Third Quarter 2010 Financial Highlights
- Revenues increased 52.7% YoY to US$43.81 million
- Gross Profit increased 39.5% YoY to US$21.09 million
- Non-GAAP Operating Profit increased 24.5% YoY to US$14.55 million
- Non-GAAP Net Income increased 17.3% YoY to US$11.92 million
- Non-GAAP Fully Diluted EPS was US$0.23 vs. US$0.21 a year ago
- Cash flow from operations reached US$20.42 million
- Backlog of US$50.5 million representing 40.0% YoY growth
- Reaffirms FY2010 Revenue and Adjusted Net Income Guidance
- Issues FY2011 Revenue and Adjusted Net Income Guidance
Commenting on the Company's third quarter earnings, Chairman and CEO, Jiang Huai Lin, said, "We are pleased to announce the results of another strong quarter."
"We are fast becoming the IT partner of choice for many high profile government projects across China. In this past quarter alone, we won a record number of contracts from clients in 25 provinces and cities. Worth US$42 million in the aggregate, the contracts' value represents a 40% increase compared to the same period last year."
"The wins are indicative of both the continued demand for our unique technological expertise, as well as our brand's growth in our core markets of geographic information systems, healthcare, and public security technologies. In addition, our key role in numerous state-level high profile projects, including China's State-sponsored Web-based Map Service 'Map World' and the 2011 Shenzhen Universiade, further reinforced our unmatchable brand name and core competency in our fields."
"We own 110 software copyrights and 25 patents in China. Our technological expertise is further evidenced by the fact that six out of the seven operating entities under the CNIT umbrella enjoy the National High Tech Corporate status."
"We updated our corporate name and ticker symbol, for the purpose of re-aligning our brand to match our expanded business scope. We also renamed our digital information security technology segment as digital public security technology (DPST) to better reflect the business of the segment. We are well positioned as a leading provider in China's high-growth information technology field and aim to create value for our shareholders over the long term."
For the three months ended September 30, 2010, revenue was $43.81 million, compared to $28.68 million for the three months ended September 30, 2009, an increase of $15.13 million, or 52.7%. During the current quarter, Huipu Electronics (Shenzhen) Co., Ltd., or Huipu, which was acquired in October 2009, contributed $8.23 million to total revenue. Excluding the impact of Huipu, organic revenue growth was 24.0%.
Software sales increased by 46.1% to $29.47 million for the three months ended September 30, 2010, from $20.18 million for the three months ended September 30, 2009. Software sales constituted 67.3% of the total revenue, decreased from 70.4% for the same period in the prior year. Excluding the impact of Huipu, software sales were 82.9% of organic revenue, reflecting the Company's continued commitment to its core competency in software.
Product sales increased by $10.20 million, or 417.1% for the three months ended September 30, 2010, as compared to $2.44 million in the same period of 2009. Product sales constituted 28.9% of total revenue during the current period as compared with 8.5% during the same period in the prior year. Such an increase is due to the contribution from Huipu.
Sales of system integration services decreased by 77.3% for the three months ended September 30, 2010, as compared to the same period of 2009. As a percentage of revenue, it declined from 20.7% during the three months ended September 30, 2009 to 3.1% during the current quarter. Excluding the impact of Huipu, system integration was 3.8% of organic revenues.
Other revenue increased by 161.2%, from $0.13 million in the three months ended September 30, 2009 to $0.34 million in the same period of 2010. Other revenue mainly derived from maintenance services in the three months ended September 30, 2009, while in the same period of 2010, in addition to maintenance services, the Company also generated $0.18 million royalty income from Huipu by licensing other manufacturers to use the HPC trademark.
For the three months ended September 30, 2010, GIS accounted for 47.2% of the total revenue while DPST and DHIS represented 41.0% and 11.8% respectively. These compared to 34.3%, 52.5% and 13.2% of the total revenue for the three months ended September 30, 2009. The GIS segment increased by 109.9% compared with the same period of 2009, while the year-over-year growth ratios for DPST and DHIS segments were 19.3% and 37.1% respectively. The segment trends reflect the growth momentum in GIS and DHIS segments outpacing that of DPST. This is the direct result of our focus in the last few years on targeting areas with the highest barriers-to-entry and developing sustainable competitive advantages in the GIS and DHIS segments, in anticipation of accelerating market growth in the coming years. As such expectation starts to materialize, we believe we have been well positioned to capture the growth opportunities.
Gross Profit and Gross Margin
Gross profit increased $5.97 million, or 39.5%, to $21.09 million for the three months ended September 30, 2010, from $15.12 million for the same period in 2009. Gross margin was 48.1% in the third quarter of 2010, a decrease of 460 basis points, from 52.7% in the same period of 2009. Huipu yielded a gross margin of 9.7%. Excluding the impact of Huipu, gross margin of organic business was 57.0%.
Income from Operations
Income from operations increased $1.75 million, or 15.5%, to $13 million for the three months ended September 30, 2010, from $11.25 million in the corresponding period in 2009. Income from operations as a percentage of revenue decreased to 29.7% during the three months ended September 30, 2010, compared with 39.2% in 2009. On a non-GAAP basis, adjusted income from operations was $14.55 million, which increased 24.5% year-over-year.
Income Tax Expense
Income tax expense for the three months ended September 30, 2010 was $2.36 million, up 31.3% from $1.80 million for the same period in 2009.
Net Income Attributable to the Company
As a result of the factors described above, net income increased $0.88 million, or 9.1%, to $10.61 million during the three months ended September 30, 2010, from $9.73 million for the same period in 2009. On a non-GAAP basis, adjusted net income was $11.92 million, which increased 17.3% year-over-year.
Cash and Cash Equivalents
As of September 30, 2010, the Company had $25.84 million in cash and restricted cash, as compared to $14.46 million in the same period of 2009.