Longtop Financial Technologies Limited Announces Unaudited Financial Results for the Fiscal Quarter and Full Year Ended March 31, 2010

HONG KONG, May 23 /PRNewswire-Asia/ -- Longtop Financial Technologies Limited ("Longtop") (NYSE: LFT), a leading software developer and solutions provider targeting the financial services industry in China, announced today unaudited financial results for the fiscal fourth quarter and fiscal year ended March 31, 2010.

FINANCIAL HIGHLIGHTS

• Fourth quarter total revenues of US$43.1 million, an increase of 66.4% Year-on-Year;
• Fourth quarter Adjusted(1) Operating Income of US$17.5 million, an increase of 65.2% Year-on-Year;
• Fourth quarter Adjusted Net Income of US$16.3 million, an increase of 48.2% Year-on-Year;
• Fourth quarter Adjusted Diluted Earnings Per Share of US$0.28, an increase of 33.3% Year-on-Year;
• Fourth quarter US GAAP net income per diluted share of US$0.10, a decrease of 41.2% Year-on-Year;  
• Full year total revenues of US$169.1 million, up 59.0% Year-on-Year;
• Full year Adjusted Operating Income of US$79.1 million, up 50.6% Year-on-Year;
• Full year Adjusted Net Income of US$77.7 million, which includes an income tax benefit of US$3.8 million. Excluding the tax benefit, Adjusted Net Income would have increased 43.2%;
• Full year Adjusted Diluted Earnings Per Share of US$1.41, which includes an income tax benefit of US$0.07 per share. Excluding the tax benefit, Adjusted Diluted Earnings Per Share would have increased 36.7%;
• Full year US GAAP net income per diluted share of US$1.07, an increase of 28.9% Year-on-Year;
• Cash flow from operations was US$13.2 million for the fourth quarter and US$62.9 million for the fiscal year 2010.

"I am very pleased to report that we have concluded fiscal 2010 with another quarter of solid results. We look back at a year in which our business flourished due to significant organic business expansion in the financial IT industry, and the synergies of the Sysnet acquisition that further boost our presence in the insurance IT solution market. This quarter's results once more indicate that Longtop's business is based on the indispensable and recurring nature of our software and solutions," commented Weizhou Lian, CEO of Longtop. "Our outlook for 2011 is strong based on our sound business fundamentals and feedback from our customers. With the acquisition of Giantstone, we feel we are better positioned to capitalize on the long-term growth opportunity in China's financial technology market."

(1) Explanation of the Company's Adjusted (i.e. non-GAAP) financial measures and the related reconciliations to GAAP financial measures are included in the accompanying "Non-GAAP Disclosure" and the "Consolidated Adjusted Statements of Operations".

FISCAL FOURTH QUARTER AND FULL YEAR DETAILED FINANCIAL RESULTS

Revenue

Total revenues for the quarter ended March 31, 2010, were US$43.1 million, an increase of 66.4% year-on-year (YoY) from US$25.9 million in the corresponding year ago period, and exceeded Company guidance of US$40.0 million. Excluding revenue from Sysnet, a leading IT insurance services provider acquired by Longtop in Q1 2010, total revenues for the fourth quarter would have increased by 56.1%. Software development revenues of US$37.1 million contributed 86.1% of total revenues, a YoY increase of 76.2%, and exceeded Company guidance of US$34.0 million. Excluding software development revenue from Sysnet, total software development revenues for the fourth quarter would have increased by 65.2%.

Total revenues for the fiscal year ended March 31, 2010, were US$169.1 million, an increase of 59.0% YoY from US$106.3 million in the corresponding year ago period. Excluding revenue from Sysnet, total revenues for the fiscal year ended March 31, 2010, would have increased by 46.9%. Software development revenues, which were 85.9% of total revenues for the fiscal year ended March 31, 2010, amounted to US$145.2 million, a YoY increase of 62.1%. Excluding software development revenue from Sysnet, total software development revenues for the fiscal year ended March 31, 2010, would have increased by 53.7%. Revenue for the quarter and fiscal year ended March 31, 2010, from Giantstone, a leading provider of core banking solutions, which was acquired in January 2010 was nil.  The Company expects a revenue contribution from Giantstone of US$4.0 million in the first quarter of fiscal 2011 and US$15 million for fiscal 2011.

Software development revenue from the Big Four Banks in the fourth quarter was US$15.8 million, an increase of 98.4% YoY. Software development revenue from the Big Four Banks for the fiscal year ended March 31, 2010, was US$63.1 million, an increase of 50.2% YoY due to strong demand from the Big Four customers. Big Four Banks accounted for 43.5% of software development revenues for the year ended March 31, 2010, as compared to 46.9% in the corresponding year ago period.

