Camelot Information Systems Inc. Announces Unaudited First-Quarter 2013 Financial Results

BEIJING, June 10, 2013 /PRNewswire/ -- Camelot Information Systems Inc. ("Camelot" or the "Company") (NYSE: CIS), a leading domestic provider of enterprise application services and financial industry IT services in China, today announced unaudited financial results for the first quarter ended March 31, 2013.

First-Quarter Financial and Operating Highlights:

• Net revenues were $59.6 million in the first quarter of 2013, as compared to $57.1 million in the same period in 2012
• Net revenues from enterprise application services (EAS) were $36.5 million, as compared to $39.3 million in the same period in 2012
• Net revenues from financial industry IT services (FIS) were $23.1 million, a 29.9% increase year-over-year due to strong demand and solid execution
• Gross profit was $11.8 million, as compared to $12.7 million in the same period in 2012
• Loss from operations was $3.8 million, as compared to a loss from operations of $1.6 million in the same period in 2012. Adjusted operating loss[1] was $2.8 million, as compared to adjusted operating income of $0.6 million in the same period in 2012
• Net loss attributable to Camelot was $4.3 million, as compared to a net loss attributable to Camelot of $0.8 million in the same period in 2012. Adjusted net loss attributable to Camelot¹ was $3.3 million, as compared to adjusted net income attributable to Camelot of $1.4 million in the same period in 2012

"Camelot achieved modest revenue growth in the first quarter of 2013, despite slower customer contract activities with large State-owned customers. Our FIS segment is running at full capacity and delivered strong growth as compared to the first quarter of last year. EAS has higher exposure to these large customers and reported lower revenues and margins," commented Mr. Simon Ma, Camelot's Chairman and Chief Executive Officer. "We believe our business remains fundamentally solid, although our customer activity remains slow, and we are monitoring the contract activity of our large customers."

First-Quarter 2013 Financial Results

Net revenues for the quarter ended March 31, 2013 increased 4.4% to $59.6 million from $57.1 million in the same period in 2012.

EAS net revenues decreased 7.2% year-over-year to $36.5 million in the quarter. The revenue decrease was primarily due to slower order activity among large customers, primarily State-owned companies. EAS net revenues amounted to 61.2% of total net revenues in the quarter. FIS net revenues increased 29.9% year-over-year to $23.1 million. FIS net revenues accounted for 38.8% of the quarter's total net revenues.

Cost of revenues increased 7.7% to $47.9 million from $44.4 million in the same period in 2012. Adjusted cost of revenues increased 7.8% to $47.8 million from $44.4 million in the same period in 2012. Adjusted cost of revenues excludes $22,000 of share-based compensation expense and $16,000 of acquisition-related intangible expense.

Gross profit decreased 7.3% to $11.8 million from $12.7 million in the same period in 2012. Adjusted gross profit decreased 7.4% to $11.8 million from $12.8 million in the same period in 2012. The gross margin was 19.7% in the quarter, as compared to 22.2% in the same period in 2012. The adjusted gross margin was 19.8% in the quarter, as compared to 22.3% in the same period in 2012. Gross margins declined year over year due to lower utilization in the EAS segment.

Operating expenses were $15.7 million in the quarter, as compared to $14.3 million in the same period in 2012. Adjusted operating expenses were $14.7 million, as compared to $12.1 million in the same period in 2012. Operating expenses increased year-over-year primarily due to higher general and administrative expense from management initiatives to centralize budgeting and contract issuance and monitoring. Adjusted operating expenses exclude $630,000 of share-based compensation expense and $357,000 of acquisition-related intangible expense.

Operating loss was $3.8 million, as compared to an operating loss of $1.6 million in the same period in 2012. Adjusted operating loss was $2.8 million, as compared to adjusted operating income of $0.6 million in the same period in 2012.

Net loss attributable to Camelot in the first quarter of 2013 was $4.3 million, as compared to a net loss attributable to Camelot of $0.8 million in the same period in 2012. Adjusted net loss attributable to Camelot for the first quarter of 2013 was $3.3 million, as compared to adjusted net income attributable to Camelot of $1.4 million in the same period in 2012.

