Yucheng Technologies Reports Third Quarter Financial Results

BEIJING, Nov. 5 /PRNewswire-Asia-FirstCall/ -- Yucheng Technologies Limited , a leading provider of IT Solutions to the banking industry in China, today announced unaudited financial results for the quarter ended September 30, 2009.

"Yucheng's core business, Software & Solutions, continued strong growth, with year to date revenues totaling USD 34.6M, an increase of 60.0% over the same period in 2008, excluding exchange rate fluctuations," said Weidong Hong, CEO and Chairman of Yucheng. "We expect our Software & Solutions business will continue to be the main driver of both revenue and EPS."

Third Quarter 2009 Financial Highlights -- Software & Solutions net revenue totaled USD 13.8M, a 55.9% increase year-over-year. -- Total net revenue grew 24.7% year-over-year to USD 17.0M. -- With the introduction of tighter expense controls, G&A expenses totaled USD 3.3M, a sequential decline of 18.9%. -- Yucheng had USD 21.9M in cash, compared to USD 18.8M in the third quarter of 2008.

Business Outlook

The third quarter demonstrated high demand across the board for Yucheng's Software & Solutions. Key growth drivers continue to be loan management, call center, and e-banking solutions, where Yucheng is a recognized leader. With confidence in the overall health of the bank IT Solutions market, this trend is expected to continue into 2010.

Operating expenses showed encouraging stability as a percentage of revenues due to tighter controls and greater scrutiny. The G&A cost control initiatives are still taking effect and are expected to be accretive to the bottom line in 2010.

Weidong Hong, CEO of Yucheng stated, "Given our third quarter execution and our fourth quarter visibility, we are confirming our 2009 annual guidance of USD 69M to 72M in net revenue, USD 14.9M in net income and non-GAAP EPS of USD 0.80."

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 are provided on a net presentation basis.

