Yucheng Reports Unaudited Fourth Quarter and Full Year 2011 Financial Results

BEIJING, February 15, 2012 /PRNewswire-Asia-FirstCall / -- 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 fourth quarter and full year ended December 31, 2011.

• Fourth quarter software & solutions revenues of US$27.0 million, an increase of 43.9% year over year;
• Fourth quarter net revenue of US$29.6 million, an increase of 35.1% year over year, and fourth quarter net revenue (Non-GAAP)(1) of US$29.7 million, an increase of 35.7% year over year;
• Fourth quarter operating income of US3.9 million, an increase of 38.9% year over year, and fourth quarter operating income(Non-GAAP)(4) of US$4.3million, an increase of 20.0% year over year;
• Fourth quarter operating margin of revenue of 13.1%, as compared to 12.7% in the prior year period, and fourth quarter operating margin of net revenue (Non-GAAP)(5) of 14.5%, as compared to 16.4% in the prior year period;
• Fourth quarter net income of US$3.5 million, or US$0.17, as compared to net loss of US$1.6 million, or loss of US$0.08 per share in the prior year period, and fourth quarter net income (Non-GAAP)(6) of US$3.9 million, or US$0.20 per share, as compared to net loss of US$0.8 million, or loss of US$0.04 per share in the prior year period;
• Full year total revenue (Non-GAAP) guidance for FY 2012 of US$90.0-92.0 million and EPS (Non-GAAP) of US$0.50.

"We concluded the fiscal year 2011 with another quarter of solid results. We achieved better revenue growth in 2011 than we originally forecasted at the beginning of the year. Looking back over the past two years, we have made steady improvements in management of our operations and turned the company towards positive growth, which is demonstrated by the excellent execution of our operations for eight consecutive quarters," said Mr. Weidong Hong, CEO of Yucheng. "Building upon the No. 1 position in the industry, we are committed to further improving our operations and expanding the market share. We look forward to continuing the quarter over quarter of excellent execution to deliver solid and sustainable financial results."

Fourth Quarter 2011 Financial Results

Total revenues for the fourth quarter of 2011 were US$29.6 million, an increase of 35.1% year over year and an increase of 55.1% sequentially. Net revenues (non-GAAP) for the fourth quarter of 2011 were US$29.7 million, an increase of 35.7% year over year and an increase of 57.1% sequentially. The year over year increase in revenues was primarily due to the strong demand for our software solutions from our customers.

Gross margin for the fourth quarter of 2011 was 42.8%, compared to 50.7% in the prior year period and 49.7% in the previous quarter. Gross margin of net revenues (non-GAAP)(2) for the fourth quarter of 2011 was 42.7%, compared to 50.9% in the prior year period and 50.2% in the previous quarter. The decrease in gross margin year over year was due mainly to the increase in labor costs, project bonus, the decrease of resale services and increased subcontracting to our strategic partner where our margin is significantly lower.

Software & solutions revenues for the fourth quarter of 2011 were US$27.0 million, an increase of 43.9% year over year and an increase of 50.2% sequentially, the latter reflecting both the inherent seasonality and buoyant demand for our software solutions.

Gross margin of the software & solutions business for the fourth quarter of 2011 was 43.0%, compared to 49.0% in the prior year period and 46.2% in the previous quarter. The decrease in the gross margin was primarily due to the increase in labor costs including additional project bonus this year and increased subcontracting to our strategic partner where our margin is significantly lower.

Platform & maintenance services revenues for the fourth quarter of 2011 were US$2.7 million, compared to US$3.2 million in the prior year period and US$1.1 million in the previous quarter. Net revenues of platform & maintenance services (non-GAAP) for the fourth quarter of 2011 were US$2.7 million, compared to US$3.1 million in the prior year period and US$0.9 million in the previous quarter.

Gross margin of platform & maintenance services business for the fourth quarter of 2011 was 40.1%, compared to 60.6% in the prior year period and 104.2% in the previous quarter. Gross margin of net revenues (non-GAAP) for platform maintenance services in fourth quarter of 2011 was 39.5%, compared to 61.8% in the prior year period. The decrease in gross margin (non-GAAP) was due mainly to the decrease of resale services.

Total operating expenses for the fourth quarter of 2011 increased 5.6% year over year and increased 21.1% sequentially to US$8.8 million. Total operating expenses (non-GAAP)(3) for the fourth quarter of 2011 increased 11.0% year over year and increased 27.3% sequentially to US$8.4 million. The year-over-year increase was attributable mainly to the increase of labor costs and the increase of research and development expenses for enhancing our research and development capability.

Income from continuing operations for the fourth quarter of 2011 was US$3.9 million, compared to US$2.8 million in the prior year period and US$2.2 million in the previous quarter. Income from continuing operations (non-GAAP) for the fourth quarter of 2011 was US$4.3 million, compared to US$3.6 million in the prior year period and US$2.9 million in the previous quarter.

Operating margin of total revenue was 13.1% for the fourth quarter of 2011, compared to 12.7% in the prior year period and 11.7% in the previous quarter. Operating margin of net revenues (non-GAAP) was 14.5% for the fourth quarter of 2011, compared to 16.4% in the prior year period and 15.4% in the previous quarter.

In the fourth quarter of 2011, net income from continuing operations was US$3.5 million, or US$0.17 per diluted share, compared to US$2.3 million, or US$0.12 per diluted share in the prior year period and US$1.9 million, or US$0.10 per diluted share in the previous quarter.