Balance Sheet and Cash Flow

As of March 31, 2013, the Company had $74.3 million in cash, cash equivalents, and term deposits, as compared to $95.5 million in cash, cash equivalents, short-term investments, and term deposits, as of December 31, 2012. The decrease was mainly due to a $4.3 million net loss, a $9.7 million increase in accounts receivable, and a $6.9 million decrease in other current liabilities.

Days' sales outstanding[2] ("DSO") were 192 days in the first quarter of 2013, an increase of 12 days from 180 days in the prior quarter.

Employees

The Company's headcount increased to 6,097 as of March 31, 2013, which included 5,314 information technology (IT) professionals, versus 6,085 total employees and 5,343 IT professionals at the end of the fourth quarter. Of the IT professionals, EAS employee headcount numbered 2,180, and FIS employee headcount numbered 3,134.

Agreement with Original Tansun Shareholders

As disclosed in our annual report on Form 20-F for the year ended December 31, 2012, in September 2012, the Company and the original selling shareholders of Tansun (who are current employees of the Camelot Group) signed an agreement requiring an upcoming negotiation with respect to a performance-based incentive plan for these employees. In accordance with the agreement, the Company paid U.S. $2.4 million (RMB 15 million) to the relevant employees as a temporary deposit to demonstrate a good-faith gesture with regard to the upcoming negotiations. The deposit is scheduled to be returned upon the earlier of: (1) the achievement of three negotiation milestones as stipulated in the agreement, in three equal payments; and (2) by May 31, 2013 unconditionally. In November 2012, both parties mutually agreed that the first milestone had been reached, and thus, one third (U.S. $0.8 million or RMB 5 million) of the deposit was returned to the Company. The remaining balance of U.S. $1.6 million (RMB 10 million) was included under Other Current Assets, as of December 31, 2012. As of the date of this release, the negotiations have not yet been completed. The Company has agreed to extend the return date of the remaining balance of the deposit to October 2013, and therefore, the balance of the deposit is still included under Other Current Assets, as of March 31, 2013.

Business Outlook

Second Quarter of 2013

Camelot expects net revenues in the second quarter of 2013 of approximately $62 million, roughly flat with the same period in 2012.

In addition, Camelot expects an adjusted net income attributable to Camelot of approximately $1.0 million in the second quarter of 2013.

Full-Year 2013

For full-year 2013, Camelot expects net revenues of approximately $260 million, representing a 2.3% increase from the prior year.

Camelot also expects full-year 2013 adjusted net income attributable to Camelot of approximately $5.0 million, representing a 14.4% decrease from the prior year.

Conference Call Information

Camelot senior 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 Monday, June 10, 2013 to discuss the Company's first-quarter 2013 financial results.

Passcode: 74025977

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 11:59 p.m. Central China Time on June 17, 2013:

Passcode: 49290262

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 impairment of intangible assets, impairment of goodwill, 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 2010 revenue and by the number of SAP consultants as of December 31, 2010. Camelot also ranked as number-one in the banking testing market in 2010, according to IDC. 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.

SAFE HARBOR

This press release contains statements that may constitute "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 U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties that could cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. 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: the Company's growth strategies, the Company's ability to attract and retain skilled professionals, the market of IT services in China, the wages of IT professionals, the Company's ability to serve, retain, and attract customers. Further information regarding these and other risks is included in Camelot's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. Camelot does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

- financial tables follow -

(1) Includes the following amounts of share-based compensation expenses for the periods indicated:

(2) Includes the following amounts of amortization expense related to intangible assets acquired for business combination for the periods indicated

(3) The following table sets forth the reconciliation of our adjusted net loss attributable to Camelot Information Systems Inc. to the U.S. GAAP net loss attributable to Camelot Information Systems Inc.:

[1] For more information about the adjusted (i.e. non-GAAP) financial measures contained in this press release, please see "Use of Non-GAAP Financial Measures" below.

[2] Calculated by dividing average accounts receivable, net of deferred revenue, by rolling gross revenues before business tax and related surcharges, and multiplying by 360 days. Rolling gross revenues are for the 12 months ended March 31, 2013.