Summary of Selected Unaudited Financial Results for the Third Quarter of 2009 (Numbers are in thousands, except shares outstanding, earnings per share and percentages) Q3 2009 Total CORE POS % of % of % of Amount Revenues Amount Revenues Amount Revenues Revenues 17,039 100.0% 16,044 100.0% 995 100.0% Software & Solutions 13,812 81.1% 13,812 86.1% -- -- POS 995 5.8% -- -- 995 100.0% Platform & Maintenance Services 2,232 13.1% 2,232 13.9% -- 0.0% Cost of Revenues 8,328 48.9% 7,779 48.5% 549 55.2% Gross Profit 8,711 51.1% 8,265 51.5% 446 44.8% Operating Expenses 5,939 34.9% 5,156 32.1% 782 78.6% R&D 502 2.9% 502 3.1% -- -- SG&A 5,437 31.9% 4,655 29.0% 782 78.6% Income from Operations 2,773 16.3% 3,109 19.4% -336 -33.8% Net Income (GAAP) 2,667 15.7% 2,924 18.2% -257 -25.8% Amortization of Intangible Assets 336 2.0% 336 2.1% -- -- Non-GAAP Net Income 3,002 17.6% 3,259 20.3% -257 -25.8% Basic GAAP EPS 0.14 -- 0.16 -- -0.01 -- Diluted GAAP EPS 0.14 -- 0.16 -- -0.01 -- Basic Non-GAAP EPS 0.16 -- 0.18 -- -0.01 -- Diluted Non-GAAP EPS 0.16 -- 0.18 -- -0.01 -- Basic Weighted Average Common Shares Out- standing 18,534,978 -- 18,534,978 -- 18,534,978 -- Diluted Weighted Average Common Shares Out- standing 18,602,874 -- 18,602,874 -- 18,602,874 -- Q3 2008 Total CORE POS % of % of % of Amount Revenues Amount Revenues Amount Revenues Revenues 13,661 100.0% 13,034 100.0% 627 100.0% Software & Solutions 8,858 64.8% 8,858 68.0% -- -- POS 627 4.6% -- -- 627 100.0% Platform & Maintenance Services 4,176 30.6% 4,176 32.0% -- -- Cost of Revenues 5,067 37.1% 4,682 35.9% 385 61.3% Gross Profit 8,594 62.9% 8,351 64.1% 243 38.7% Operating Expenses 5,563 40.7% 4,866 37.3% 697 111.2% R&D 642 4.7% 642 4.9% -- -- SG&A 4,921 36.0% 4,224 32.4% 697 111.2% Income from Operations 3,031 22.2% 3,486 26.7% -455 -72.7% Net Income (GAAP) 3,708 27.1% 3,943 30.2% -234 -37.3% Amortization of Intangible Assets 336 2.5% 336 2.6% -- -- Non-GAAP Net Income 4,045 29.6% 4,279 32.8% -234 -37.3% Basic GAAP EPS 0.21 -- 0.22 -- -0.01 -- Diluted GAAP EPS 0.21 -- 0.22 -- -0.01 -- Basic Non-GAAP EPS 0.23 -- 0.24 -- -0.01 -- Diluted Non-GAAP EPS 0.23 -- 0.24 -- -0.01 -- Basic Weighted Average Common Shares Out- standing 17,563,685 -- 17,563,685 -- 17,563,685 -- Diluted Weighted Average Common Shares Out- standing 17,743,066 -- 17,743,066 -- 17,743,066 -- CORE POS Y-O-Y Y-O-Y Change Change Revenues 23.1% 58.6% Software & Solutions 55.9% -- POS -- 58.6% Platform & Maintenance Services -46.6% -- Cost of Revenues 66.1% 42.6% Gross Profit -1.0% 84.0% Operating Expenses 6.0% 12.2% R&D -21.8% -- SG&A 10.2% 12.2% Income from Operations -10.8% 26.1% Net Income (GAAP) -25.8% -9.7% Amortization of Intangible Assets 0.0% -- Non-GAAP Net Income -23.8% 9.7% Basic GAAP EPS -29.7% 3.9% Diluted GAAP EPS -29.3% 4.6% Basic Non-GAAP EPS -27.8% 3.9% Diluted Non-GAAP EPS -27.3% 4.6% Basic Weighted Average Common Shares Outstanding 5.5% 5.5% Diluted Weighted Average Common Shares Outstanding 4.8% 4.8% Note: Due to rounding the table above may have slight discrepancies. The United States dollar amounts in the above table are calculated based on an exchange rate of USD 1.00 = RMB 6.8183 for September 30, 2008 and USD 1.00 = RMB 6.8290 for September 30, 2009.

Revenues: Yucheng's revenues are comprised of three distinct categories. Software & Solutions includes all revenues from our internally developed software and software-related solutions. Platform & Maintenance Services is comprised of the procurement and resale of third-party hardware and software, as well as maintenance and support services. POS is comprised of all revenues generated on our point-of-sale terminals.

Yucheng reported consolidated net revenues of USD 17.0M for the third quarter 2009, an increase of 24.7% compared to the third quarter of 2008 and 12.6% from the prior quarter of 2009.

-- Software & Solutions: In the third quarter, Software & Solutions registered USD 13.8M in net revenues, a 55.9% increase compared to the third quarter of 2008, and an 18.9% increase compared to the second quarter of 2009. Strong demand for Software & Solutions persisted into the third quarter, driven by Yucheng's growing presence in SMBs. Software & Solutions accounted for 81.1% of total net revenue. -- Platform & Maintenance Services: Net revenues totaled USD 2.2M in the third quarter or 13.1% of net revenue. Platform & Maintenance net revenues decreased by 46.6% year over year and 11.9% sequentially. As previously forecasted, bank demand for third-party hardware remained weak in the third quarter, with year over year comparisons influenced by the high base from aggressive Olympic spending in 2008. -- POS: POS generated revenues of USD 1.0M in the third quarter, which represented 5.8% of net revenue. Our POS net revenues increased 58.6% compared to the third quarter of 2008 and 2.2% compared to the second quarter of 2009. Gross margins in the business were weaker sequentially because of higher sales and maintenance costs resulting from regulatory changes.

Comparing customer revenues by segment, year to date SMBs grew by 56.9%, while Top Four banks continued to grow on an absolute basis. These trends are in line with management expectations issued on the second quarter call.

