Camelot Information Systems Inc. Announces Unaudited Second Quarter 2013 Financial Results

PR Newswire

BEIJING, Aug. 22, 2013 /PRNewswire/ -- Camelot Information Systems Inc. (CIS), a leading domestic provider of enterprise application services and financial industry IT services in China ("Camelot" or the "Company"), today announced unaudited financial results for the second quarter ended June 30, 2013.

Second-Quarter Financial and Operating Highlights:

  • Net revenues were $62.5 million in the second quarter of 2013, as compared to $62.1 million in the same period in 2012.
  • Net revenues from enterprise application services (EAS) were $42.1 million, as compared to $41.2 million in the same period in 2012.
  • Net revenues from financial industry IT services (FIS) were $20.4 million, as compared to $20.9 million in the same period in 2012.
  • Gross profit was $12.2 million, as compared to $16.2 million in the same period in 2012.
  • Loss from operations was $5.4 million, as compared to income from operations of $3.5 million in the same period in 2012. Adjusted operating loss1 was $4.4 million, as compared to adjusted operating income of $4.5 million in the same period in 2012.
  • Net loss attributable to Camelot was $8.5 million, as compared to net income attributable to Camelot of $2.4 million in the same period in 2012. Adjusted net loss attributable to Camelot1 was $7.5 million, as compared to adjusted net income attributable to Camelot of $3.5 million in the same period in 2012.

[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.  

"We managed to maintain our revenues in the second quarter of 2013 comparable with the same period last year in a challenging business environment, and our top-line performance met our expectations. At this point in 2013, we continue to experience slow economic growth and a higher rate of annual wage increases," commented Mr. Simon Ma, Camelot's Chairman and Chief Executive Officer. "Throughout the remainder of this year, we will continue to build our new FIS subsidiary, improve the effectiveness of our organization, and invest in new product categories such as solutions."

Second-Quarter 2013 Financial Results

Net revenues in the quarter ended June 30, 2013 increased 0.6% to $62.5 million from $62.1 million in the same period in 2012.

Net Revenues by Segment (in thousands, except percentage)


Segment


Three Months Ended
June 30, 2013


Three Months Ended
June 30, 2012

Enterprise application services (EAS)


$42,105


67.4%


$41,213


66.4%

Financial industry IT services (FIS)


20,358


32.6%


20,873


33.6%

Total net revenues


$62,463


100.0%


$62,086


100.0%

EAS net revenues increased 2.2% year-over-year to $42.1 million in the quarter. EAS net revenues amounted to 67.4% of total net revenues in the quarter. FIS net revenues decreased 2.5% year-over-year to $20.4 million. FIS net revenues accounted for 32.6% of the quarter's total net revenues.

Cost of revenues increased 9.6% to $50.3 million from $45.9 million in the same period in 2012. Adjusted cost of revenues increased 9.7% to $50.3 million from $45.8 million in the same period in 2012. Adjusted cost of revenues excludes $22,000 of share-based compensation expense and $16,000 of amortization expense for acquisition-related intangible assets.

Gross profit decreased 24.9% to $12.2 million from $16.2 million in the same period in 2012. Adjusted gross profit decreased 24.9% to $12.2 million from $16.3 million in the same period in 2012. The gross margin was 19.5% in the quarter, as compared to 26.1% in the same period in 2012. The adjusted gross margin was 19.6% in the quarter, as compared to 26.2% in the same period in 2012.

Operating expenses were $17.6 million in the quarter, as compared to $12.7 million in the same period in 2012. Adjusted operating expenses were $16.7 million, as compared to $11.7 million in the same period in 2012. Operating expenses increased year-over-year primarily due to higher general and administrative expenses primarily attributable to management initiatives to centralize budgeting and contract issuance and monitoring, and from higher research and development expenses due to headcount increases. Adjusted operating expenses exclude $631,000 of share-based compensation expense and $297,000 of amortization expense for acquisition-related intangible assets.