Software development revenue from Other Banks in the fourth quarter was US$14.2 million, a YoY increase of 49.9%. Software development revenue from Other Banks for the fiscal year ended March 31, 2010, was US$54.2 million, an increase of 56.7% YoY due largely to more revenue per existing Other Bank customer. Other Banks accounted for 37.3% of software development revenues for the fiscal year ended March 31, 2010, as compared to 38.6% in the corresponding year ago period.

Software development revenue from Insurance was US$5.6 million in the fourth quarter, a YoY increase of 88.7% and US$21.8 million for the fiscal year ended March 31, 2010, an increase of 121.5% YoY. Insurance accounted for 15.0% of software development revenues for the fiscal year ended March 31, 2010. Sysnet contributed US$7.5 million in software development revenue for the fiscal year ended March 31, 2010, of which $2.3 million was recorded in Q4 2010.  Excluding insurance related software development revenue from Sysnet, insurance revenue for the fourth quarter and fiscal year ended March 31, 2010, would have increased by 23.7% and 59.9% respectively.    

Software development revenue from Enterprises was US$1.4 million and US$6.1 million for the three and twelve months ended March 31, 2010, a YoY increase of 131.3% and 94.6% respectively.  

Gross Margins  

Adjusted Software Development Gross Margin for fiscal 2010 declined 150 basis points from fiscal 2009 to 71.4%.  This slight decline was primarily due to the following factors: (i) the inclusion of Sysnet, which has lower gross margins than Longtop, (ii) Longtop is investing in its software development consulting and professional services business which has lower incremental gross margins than Longtop's historical Adjusted Software Development Gross Margin, (iii) in order to meet customer requirements a larger percentage of the workforce are being located in higher cost centers such as Beijing and (iv) cost of revenue associated with the Giantstone acquisition which closed in January 2010 without any corresponding revenue from Giantstone.  Customized software solutions as a percentage of Software Development revenue was 64.2% in fiscal 2010 and basically unchanged from 65.1% in fiscal 2009.   At March 31, 2010, Longtop had 2,492 software delivery staff including Giantstone, as compared to 1,310 at March 31, 2009.  

Adjusted Other Services Gross Margin for fiscal 2010 declined to 38.0% from 49.0% in 2009 due primarily to a gross margin reduction from the ATM physical maintenance business.  

Full year 2010 Adjusted Total Gross Margin of 66.7% was equal to the Company's previous guidance.

Operating Expenses

Adjusted Operating Expenses were 19.9% of revenue for the fiscal year ended March 31, 2010, which is in line with full year Company guidance of 20.0%. Adjusted Operating Expenses increased by 60.0% YoY in the fiscal year ended March 31, 2010, which was slightly lower than the YoY software development revenue growth of 62.1%.  

Operating Income

Even with the inclusion of $1.1 million in operating losses from consolidating Giantstone, Adjusted Operating Income of US$17.5 million for the fourth quarter exceeded company guidance of US$16.0 million and increased YoY by 65.2%. Adjusted Operating Income of US$79.1 million for the fiscal year ended March 31, 2010, increased 50.6% YoY. Giantstone is expected to be accretive to operating income for fiscal year 2011.

Adjusted Operating Margin for the fiscal year ended March 31, 2010, of 46.8% was equal to Company guidance and lower than 49.4% in fiscal 2009 due to the decline in Adjusted Total Gross Margin.  

Net Income

Adjusted Net Income for the quarter ended March 31, 2010, of US$16.3 million or US$0.28 per fully diluted share increased by 48.2% as compared to Adjusted Net Income of US$11.0 million in the corresponding year ago period, and exceeded Company Guidance for Adjusted Net Income of US$15.5 million and US$0.26 for Adjusted Diluted Earnings Per Share.

During the fourth quarter, Longtop recorded a total of $4.5 million for intangible assets and goodwill impairment charges related to an Other Services business acquired in fiscal 2009. US GAAP and Adjusted Net Income for the fiscal year ended March 31, 2010, includes US$3.8 million (US$0.07 per fully diluted share) for an income tax benefit  recorded in Q3 2010 ("Q3 2010 Income Tax Benefit") associated with Longtop's qualification as a Key Software Company for the 2009 calendar year. Excluding the Q3 2010 Income Tax Benefit, Adjusted Net Income for the fiscal year ended March 31, 2010, would have increased 43.2% as compared to Adjusted Net Income of US$51.6 million in fiscal 2009. US GAAP net income for the fiscal year ended March 31, 2010, excluding the US$3.8 million Q3 2010 Income Tax Benefit, would have increased 27.1% as compared to US GAAP net income of US$43.5 million in the corresponding year ago period.