Gross Profits: In the third quarter of 2009, Yucheng registered a gross profit of USD 8.7M, an increase of 1.4% year over year and 3.0% sequentially. Calculated on a net revenue basis, gross margins for the third quarter were 51.1%, down from 62.9% in the third quarter of 2008 and 55.9% in the second quarter of 2009. Gross margins were primarily affected by lower license sales in Software & Solutions, the delay of several higher margin Solution contracts to the fourth quarter and a one-time charge in Platform & Maintenance.

Sales, General and Administrative Expenses (SG&A): Consolidated SG&A as a percentage of net revenue was 31.9% in the third quarter, as compared to 36.0% in the third quarter 2008 and 38.4% in the second quarter of 2009.

-- SG&A as a percentage of net revenue for the Core business was 29.0% as compared to 32.4% in the third quarter of 2008 and 35.6% in the second quarter of 2009. The decline is due primarily to strict G&A controls implemented in the third quarter. -- In the third quarter POS SG&A as percentage of net revenues was 78.6% as compared to 111.2% in the third quarter of 2008 and 78.7% in the second quarter of 2009. Revenues outpaced the expenses as the business leveraged its established sales network.

Net Income: Yucheng recorded non-GAAP net income of USD 3.0M, a decrease of 25.8% compared to the third quarter of 2008 and an increase of 3.2% compared to the second quarter of 2009. GAAP net income was USD 2.7M for the quarter, a decrease of 28.1% compared to the third quarter of 2008 and an increase of 3.6% compared to the second quarter of 2009. Operating margins for the quarter were 16.3% compared to 22.2% in the third quarter of 2008 and 14.3% in the second quarter of 2009. Operating margins are up sequentially, due to operating expense control initiatives; however, they are down year over year because of lower gross margins.

Earnings per Share: In the third quarter, Yucheng's EPS for fully diluted shares on a consolidated basis were USD 0.16 (non-GAAP) and USD 0.14 (GAAP), compared to USD 0.23 (non-GAAP) and USD 0.21 (GAAP) in the third quarter of 2008. EPS was primarily impacted by the change in our tax situation from receiving tax credits to becoming a net taxpayer. In the third quarter of 2008, a tax benefit contributed approximately USD 0.04 to both GAAP and non- GAAP EPS.

-- Core: Fully diluted EPS for the third quarter was USD 0.18 (non-GAAP) and USD 0.16 (GAAP) compared to USD 0.24 (non-GAAP) and USD 0.22 (GAAP) in the third quarter of 2008. -- POS: On both a GAAP and non-GAAP basis, the fully diluted EPS impact of POS was a loss of USD 0.01 in the current quarter compared to a loss of USD 0.01 in the third quarter of 2008.

Cash: Yucheng had USD 21.9M in cash compared to USD 18.8M in the third quarter of 2008 and USD 32.8M in the second quarter of 2009. Cash declined sequentially due to the repayment of USD 7.1M in short-term loans that were taken in the second quarter to cover working capital needs.

Accounts Receivable: Accounts receivable totaled USD 33.1M in the current period compared to USD 37.0M in the third quarter of 2008 and USD 32.4M in the prior quarter. The stability partially resulted from a policy issued in the second quarter that made accounts receivable collection a significant compensation component for sales managers.

Third quarter DSOs totaled 165 days, compared to 154 days in the third quarter of 2008 and 210 days in the second quarter of 2009. DSOs declined sequentially because of higher gross revenues in the quarter.

POS: Yucheng's POS business remained focused on revenues per terminal. Net revenue in the third quarter totaled to USD 1.0M, an increase of 58.6% year over year and 2.2% over the prior quarter.

-- Terminal Deployment: Our POS installed base grew to 25,600 at the end of the third quarter compared to 24,100 at the end of the second quarter. The base is projected to grow to 28,000 terminals by year-end as we continue to phase out the low performing terminals. -- Average Monthly Gross Revenue per POS terminal (AMGRP): The AMGRP across the entire installed base was in line with management expectations at USD 13.