Operating loss was $5.4 million, as compared to operating income of $3.5 million in the same period in 2012. Adjusted operating loss was $4.4 million, as compared to adjusted operating income of $4.5 million in the same period in 2012.

Income tax expense was $3.2 million, as compared to $758,000 in the year-ago period, representing a tax rate of negative 60.4%.

Net loss attributable to Camelot in the second quarter of 2013 was $8.5 million, as compared to net income attributable to Camelot of $2.4 million in the same period in 2012. Adjusted net loss attributable to Camelot for the second quarter of 2013 was $7.5 million, as compared to adjusted net income attributable to Camelot of $3.5 million in the same period in 2012.

Six-Month 2013 Financial Results

In the first six months of 2013, net revenues increased 2.4% to $122.1 million from $119.2 million in the first six months of 2012. Revenues in the EAS business were $78.6 million, a decrease of 2.4% from $80.5 million in the same period of 2012. Revenues in the FIS business line were $43.5 million, an increase of 12.4% from $38.7 million the same period of 2012. Gross profit was $23.9 million, as compared to $28.9 million in the same period of 2012. The gross margin was 19.6%, as compared to 24.3% in the same period of 2012. The adjusted gross margin was 19.7%, as compared to 24.4% in the same period of 2012.

Operating loss was $9.2 million in the first six months of 2013, as compared to operating income of $1.9 million in the same period of 2012. The operating margin was negative 7.6%, as compared to positive 1.6% in the same period of 2012. Adjusted operating loss was $7.3 million, as compared to operating income of $5.2 million in the same period of 2012. The non-GAAP operating margin was negative 6.0%, as compared to positive 4.3% in the same period of 2012.

Income tax expense was $3.9 million, as compared to $465,000 in the same period of 2012.

Net loss attributable to Camelot was $12.7 million in the first six months of 2013, as compared to net income of $1.6 million in the same period of 2012, or a loss of $0.28 per diluted ADS as compared to net income of $0.03 per ADS in the same period of 2012. Adjusted net loss attributable to Camelot was $10.8 million, or $0.23 per ADS in the first six months of 2013, as compared to adjusted net income of $4.9 million, or $0.10 per ADS in the same period of 2012.

Balance Sheet and Cash Flow

As of June 30, 2013, the Company had $63.1 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 primarily due to a $12.8 million net loss, a $19.1 million increase in accounts receivable, and a $3.0 million payment of contingent consideration for an acquisition, offset by $3.3 million received from bank borrowing.

Days' sales outstanding2 ("DSO") were 211 days in the second quarter of 2013, an increase of six days from 205 days in the same period of 2012.

[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.

Employees

The Company's headcount increased to 6,198 as of June 30, 2013, which included 5,408 information technology (IT) professionals, as compared to 6,097 total employees and 5,314 IT professionals at the end of the first quarter. Of the IT professionals, EAS employee headcount numbered 2,224, and FIS employee headcount numbered 3,184.

Business Outlook

Third Quarter of 2013

Camelot expects net revenues in the third quarter of 2013 of approximately $65 million, representing a 4.7% increase from revenues of $62.1 million in the third quarter of 2012.

In addition, the Company expects adjusted net income attributable to Camelot of approximately $2 million in the third 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.

The Company now expects a full-year 2013 adjusted net loss attributable to Camelot of approximately $4.0 million, as compared to adjusted net income of $6.2 million in 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 Thursday, August 22, 2013 to discuss the Company's second-quarter 2013 financial results.

The conference call may be accessed by calling:

US Toll free:

(877) 415-3183

US Toll / International:

(857) 244-7326

Hong Kong toll free:

800.96.3844

HK Toll:

852.3002.1672

UK toll free:

08082347616

UK toll:

44.207.365.8426

South China toll free / China Telecom:

10 800 130 1713

North China toll free / China Netcom:

10 800 713 1756

China toll:

86 4008811630

Taiwan toll free:

0809090400

Passcode: 56453421

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 August 29, 2013:

US Toll free:

(888) 286-8010

US Toll / International:

(617) 801-6888

Passcode: 70295289

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, amortization expense for acquisition-related intangible assets, 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 its 2010 revenues and the number of SAP consultants as of December 31, 2010, according to International Data Corporation ("IDC"). IDC also ranked Camelot the number-one service provider in the banking testing market in 2010. 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 automobiles, technology, as well as telecommunications, 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 -

CAMELOT INFORMATION SYSTEMS INC.

