Yucheng Technologies Reports Third Quarter Financial Results

BEIJING, Nov. 11, 2010 /PRNewswire-Asia-FirstCall/ –– Yucheng Technologies Limited (Nasdaq: YTEC), a leading provider of IT Solutions to the financial services industry in China, today announced unaudited financial results for the three-month period ended September 30, 2010.

"In the third quarter, Yucheng continued to see the positive results from our operational improvement in addition to benefiting from strong the seasonal demand. We expect the trend to continue into the fourth quarter," said Mr. Hong Weidong, CEO of Yucheng Technologies.

"We have agreed in principle on a transaction to sell the POS business to a team that is composed of the management team of the POS business and investors. The transaction is expected to close before the end of the year. I am very excited about the divesture of the POS business and looking forward to focusing our resources completely on our core business in the 2011," added Mr. Hong.

Third Quarter 2010 Financial Highlights

• Fully diluted non-GAAP EPS was USD0.11, as compared to USD0.16 in the third quarter of 2009 and USD 0.09 in the second quarter of 2010.
• Total net revenues registered USD16.9 M, a 0.7% decrease year-over-year and a 25.6% increase quarter-over-quarter.
• Software & Solutions revenues totaled USD14.0 M, an1.2% increase year-over year and a 32.2% increase quarter-over-quarter.
• SG&A expenses totaled USD 6.1M, excluding stock based compensation expenses of USD 0.5 M, increased 2.5% year-over-year.

Business Outlook

Yucheng has continued to see strong demand for its Software & Solutions business during the third quarter of 2010 across all its solution lines, including Channel Solutions, Business Solutions and Management Solutions. We are capitalizing the opportunities on the new foreign banks' entry into the Chinese market as well as the strong demand for more corresponding solutions by those foreign banks that have been in the Chinese market for a number of years and see their business rapidly growing to the next level. Another customer segment that has also been driving the demand for IT solutions is rural credit unions. As their businesses grow, they are in the market for more sophisticated IT solutions such as loan management and potentially the next generation e-banking that will help them further grow their businesses. Our leading loan management solutions continued the rising trend in the market, starting to penetrate into more joint stock banks after their successful streak in the rural credit unions.

We continued to the winning trend in the business development area during the third quarter. The number of RFPs in which we participated during the third quarter of 2010 increased by 100.0% compared with the same period of a year ago, and the number of RFPs that we won increased by 136.4%. The number of RFPs in which we participated for our traditionally strong solutions, including e-banking, loan management, risk management, and business intelligence, increased by 100.0% year-over-year while the winning RFPs increased by a even higher rate indicating the winning ratio is significantly improving.

We are also seeing the results of our initiatives to rationalize our client base and client structure to focus more of our resources on quality clients, including big four banks, joint stock banks, national policy banks, provincial level city commercial banks, and provincial level rural credit unions. We added five major customers in the third quarter, all of which we expect to be major customers in the next few years.

Third Quarter Financial Results

The table below is provided to give greater insight into our POS business, beyond what is available in our consolidated financial statements. The revenue and cost of revenue numbers on the following page are provided on a net presentation basis.

Summary of Selected Unaudited Financial Results for the Third Quarter of 2010

(Numbers are in USD thousands, except shares outstanding, earnings per share and percentages)

Note: The United States dollar amounts in the above table are calculated based on an exchange rate of USD 1.00 = RMB 6.8290 for September 30, 2009 and USD 1.00 = RMB 6.7011 for September 30, 2010.

Revenues: Yucheng reported consolidated non-GAAP net revenues of USD 16.9M for the third quarter 2010, a decrease of 0.7% compared to the third quarter of 2009 and a 25.6% increase from the second quarter of 2010.  

• Software & Solutions: Software & Solutions registered revenues of USD 14.0M in the third quarter, an1.2% increase year-over-year, and a 32.2% increase sequentially. Software & Solutions accounted for 82.7% of total non-GAAP net revenues for the third quarter, as compared to 81.1% in the corresponding period of 2009and 78.5% in the second quarter of 2010.
• Platform & Maintenance Services: Non-GAAP net revenues totaled USD 1.8M in the third quarter or 10.7% of total non-GAAP net revenues. Non-GAAP Platform & Maintenance Services revenues decreased by 18.6% year over year and increased 3.2% sequentially.  
• POS: POS generated revenues of USD 1.1M in the third quarter, representing 6.6% of total net revenues. Our POS revenues increased 12.2% compared to the third quarter of 2009 and decreased 1.4% compared to the second quarter of 2010.

Gross Profits: In the third quarter of 2010, Yucheng registered a gross profit of USD 8.2M, a 5.5% decrease year over year and a 20.7% increase sequentially.  Calculated on a non-GAAP net revenue basis, gross margins in the current quarter were 48.7%, down from 51.1% in the corresponding period of 2009 and down from 50.6% in the second quarter of 2010. The decline in gross margins is mainly attributable to a decline in Platform & Maintenance Services gross margin as there were no significant platform businesses in this quarter.

