Yucheng Reports Unaudited First Quarter 2011 Financial Results

BEIJING, May 17, 2011 /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 first quarter ended March 31, 2011.

• First quarter software & solutions revenues of US$9.6 million, an increase of 29.6% year over year;
• First quarter net revenue (Non-GAAP)(1) of US$11.5 million, an increase of 27.5% year over year;
• First quarter net Income (Non-GAAP)(6) of US$0.3 million, or US$0.02 per share, as compared to US$-0.1 million, or US$-0.01 per share in the year-ago period;

"We are pleased to report another solid quarter with results ahead of our expectations to open the year of 2011 on a high note.  After a series of divestures of non-core businesses and restructuring in the last 18 months, we started the new year with more focus on our core business of providing Software & Solutions to banks in China. Our better focus and more efficient execution have led to the solid quarterly results. We are quite encouraged by the strong demand across our solution lines. We are confident that we will be able to capitalize on the market opportunities and further consolidate our leadership position in the industry," said Mr. Hong Weidong, CEO of Yucheng Technologies.

First Quarter 2011 Financial Results

Total revenues for the first quarter of 2011 were US$11.5 million, an increase of 27.5% year over year and a decrease of 47.5% sequentially. The year over year increase was mainly due to the increase of software & solutions revenues. Net revenues (non-GAAP) were the same as total revenues in the first quarter of 2011 and 2010 as we did not record any platform revenues in either period.

Gross margin for the first quarter of 2011 was 50.6%, compared to 48.8% in the year-ago period and 50.6% in the previous quarter. The increase in gross margin year over year was mainly due to the increase of resale services. Gross margin of net revenues (non-GAAP)(2) was the same as gross margin of total revenues in the first quarter of 2011 and 2010.

Software & solutions revenues for the first quarter of 2011 were US$9.6 million, an increase of 29.6% year over year and a decrease of 48.7% sequentially to reflect the inherent seasonality.

Gross margin of the software & solutions business for the first quarter of 2011 was 48.3%, compared to 51.0% in the year-ago period and 48.9% in the previous quarter. The decrease in the gross margin was primarily due to the increase of labor costs.

Platform & maintenance services revenues for the first quarter of 2011 were US$1.9 million, compared to US$1.6 million in the year-ago period and US$3.2 million in the previous quarter. Net revenues of platform & maintenance services (non-GAAP) were the same as platform & maintenance services revenues in the first quarter of 2011 and 2010 as we did not record any platform revenues in either period.

Gross margin of platform & maintenance services business for the first quarter of 2011 was 62.7%, compared to 38.5% in the year-ago period and 60.6% in the previous quarter. The increase in gross margin (non-GAAP) was mainly due to the increase of resale services. Gross margin of net revenues (non-GAAP) for platform maintenance services was the same as gross margin of platform & maintenance services business in the first quarter of 2011 and 2010.

Total operating expenses for the first quarter of 2011 increased 28.1% year over year and decreased 32.6% sequentially to US$5.6 million. Total operating expenses (non-GAAP)(3) for the first quarter of 2011 increased 23.1% year over year and decreased 29.4% sequentially to US$5.4 million. The year-over-year increase was mainly attributable to stock-based compensation and the increase of labor costs.

Income from operations for the first quarter of 2011 was US$0.2 million, compared to US$-5.5 thousand in the year-ago period and US$2.7 million in the previous quarter. Income from operations (non-GAAP)(4) for the first quarter of 2011 was US$0.5 million, compared to US$37 thousand in the year-ago period and US$3.5 million in the previous quarter.

Operating margin of total revenue was 1.6% for the first quarter of 2011, compared to -0.1% in the year-ago period and 12.4% in the previous quarter. Operating margin of net revenues (non-GAAP)(5) was 3.9% for the first quarter of 2011, compared to 0.4% in the year-ago period and 15.9% in the previous quarter.

In the first quarter of 2011, the Company recorded net income of US$27.6 thousand, or US$0.001 per diluted share, compared to US$-0.1 million, or US$-0.01 per diluted share, in the year-ago period and net income from continued operations in the previous quarter was US$2.4 million, or US$0.12 per diluted share.

Net income (non-GAAP)(6) was US$0.3 million in the first quarter of 2011 or US$0.02 per diluted share. Net income (non-GAAP) in the year-ago period was US$-0.1 million or US$-0.01 per diluted share. Net income from continued operations (non-GAAP) in the previous quarter was US$3.2 million or US$0.16 per diluted share.

As of March 31, 2011, Yucheng had cash and cash equivalents and restricted cash totaling US$16.0 million, compared to US$24.5 million as of December 31, 2010,the decrease of cash and cash equivalents and restricted cash was primarily due to the budgetary cycles of our clients.

Operating cash flow in the first quarter of 2011 was a net outflow of US$7.5 million due to the increase in advance payments for hardware inventories and the increase of inventories.

Business Outlook

For the quarter ending June 30, 2011, Yucheng expects net revenue (non-GAAP) to be approximately US$14.5 million and net income (non-GAAP) per share of US$0.09.

For the fiscal year ending December 31, 2011, we now expect software & solutions revenues to grow at 22.5-25.0%, based on the business development trend we have seen in the first quarter. We are raising our guidance of net revenue (non-GAAP) to be in the range of US$71.0 million to US$73.0 million and net income (non-GAAP) per share to be in the range of US$0.44 to US$0.46.

First Quarter 2011 Conference Call Details

Yucheng Management will conduct a conference call to discuss the financial results for the three-month period ended March 31, 2011 on Tuesday, May 17, 2011 at 8:00AM EDT/ 8:00PM 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 2566.

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 with 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. Yucheng has been ranked in the Global FinTech 100 survey of top technology partners to the financial services industry for three consecutive years. The independent research firm IDC also has named Yucheng one of the top three market share leaders in China's Banking IT solution market every year since 2007. 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) Operating 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) Operating 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.

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(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 May 17, 2011. 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, 20109, 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.