Operating cash flow was US$13.2 million and US$62.9 million for fourth quarter and fiscal year ended March 31, 2010.

Unrestricted cash balances at March 31, 2010, were US$331.9 million.

Commenting on the results, Derek Palaschuk, CFO of Longtop, said: "In the fourth quarter revenue once more substantially exceeded our previous guidance, demonstrating the continuing strong demand for Longtop solutions. Even with the inclusion of $1.1 million in operating losses from consolidating Giantstone, our operating and net income was still well above guidance. Our continuous efforts to further improve overall business execution were underscored by a strong cash flow from operations of $62.9 million for fiscal 2010. Looking ahead, our positive business momentum, stable margin structure and strong cash balance form a solid foundation to consolidate our leadership position in China's financial technology industry in fiscal 2011."

BUSINESS OUTLOOK

Longtop anticipates for the quarter ending June 30, 2010:

Total revenues of US$44.5 million, Adjusted Operating Income of US$18.0 million, Adjusted Net Income of US$16.1 million and Adjusted Diluted Earnings Per Share of US$0.28. Giantstone is expected to contribute $4.0 million of software development revenues, $1.4 million in Adjusted Operating Income, $1.1 million in Adjusted Net Income or $0.02 per diluted share.  

Longtop anticipates for its fiscal year ending March 31, 2011:

Total revenues of US$225 million, Adjusted Operating Income of US$103.5 million, Adjusted Net Income of US$96.5 million and Adjusted Diluted Earnings Per Share of US$1.64.   Giantstone is expected to contribute $15.0 million of software development revenues, $4.5 million in Adjusted Operating Income, $3.75 million in Adjusted Net Income or $0.06 per diluted share.  

CONFERENCE CALL AND WEBCAST

Longtop's senior management team will host a conference call and audio web cast at 8:00 am US Eastern Time/ 5:00 am U.S. Pacific Time/ 8:00 pm Beijing/Hong Kong time on May 24, 2010. The conference call will last for approximately one hour.

The dial-in numbers for the conference call are as follows:

A live and archived web cast of this call will be available on Longtop's website at http://en.longtop.com/.

NON-GAAP DISCLOSURE ("ADJUSTED")

To supplement the unaudited consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Longtop's management reports and uses non-GAAP ("Adjusted") measures of cost of revenues, operating expenses, net income and fully diluted net income per share, which are adjusted from results based on GAAP.  To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures to exclude certain business combination accounting entries and expenses related to acquisitions, as well as other significant expenses including stock-based compensation that we believe are helpful in understanding our past financial performance and our future results. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures.  Management believes these non-GAAP financial measures enhance the user's overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP financial measures provide useful information to both management and investors by excluding certain items that we believe are not indicative of our core operating results. The presentation of this additional information is not meant to be considered superior to, in isolation from or as a substitute for results prepared in accordance with US GAAP. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures contained in this release and which we discuss below.  Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies.  

Definitions of Non-GAAP Measures

Adjusted Cost of Revenue is defined as cost of revenue excluding, if applicable: (1) non-cash compensation expense and (2) amortization and charges for impairment of acquired intangibles.

Adjusted Gross Margin is defined as Total Revenue less Adjusted Cost of Revenue.  

Adjusted Operating Expenses is defined as operating expenses excluding, if applicable: (1) non-cash compensation expense, (2) amortization of acquired intangibles, deferred compensation arising on acquisition and goodwill and intangible asset impairment, (3) acquisition related expenses such as fees paid to investment bankers, due diligence and legal costs paid to third parties which would have, prior to April 1, 2009, been included as a cost of acquisition under GAAP; (4) post acquisition adjustments to the fair value of contingent consideration which would have, prior to April 1, 2009, been included as a cost of acquisition under GAAP or (5) one-time items.  

Adjusted Operating Income is defined as Adjusted Gross Margin less Adjusted Operating Expenses.

Adjusted Net Income is defined as Adjusted Operating Income plus/minus other income/(expenses), less income taxes, excluding if applicable: (1) one-time items and  (2) discontinued operations.  

Adjusted EPS is defined as Adjusted Net Income divided by diluted shares.

One-Time Items, if applicable, are excluded from Adjusted Operating Income and Adjusted Net Income.  These items are one-time in nature and non-recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years. GAAP results include one-time items.  