Condensed Consolidated Balance Sheets (Unaudited)

(U.S. Dollars in Thousands, Except per Share Data)




June 30,
2013


December 31,
2012

Assets




Current assets




Cash and cash equivalents

$63,112


$93,876

Term deposits

-


313

Restricted cash

970


1,137

Short-term investments

-


1,284

Billed accounts receivable

49,298


45,279

Unbilled accounts receivable

123,447


105,240

Other current assets

25,901


23,395

Total current assets

262,728


270,524

Property and equipment, net

4,245


4,393

Intangible assets

11,012


11,949

Long term investment

707


-

Other long-term assets

2,005


2,062

Total assets

280,697


288,928





Liabilities and equity




Current liabilities




Consideration payable in connection with business acquisition

-


2,992

Other current liabilities

84,392


79,877

Total current liabilities

84,392


82,869

Other non-current liabilities

2,416


2,786

Total liabilities

86,808


85,655

Equity (a)

193,889


203,273

Total liabilities and equity

280,697


288,928



Note:

(a) As of June 30, 2013, there were 190,926,475 ordinary shares issued and 185,269,020 shares outstanding.

 

CAMELOT INFORMATION SYSTEMS INC.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(U.S. Dollars in Thousands, Except per Share Data)



Three Months
Ended June 30,


Six Months
Ended June 30,


2013


2012


2013


2012

Net revenues

$62,463


$62,086


$122,097


$119,209

Cost of revenues(1)(2)

(50,290)


(45,869)


(98,158)


(90,298)

Gross profit

12,173


16,217


23,939


28,911

Selling and marketing(1)(2)

(3,223)


(3,493)


(6,703)


(8,102)

General and administrative(1)(2)

(11,733)


(7,401)


(21,326)


(15,385)

Research and development costs

(2,631)


(1,797)


(5,290)


(3,464)

Changes in fair value of contingent consideration for

acquisition


(50)



(97)

Total operating expense

(17,587)


(12,741)


(33,319)


(27,048)

Government subsidies



133


(Loss) income from operations

(5,414)


3,476


(9,247)


1,863

Interest expense

(33)


(54)


(48)


(146)

Interest income

122


210


335


559

(Loss) income before provisions for income tax

(5,325)


3,632


(8,960)


2,276

Income tax expense

(3,218)


(758)


(3,868)


(465)

Net loss of an equity investment, net of tax

(6)



(9)


Net (Loss) income

(8,549)


2,874


(12,837)


1,811

Noncontrolling interest

87


(460)


88


(235)

Net (Loss) income attributable to Camelot Information

Systems Inc.(3)

(8,462)


2,414


(12,749)


1,576









Earnings per share








Basic-ordinary shares

(0.05)


0.01


(0.07)


0.01

Diluted-ordinary shares

(0.05)


0.01


(0.07)


0.01









Earnings per ADS








Basic-ADSs

(0.18)


0.05


(0.28)


0.04

Diluted-ADSs

(0.18)


0.05


(0.28)


0.03









Weighted average shares outstanding








Basic-ordinary shares

185,264,624


177,621,367


185,167,362


177,621,367

Diluted-ordinary shares

185,264,624


186,288,689


185,167,362


186,302,302









Weighted average ADSs outstanding








Basic-ADSs

46,316,156


44,405,342


46,291,841


44,405,342

Diluted-ADSs

46,316,156


46,572,172


46,291,841


46,575,576









Net (Loss) income

(8,549)


2,874


(12,837)


1,811

Other comprehensive (loss) income, net of tax:








          Change in cumulative foreign currency translation

          adjustments

1,971


(1,717)


2,142


(1,649)

Comprehensive (loss) income

(6,578)


1,157


(10,695)


162









Less: comprehensive loss(income) attributable to the

          noncontrolling interest

33


(447)


28


(230)

Comprehensive (loss) income attributable to Camelot

Information Systems Inc.

