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

BEIJING, Aug. 22, 2013 /PRNewswire/ -- Camelot Information Systems Inc. (NYSE: 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.

"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.

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.

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:

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:

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 -

SOURCE Camelot Information Systems Inc.