Taxes: Yucheng paid USD 0.1M in taxes during the third quarter, which was flat sequentially and a reversal from the third quarter 2008's tax benefit of USD 0.7M. For 2009, Yucheng expects to be a net taxpayer at an annualized rate of approximately 4.0%.

YUCHENG TECHNOLOGIES LIMITED AND SUBSIDIARIES Consolidated Balance Sheets September 30, 2009 and June 30, 2009 2009.9.30 2009.6.30 USD USD Assets Current assets: Cash and cash equivalent 21,893,313 32,797,932 Trade accounts receivable, net 33,106,616 32,401,146 Costs and estimated earnings in excess of billings on uncompleted contracts 24,311,219 15,385,414 Amounts due from related companies 623,776 649,596 Inventories 3,058,452 3,243,943 Pre-contract costs 665,396 1,507,676 Other current assets 7,434,529 8,588,954 Total current assets 91,093,301 94,574,661 Investments in and advances to affiliates 504,041 630,196 Fixed assets 13,710,998 13,277,493 Less: Accumulated depreciation -4,447,620 -3,857,632 Fixed assets, net 9,263,378 9,419,861 Intangible assets, net 4,735,659 5,099,010 Goodwill 27,677,493 27,665,744 Deferred income taxes - Non-current 3,003,404 2,669,282 Total assets 136,277,276 140,058,754 YUCHENG TECHNOLOGIES LIMITED AND SUBSIDIARIES Consolidated Balance Sheets (continued) September 30, 2009 and June 30, 2009 2009.9.30 2009.6.30 USD USD Liabilities and stockholders' equity Current liabilities: Short term loan 11,714,746 18,814,678 Obligations under capital leases 386,058 414,002 Trade accounts payables 11,414,696 9,704,504 Billings in excess of costs and estimated earnings on uncompleted contracts 2,349,567 1,042,701 Employee and payroll accruals 1,724,066 1,738,807 Dividends payable to ex-owners 808,524 808,180 Deemed distribution to ex-owners 2,047,133 6,584,618 Outstanding payment in relation to business acquisitions 1,109,698 3,452,847 Income taxes payable 2,443,655 1,993,767 Other current liabilities 6,865,867 8,261,739 Deferred income taxes - Current 59,064 130,380 Total current liabilities 40,923,074 52,946,223 Obligations under capital leases 103,054 180,038 Deferred income taxes 424,258 387,639 Total liabilities 41,450,386 53,513,900 Stockholders' equity Preferred stock, $0.0001 par value, authorized 2,000,000 shares and none issued; Common stock, $0.0001 par value, authorized 60,000,000 shares; 17,580,935 and 18,560,014 shares issued and outstanding as of June 30, 2009 and September 30, 2009 2,929,858 2,928,515 Additional paid-in capital 56,430,463 50,860,802 Reserves 5,410,409 5,408,113 Retained earnings 29,004,054 26,326,255 Accumulated other comprehensive loss -331,445 -454,088 Minority interests 1,383,551 1,475,257 Total stockholders' equity 94,826,890 86,544,854 Liabilities and stockholders' equity 136,277,276 140,058,754 YUCHENG TECHNOLOGIES LIMITED AND SUBSIDIARIES Consolidated Statements of Income Three months ended September 30, 2009 and 2008 2009 Q3 2008 Q3 USD USD Revenues: Software & Solutions 13,812,024 8,857,605 Platform & Maintenance Services (net) 2,231,617 4,175,967 POS 995,226 627,382 Total revenues (non-GAAP) 17,038,867 13,660,954 Platform pass-through costs 1,270,073 9,911,538 Total revenues 18,308,940 23,572,492 Cost of revenues: Cost of revenues (net) -8,327,561 -5,066,951 Platform pass-through costs -1,270,073 -9,911,538 Total cost of revenues -9,597,634 -14,978,488 Gross profit 8,711,306 8,594,004 Operating expenses: Research and development -501,685 -641,577 Selling and marketing -2,171,231 -1,719,204 General and administrative -3,265,701 -3,202,349 Total operating expenses -5,938,617 -5,563,129 Operating income 2,772,689 3,030,874 YUCHENG TECHNOLOGIES LIMITED AND SUBSIDIARIES Consolidated Statements of Income (continued) Three months ended September 30, 2009 and 2008 2009 Q3 2008 Q3 USD USD Other income (expenses): Interest income 12,761 76,192 Interest expense -107,958 -181,947 Investment gain (loss) -19,848 -- Other income (expense), net 1,053 17,792 Income before income tax and minority