and its affiliate Beijing UNISITS Technology Co. Ltd. in the Deloitte Technology Fast 50 China 2010 program, recognizing the Company and its affiliate as being among the top 50 fastest growing high-tech companies in the technology sector in China.
• On October 20, 2010, China TransInfo announced that its affiliate, the Group Company, signed an agreement with Beijing Shiji Yingli Science and Technology Co., Ltd. ("Shiji Yingli") whereby Shiji Yingli will contribute RMB 9.6 million (approximately $1.4 million) in cash and RMB 44.6 million (approximately $6.6 million) in intangible assets (mostly technology and intellectual property owned by Shiji Yingli) into the Group Company's wholly owned subsidiary, Beijing Zhangcheng Science and Technology Co., Ltd. ("Beijing Zhangcheng") in exchange for a 49% equity interest in Beijing Zhangcheng on a diluted basis.  Following this transaction, the Group Company retains a 51% majority ownership of Beijing Zhangcheng.

Business Outlook

For fiscal 2010, China TransInfo continues to expect revenues of approximately $120 million.  However, the Company is lowering its fiscal 2010 adjusted net income forecast from approximately $18 million to approximately $16.5 million.

Mr. Xia added, "We are lowering our adjusted net income guidance to reflect our slower than expected improvement in gross margin in our existing business and the anticipated increase in expenses related to our services business as it enters its set-up and expansion phase. The sequential decline in our gross margin was primarily due to unexpected cost increases related to some of our projects during the quarter.  We are seeing increased inflationary pressures in China.  Our project execution and staffing costs have increased, while our existing project contracts are fixed in price.  We expect to price our future projects to reflect the increasing costs of doing business in our market and control our project execution costs accordingly.  We expect sustainable gross margins in our UNISITS business of between 20% and 25% and in our non-UNISITS government solutions business of approximately 45%.  Over time, we expect to see a gradual improvement in our gross margin performance driven by focusing on higher margin projects and solutions in our UNISITS business, such as ETC, and by the expected growth in our higher margin recurring revenue service businesses.      

"We also expect to continue to leverage UNISITS' technology and distribution channels to develop synergies with our other businesses.  For example, our ETC business has benefited from UNISITS' strong position in the highway market.  Even though our ETC business is still in the pilot project stage and accounts for a very small percentage of our current revenues, we see significant upside potential in this business.  Our ETC business is growing and is expected to generate a very healthy 50% gross margin.  As we have previously announced, we recently won ETC contracts totaling RMB 44.6 million (approximately $6.7 million).  Of this amount, RMB 12 million is expected to be recognized this year, with the remaining RMB 32.6 million expected to be recognized in 2011 and 2012."  

"We are also pleased to announce that our total sales backlog increased 29.4% to $110 million by the end of the third quarter from $85 million by the end of the second quarter.  Our UNISITS backlog increased 40% to $70 million from $50 million and our non-UNISITS backlog increased 14.3% to $40 million from $35 million.  We expect to recognize revenues from our UNISITS backlog over the next two years and from our non-UNISITS backlog over the next six months.  Overall, we are very confident in our business and look forward to continued growth in our government solutions projects and the development of our recurring revenue services business in the fourth quarter and beyond."  

Conference Call

The Company will host a conference call on Friday, November 12, 2010 at 8:00 a.m. Eastern Time to discuss its financial results for the third quarter ended September 30, 2010.  Mr. Shudong Xia, Chairman and Chief Executive Officer, Ms. Danxia Huang, Interim Chief Financial Officer, and Ms. Fan Zhou, Investor Relations Director, will host the call.  To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (877) 406-6165. International callers should dial +1 (706) 902-4263. When prompted by the operator, enter conference pass code 23188541.  A replay will be available for 14 days starting on Friday, November 12, 2010 at 9:00 a.m. Eastern Time and can be accessed by dialing (800) 642-1687. International callers should dial +1 (706) 645-9291. When prompted, enter conference pass code 23188541.

Use of Non-GAAP Financial Information

GAAP results for the three and nine months ended September 30, 2010 and 2009 include non-cash share based compensation and amortization of intangible assets from acquisitions. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, which are adjusted net income and adjusted earnings per share, excluding the impact of these items in this release. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, as these measures provide a consistent method of comparison to historical periods. As a result, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company.  Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure.  However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of adjustments to GAAP results appears in Table 1 in this release.

About China TransInfo

China TransInfo, through its affiliate, the Group Company and the Group Company's PRC operating subsidiaries, is primarily focused on providing urban and highway transportation management solutions and information services. The Company is a leading transportation information products and comprehensive solutions provider, and aims to be the largest real time transportation information service provider and major fleet management service provider in China. As the co-formulator of several transportation technology \national standards, the Company owns five patents and has won a majority of the model cases awarded by the PRC Ministry of Transportation. As a result, the Company is playing a key role in setting the standards for transportation information solutions in China. For more information, please visit the Company's website at http://www.chinatransinfo.com.

Safe Harbor Statement

This press release contains certain statements that may include "forward looking statements". All statements other than statements of historical fact included herein are "forward-looking statements". These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.