(6,545)


710


(10,667)


(68)









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










Three Months Ended
June 30,


Six Months Ended
June 30,


2013


2012


2013


2012

Cost of revenues

$22


$19


$44


$43

Selling and marketing

122


430


244


1,517

General and administrative

509


39


1,017


537

Total share-based compensation expenses

$653


$488


$1,305


$2,097









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

combination for the periods indicated










Three Months Ended
June 30,


Six Months Ended
June 30,


2013


2012


2013


2012

Cost of revenues

$16


$32


$32


$64

Selling and marketing

224


417


509


898

General and administrative

73


71


145


142

Total acquisition-related intangible amortization expenses

$313


$520


$686


$1,104









(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.:










Three Months Ended
June 30,


Six Months Ended
June 30,


2013


2012


2013


2012

Net loss attributable to Camelot Information Systems Inc.

(U.S. GAAP)

($8,462)


$2,414


($12,749)


$1,576

Share-based compensation

653


488


1,305


2,097

Acquisition-related intangible amortization

313


520


686


1,104

Changes in fair value of contingent consideration

-


50


-


97

Total adjusted amounts

966


1,058


1,991


3,298

Adjusted net (loss) income attributable to Camelot

          Information Systems Inc.

($7,496)


$3,472


($10,758)


$4,874

 

CAMELOT INFORMATION SYSTEMS INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(U.S. Dollars in Thousands)






Three-Month Periods
Ended June 30,


Six-Month Periods
Ended June 30,


2013


2012


2013


2012

Cash flow from operating activities:








   Net (Loss)income

($8,549)


$2,874


($12,837)


$1,811

   Adjustments to reconcile net (loss) income to net cash used in operating 
   activities:








         Depreciation of property and equipment

237


257


478


522

         Amortization of intangible assets

504


818


1,063


1,508

         Deferred income taxes

(23)


(112)


532


370

         Provision for account receivable

(683)


(362)


(882)


(791)

         Provision for other current assets


633



633

         Share-based compensation

653


488


1,305


2,097

         (Gains)loss on disposal of property and equipment


(7)


25


11

         Change in fair value of contingent consideration for acquisition


50



97

         Net loss of an equity investment, net of tax

6



9


 Changes in operating assets and liabilities:








         Accounts receivable

(9,989)


(19,409)


(19,135)


(27,072)

         Other assets

(1,099)


193


(2,727)


(452)

         Accounts payable

936


4,430


(2,375)


1,744

         Other liabilities

6,638


4,948


3,135


(2,045)

Net cash used in operating activities

(11,369)


(5,199)


(31,409)


(21,567)









Cash flow from investing activities:








         Purchase of term deposits


(330)


(67)


(1,063)

         Maturity of term deposits

109


316


387


11,084

         Deposit of restricted cash

109


170


149


3,728

         Maturity of short term investment



1,286


         Proceeds from disposal of property and equipment



9


4

         Purchase of property and equipment

(202)


(170)


(290)


(311)

         Purchase of intangible assets and other assets


(966)



(1,022)

         Purchase of businesses, net of cash acquired




(3,500)

         Capital injection into a joint venture



(708)


Net cash provided by(used in) investing activities

16


(980)


766


8,920









Cash flow from financing activities:








         Proceeds from bank borrowing

3,061


337


3,343


2,881

         Repayment of bank borrowing

(255)


(622)


(879)


(8,127)

         Payment of contingent consideration for an acquisition

(3,012)


(3,151)


(3,012)


(5,100)

Net cash used in financing activities

(206)


(3,436)


(548)


(10,346)









Effect of foreign exchange rate changes

519


(11)


427


20









Net decrease in cash and cash equivalents

(11,040)


(9,626)


(30,764)


(22,973)

Cash and cash equivalents, beginning of period

74,152


43,781


93,876


57,128

Cash and cash equivalents, end of period

63,112


34,155


63,112


34,155

 

CAMELOT INFORMATION SYSTEMS INC.