interests 2,658,697 2,942,911 Income tax benefit (expense) -84,410 705,803 Minority interests 92,333 59,542 Net income (GAAP) 2,666,620 3,708,256 Amortization for intangible assets 335,797 336,324 Net income (non-GAAP) 3,002,417 4,044,580 YUCHENG TECHNOLOGIES LIMITED AND SUBSIDIARIES Consolidated Statements of Cash Flows Three months ended September 30, 2009 and 2008 2009 Q3 2008 Q3 USD USD Cash flows from operating activities: Net income 2,666,619 3,708,258 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 511,395 352,287 Amortization 698,617 580,996 Loss on disposal fixed assets 1,530 15,501 Minority interests -92,333 -59,542 Share of equity in affiliate company 126,423 -- Decrease (increase) in trade accounts receivable, net -922,722 5,109,582 Decrease (increase) in costs and estimated earnings in excess of billing on uncompleted contracts -8,688,261 -4,646,669 Decrease (increase) in due from related parties 26,096 -548 Decrease (increase) in inventories 186,868 -826,163 Decrease (increase) in precontract costs 842,920 313,111 Decrease (increase) in other current assets 602,048 -469,453 Decrease (increase) in deferred income taxes assets - Current -- -279,592 Decrease (increase) in deferred income taxes assets - Non-current -332,988 -159,342 Increase (decrease) in trade accounts payable 1,706,071 -3,356,596 Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts 1,306,423 -132,257 Increase (decrease) in employee and payroll accruals -15,480 -136,590 Increase (decrease) in income taxes payable 449,041 -210,781 Increase (decrease) in other current liabilities -1,138,065 734,391 Increase (decrease) in deferred income taxes liabilities -34,917 -58,859 Net cash provided by (used in) operating activities -2,100,715 477,734 YUCHENG TECHNOLOGIES LIMITED AND SUBSIDIARIES Consolidated Statements of Cash Flows (continued) Three months ended September 30, 2009 and 2008 2009 Q3 2008 Q3 USD USD Cash flows from investing activities: Capital expenditures -1,108,821 -1,792,135 Payment of purchase of subsidiaries -705,183 -3,953,947 New investment of joint venture -- -739,485 Proceeds from disposal of fixed assets 17,060 6,013 Proceeds from disposal of sharehold of affiliates 615,237 -- Proceeds from disposal of subsidiary, net of cash disposed 234,295 -- Net cash provided by (used in) investing activities -947,412 -6,479,554 Cash flows from financing activities: Deemed distribution -634,120 -- Payment of capital leases -114,450 -53,872 Dividends paid to ex-owners -- -1,283,604 Proceeds from bank borrowings 7,321,716 -- Repayments of bank borrowings -14,429,638 -- Net cash provided by financing activities -7,856,492 -1,337,476 Net increase in cash and cash equivalents -10,904,618 -7,339,296 Cash at beginning of period 32,797,932 26,114,646 Cash at end of period 21,893,313 18,775,350

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 earning 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, 2009 on Thursday, November 5, 2009 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 33065861.

US +1 866 242 1388 Canada +1 888 447 3085 China Netcom Users +86 10 800 640 0084 China Telecom Users +86 10 800 264 0084 All Other Participants +61 288 236 760

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 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. Yucheng is also a leading third-party provider of POS Merchant Acquiring Services in partnership with banks in China.

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; change in products and clients and the expansion into small to medium-sized bank market; 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; changing tax rates; 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.

Contact: Rebecca Alexander, Investor Relations, Tel: +1 914 613 3648, +86 10 5913 7998 Email: ralexander@yuchengtech.com

Yucheng Technologies Limited

CONTACT: Rebecca Alexander, Investor Relations, +1 914 613 3648, +86 105913 7998, ralexander@yuchengtech.com