Net income from continuing operations (non-GAAP) was US$3.9 million in the fourth quarter of 2011 or US$0.20 per diluted share. Net income (non-GAAP) in the prior year period was US$3.1 million or US$0.16 per diluted share. Net income from continuing operations (non-GAAP) in the previous quarter was US$2.6 million or US$0.14 per diluted share.

In the fourth quarter of 2011, the Company recorded net income of US$3.5 million, or US$0.17 per diluted share, compared to US$-1.6 million, or US$-0.08 per diluted share in the prior year period and US$1.9 million, or US$0.10 per diluted share in the previous quarter.

Net income (non-GAAP) was US$3.9 million in the fourth quarter of 2011 or US$0.20 per diluted share. Net income (non-GAAP) in the prior year period was US$-0.8 million or US$-0.04 per diluted share. Net income (non-GAAP) in the previous quarter was US$2.6 million or US$0.14 per diluted share.

As of December 31, 2011, Yucheng had cash and cash equivalents and restricted cash totaling US$32.5 million, compared to US$18.7 million as of September 30, 2011 and US$24.5 million as of December 31, 2010. Operating cash flow in the fourth quarter of 2011 was a net inflow of US$13.3 million.

2011 Financial Results

Total revenues in 2011 were US$77.1million, an increase of 26.5% year over year. Net revenues (non-GAAP) in 2011 were US$76.9 million, an increase of 28.7% year over year. The year over year increase in revenues was primarily due to the strong demand for our software solutions from our customers.

Gross margin in 2011 was 47.0%, compared to 48.8% in 2010. Gross margin of net revenues (non-GAAP) in 2011 was 47.1%, compared to 49.8% in 2010. The decrease in gross margin year over year was due mainly to the increase in labor costs, project bonus, the decrease of resale services and increased subcontracting to our strategic partner where our margin is significant lower.

Software & solutions revenues in 2011 were US$69.2 million, an increase of 34.7% year over year. The year over year increase in software & solutions revenues was primarily due to higher demand for our software solutions. Gross margin of the software & solutions business in 2011 was 45.2%, compared to 49.8% in 2010. The decrease in the gross margin was primarily due to the increase in labor costs including additional project bonus this year and increased subcontracting to our strategic partner where our margin is significantly lower.

Platform & maintenance services revenues in 2011 were US$7.9 million, compared to US$9.6 million in 2010. Net revenues of platform & maintenance services (non-GAAP) in 2011 were US$7.7 million, compared to US$8.4 million in 2010. Gross margin of platform & maintenance services business in 2011 was 62.9%, compared to 43.3% in 2010. Gross margin of net revenues (non-GAAP) for platform maintenance services in 2011 was 64.3%, compared to 49.3% in 2010. The increase in gross margin (non-GAAP) was due mainly to the adjustment of the accrued service fee to China Financial Certification Authority (CFCA), our partner in the e-banking ASP business.

Total operating expenses in 2011 increased 15.9% year over year to US$27.9 million. Total operating expenses (non-GAAP) in 2011 increased 15.7% year over year to US$ 26.3 million. The year-over-year increase was attributable mainly to the increase of labor costs and the increase of research and development expenses for enhancing our research and development capability.

Income from operations in2011 was US$8.3 million, compared to US$5.6 million in 2010. Income from operations (non-GAAP) in 2011 was US$10.0 million, compared to US$7.0 million in 2010.Operating margin of total revenue was 10.8% in 2011, compared to 9.2% in 2010. Operating margin of net revenues (non-GAAP) was 13.0% in 2011, compared to 11.8% in 2010.

In 2011, net income from continuing operations was US$7.1 million, or US$0.36 per diluted share, compared to US$5.2 million, or US$0.27 per diluted share in 2010.Net income from continuing operations (non-GAAP) was US$8.7 million in 2011 or US$0.45 per diluted share. Net income (non-GAAP) in 2010 was US$6.6 million or US$0.35 per diluted share.

In 2011, the Company recorded net income of US$7.1 million, or US$0.36per diluted share, compared to US$0.3 million, or US$0.02 per diluted share in 2010.

Net income (non-GAAP) was US$8.7 million in 2011 or US$0.45 per diluted share. Net income (non-GAAP) in 2010 was US$1.7 million or US$0.09 per diluted share.

Operating cash flow in 2011 was a net inflow of US$6.6 million.

Business Outlook

We expect our software & solution revenues to grow 20-25% in 2012 and our platform & maintenance services revenue to decline about 10%. The gross margin of the software & solution also is anticipated to decline to 43% while the non-GAAP operating margin will be maintained at the level of 13.0%, mostly due to the fact that wage inflation pressure remains high for 2012.

For the quarter ending March 31, 2012, Yucheng expects net revenue (non-GAAP) to be approximately US$14.5 million and net income (non-GAAP) per share of US$0.01.

For the full year of 2012, Yucheng expects net revenue (non-GAAP) to be approximately US$90.0-92.0 million and net income (non-GAAP) per share of US$0.50.

Fourth quarter 2011 Conference Call Details

Yucheng Management will conduct a conference call to discuss the financial results of the three-month period and fiscal year period ended December 31, 2011 on February 15, 2012 at 8:00AM EST/ 9:00PM 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 5050.

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

About Yucheng Technologies Limited

Yucheng Technologies Limited (NASDAQ:YTEC - News) 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 2,600 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. Yucheng has been ranked in the Global FinTech 100 survey of top technology partners to the financial services industry for in 2007, 2008, and 2009. The independent research firm IDC also has named Yucheng the No. 1 market share leader in China's Banking IT solution market in 2010. 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) perating 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) perating 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 February 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, 2010, 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.