Reconciliations of Adjusted Financial Measures to Comparable GAAP Measures (Unaudited)

(US Dollars in Thousands, Except per Share Data and Percentage)



Three Months Ended
June 30, 2013

Three Months Ended
June 30, 2012


GAAP

Adjustments


Adjusted

GAAP

Adjustments


Adjusted

Cost of revenues

$50,290

($38)

(a)

$50,252

$45,869

($51)

(a)

$45,818

Gross profit

12,173

38

(a)

12,211

16,217

51

(a)

16,268

Operating expenses

17,587

(928)

(a)

16,659

12,741

(1,007)

(a)

11,734

Operating income(loss)

(5,414)

966

(a)

(4,448)

3,476

1,058

(a)

4,534

Net income(loss)

(8,462)

966

(a)(d)

(7,496)

2,414

1,058

(a)

3,472

Net gross margin

19.5%

0.1%

(b)

19.6%

26.1%

0.1%

(b)

26.2%

Net operating margin

(8.7%)

1.5%

(a)

(7.2%)

5.6%

1.7%

(a)

7.3%

Net margin

(13.5%)

1.5%

(a)

(12.0%)

3.9%

1.7%

(a)

5.6%

Diluted EPS

($0.05)

$0.01

(c)

($0.04)

$0.01

$0.01

(c)

$0.02

Diluted EPADS

($0.18)

$0.02

(c)

($0.16)

$0.05

$0.02

(c)

$0.07


Six Months Ended
June 30, 2013

Six Months Ended
June 30, 2012


GAAP

Adjustments


Adjusted

GAAP

Adjustments


Adjusted

Cost of revenues

$98,158

($76)

(a)

$98,082

$90,298

($107)

(a)

$90,191

Gross profit

23,939

76

(a)

24,015

28,911

107

(a)

29,018

Operating expenses

33,319

(1,915)

(a)

31,404

27,048

(3,191)

(a)

23,857

Operating income(loss)

(9,247)

1,991

(a)

(7,256)

1,863

3,298

(a)

5,161

Net income(loss)

(12,749)

1,991

(a)(d)

(10,758)

1,576

3,298

(a)

4,874

Net gross margin

19.6%

0.1%

(b)

19.7%

24.3%

0.1%

(b)

24.4%

Net operating margin

(7.6%)

1.6%

(a)

(6.0%)

1.6%

2.7%

(a)

4.3%

Net margin

(10.4%)

1.6%

(a)

(8.8%)

1.3%

2.8%

(a)

4.1%

Diluted EPS

($0.07)

$0.01

(c)

($0.06)

$0.01

$0.02

(c)

$0.03

Diluted EPADS

($0.28)

$0.05

(c)

($0.23)

$0.03

$0.07

(c)

$0.10

 

Notes:


(a) The non-GAAP adjustments include share-based compensation expense, amortization expense related to intangible assets acquired for business acquisition and changes in fair value of contingent consideration, which are presented in the notes (1) and (2) below "Condensed Consolidated Statements of Operations (Unaudited)" for the reconciliation process


(b) Adjustments to exclude acquisition-related intangible-asset amortization expense and share-based compensation recorded in cost of sales of $38, $51, $76 and $107 for the three-month periods ended June 30, 2013 and 2012, and the six-month periods ended June 30, 2013 and 2012, respectively.


(c) Adjusted diluted EPS is computed by dividing adjusted net income attributable to Camelot Information Systems Inc. by the weighted average number of diluted ordinary shares outstanding used in computing the GAAP diluted EPS for the respective periods.


(d) Net income refers to net income attributable to Camelot.

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