Sales, General and Administrative Expenses (SG&A): Consolidated SG&A expenses increased 11.5% from 5.4M in the third quarter of 2009 to 6.1M in the same quarter of 2010. Excluding the impact of stock based compensation expenses, consolidated SG&A expenses would have increased 2.5% to 5.6M year over year. Consolidated SG&A as a percentage of total non-GAAP net revenue was 35.8% in the third quarter, as compared to 31.9% in the third quarter of 2009 and 42.0% in the first quarter of 2010. Excluding the impact of stock based compensation expenses, a percentage of total non-GAAP net revenue would have been 33.0%.

• SG&A as a percentage of non-GAAP net revenue for the Core business was 34.3% as compared to 29.0% in the third quarter of 2009 and 40.1% in the second quarter of 2010. Excluding the impact of stock based compensation expenses, SG&A as a percentage of non-GAAP net revenue for the Core business would have been 31.2% in current quarter.
• POS SG&A as a percentage of non-GAAP net revenues was 57.6% in the third quarter of 2010 as compared to78.6% in the third quarter of 2009 and 62.2% in the second quarter of 2010.  

Net Income: Yucheng recorded non-GAAP net income of USD 2.0M in the third quarter 2010, a decrease of 32.7% year over year and an increase of 23.6% quarter over quarter. GAAP net income was USD 1.5M for the current quarter, a decrease of 44.1% year over year and a decrease of 6.3% quarter over quarter. The decline was partly due to the impact of stock based compensation expenses.  Operating margins for the third quarter were 10.1% compared to 16.3% in the corresponding quarter of 2009 and 5.3% in the second quarter of 2010. The year over year decline in operating margins is attributable mainly to declining gross margins and increased stock based compensation expenses.

Earnings per Share: In the third quarter 2010, Yucheng's EPS for fully diluted shares on a consolidated basis were USD 0.11 (non-GAAP) and USD 0.08 (GAAP) compared to USD 0.16 (non-GAAP) and USD 0.14 (GAAP) in the third quarter of 2009.

• Core: Fully diluted EPS for the third quarter 2010 were USD 0.12 (non-GAAP) and USD 0.09 (GAAP) compared to USD 0.18 (non-GAAP) and USD 0.16 (GAAP) in the third quarter of 2009.
• POS: On both a GAAP and non-GAAP basis, the fully diluted EPS of POS in the third quarter of 2010 was USD 0.02(loss) compared to USD0.01 (loss) in the corresponding period of 2009.

Cash: Yucheng's cash position in the third quarter 2010 was USD 14.7M compared to USD 21.9M in the third quarter of 2009 and USD 13.0M in the second quarter of 2010.

Accounts Receivable: In the third quarter 2010, accounts receivable totaled USD 26.7M compared to USD 33.1M in the third quarter of 2009 and USD 29.8M in the second quarter of 2010. The gross basis DSOs was 154 days for the current quarter, as compared to165 days in the third quarter 2009 and 179 days in the second quarter of 2010. When calculated on a pro forma basis, which accounts for the complete impact of agency services contracts, DSOs totaled 125 days in the third quarter, compared to 121 days in the same period last year and 123 days in the second quarter of 2010.

Non-GAAP Disclosure

To supplement the unaudited consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Yucheng's management has reported revenues, net income and earnings per share on a non-GAAP basis. Each of the terms as used by Yucheng is defined as follows:

Non-GAAP revenue, or revenues recognized on a net basis, is revenue from the resale of third-party hardware and software recognized net of the associated cost of revenue.  

Non-GAAP net income represents net income reported in accordance with GAAP, adjusted for amortization of intangible assets resulting from the accounting treatment of the acquisition of Beijing e-Channels Century Technology Co., Ltd.

Non-GAAP earnings per share represents non-GAAP net income divided by the number of shares used in computing basic and diluted earnings per share in accordance with GAAP.

Management of Yucheng believes that these non-GAAP revenue, net income and earnings per share measures are useful for understanding and assessing Yucheng's underlying business performance and operating trends, and expects to report net income on a non-GAAP basis using a consistent method on a quarterly basis going forward. These non-GAAP financial measures also facilitate management's internal comparisons to Yucheng's historical performance and liquidity. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

Management of Yucheng notes that these measures may not be calculated on the same basis as similar measures used by other companies. Please find a reconciliation of non-GAAP figures to GAAP figures in the summary of financial information presented above.

Conference Call and Replay Information

Management will conduct a conference call to discuss the financial results for the three-month period ended September 30, 2010 on Thursday, November 11, 2010 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 445681.

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

About Yucheng Technologies Limited

Yucheng Technologies Limited (Nasdaq: YTEC) is a leading IT service provider to the Chinese financial service providers. Headquartered in Beijing, China, Yucheng services clients from its nationwide network in 23 cities and approximately 2,200 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.

Safe Harbor Statement

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; operating a business in the PRC with its changing economic and regulatory environment; and the other relevant risks detailed in Yucheng filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Yucheng assumes no obligation to update the information contained in this press release.