Expenses That Are Excluded From Our Non-GAAP Measures

Non-cash compensation expense consists principally of expense associated with the grants, including unvested grants assumed in acquisitions, of restricted stock, restricted stock units and stock options. These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding which, for restricted stock units and stock options, are included on a treasury method basis. Longtop's management believes excluding the share-based compensation expense from its non-GAAP financial measure is useful for itself and investors. Although share-based compensation is a key incentive offered to our employees and especially our senior management, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, as share-based compensation expense does not involve any upfront or subsequent cash outflow, Longtop does not factor this in when evaluating and approving expenditures or when determining the allocation of its resources to its business segments. As a result, the monthly financial results for internal reporting and any performance measure for commission and bonus are based on non-GAAP financial measures that exclude share-based compensation expense.   If we had included share-based compensation expenses in our Non-GAAP Adjusted Net Income in fiscal 2010, Adjusted Net Income would have been US$7.7 million lower or US$70.0 million for the twelve months ended March 31, 2010, and our Adjusted Net Income margin would have been 4.5% lower.  

Goodwill and intangible asset impairment and amortization of acquired intangibles is a non-cash expense relating to acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as backlog, customer relationships, and intellectual property, are valued and amortized over their estimated lives. While it is likely that we will have significant intangible amortization expense as we continue to acquire companies, we have excluded the effect of amortization of intangible assets from our non-GAAP financial measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to revenues earned during the periods presented and will contribute to future period revenues as well.

Acquisition proceeds allocated to deferred compensation arises where a portion of the purchase price paid to shareholders is considered compensation expense rather than purchase price under US GAAP. Deferred compensation arising on acquisition is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of deferred compensation arising on acquisition contributed to revenues earned during the periods presented and will contribute to future period revenues as well.  

Prior to April 1, 2009, acquisition-related expenses such as fees paid to investment bankers, due diligence and legal costs paid to third parties were capitalized as part of the cost of the acquisition. Subsequent to April 1, 2009, such costs are required to be recorded as an operating expense when incurred. These acquisition-related expenses are not related to the performance of our business lines, are inconsistent in amount and frequency and are significantly affected by the timing and size of our acquisitions.

Prior to April 1, 2009, contingent consideration was generally recorded as a additional purchase price when the contingencies resolved and the consideration became payable.  Subsequent to April 1, 2009, we are required to estimate and record the fair value of contingent acquisition consideration as of the acquisition date.  Contingent consideration is re-measured at fair value in each reporting period with changes in fair value recognized in earnings. The contingent acquisition consideration, is inconsistent in amount and frequency, and is significantly affected by the timing and size of our acquisitions.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

It is currently expected that the Business Outlook will not be updated until the release of Longtop's next quarterly earnings announcement; however, Longtop reserves the right to update its Business Outlook at any time for any reason.

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including those with respect to our anticipated operating results for the quarter ending June 30, 2010 and fiscal year ending March 31, 2011, efforts taken to improve efficiency, strengthen management, manage the Company's growth and the Company's competitive position. In some cases, you can identify forward-looking statements by such terms as ''believes,'' ''expects,'' ''anticipates,'' ''intends,'' ''estimates,'' the negative of these terms, or other comparable terminology. Factors that could cause actual results to differ include the growth of the financial services industry in China; the amount and seasonality of IT spending by banks and other financial services companies; competition and potential pricing pressures; our revenue growth and solution and service mix; our ability to successfully develop, introduce and market new solutions and services; our ability to effectively manage our operating costs and expenses; our reliance on a limited number of customers that account for a high percentage of our revenues; a possible future shortage or limited availability of employees; general economic and business conditions; the volatility of our operating results and financial condition; our ability to attract or retain qualified senior management personnel and research and development staff; the outbreak of health epidemics; the planned relocation of our headquarters; People's Republic of China, or PRC, regulatory changes and interpretations;  and other risks detailed in the Company's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the companies and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. Our actual results of operations for the quarter and year ended March 31, 2010, are not necessarily indicative of our operating results for any future periods. Any projections in this release are based on limited information currently available to us, which is subject to change.

About Longtop Financial Technologies Limited

Longtop is a leading software development and solutions provider targeting the financial services industry in China. Longtop develops and delivers a comprehensive range of software applications and solutions with a focus on meeting the rapidly growing IT needs of the financial services institutions in China. Longtop is the highest ranked Chinese financial technology provider on the Global FinTech 100 survey of top technology partners to the financial services industry. Independent research firm IDC has also named Longtop the No.1 market share leader in China's Banking IT solution market and the No.2 market share leader in China's Insurance IT solution market in calendar year 2008. Headquartered in Beijing, Longtop has six solution delivery centers, three research and development centers and 95 ATM service centers located in 27 out of 31 provinces in China.

For more information, please visit: http://en.longtop.com/.

SOURCE Longtop Financial Technologies Limited