VanceInfo Reports Record Results for the Fourth Quarter 2009 and Full Year 2009

BEIJING, Feb. 25 /PRNewswire-Asia/ -- VanceInfo Technologies Inc.

(NYSE: VIT) ("VanceInfo" or the "Company"), an IT service provider and one of the leading offshore software development companies in China, today reported its unaudited financial results for the fourth quarter ended December 31, 2009.

Fourth Quarter 2009 Financial and Operating Highlights

-- Net revenues in the fourth quarter of 2009 increased to $43.3 million,

up 43.8 % from $30.1 million in the fourth quarter of 2008.

-- Operating income in the fourth quarter of 2009 was $7.2 million, up

75.0% from the fourth quarter of 2008.

-- Diluted earnings per share ("EPS") were $0.16 in the fourth quarter, up

from $0.13 in the fourth quarter of 2008. Non-GAAP diluted EPS(1) was

$0.18 in the fourth quarter, up from $0.14(2) in the fourth quarter of

2008.

-- Net revenues for the full year 2009 were $148.1 million, up 44.2% from

2008.

-- Operating margin for the full year 2009 was 15.5%, up from 14.3% for

2008.

-- Net income for the full year 2009 was $21.5 million, up 33.7% from 2008.

Non-GAAP net income(1) for the full year 2009 was $25.1 million, up

37.3% from 2008. Diluted EPS and non-GAAP diluted EPS for the full

year 2009 were $0.52 and $0.60, respectively, up from $0.40 and $0.45(2)

for the full year 2008, respectively.

-- Employees totaled 8,347, including 7,542 billable professionals, as of

December 31, 2009.

"We are pleased that VanceInfo has concluded 2009 with record high revenues and profit and expanded operating margin," said Chris Chen, Chairman and Chief Executive Officer of VanceInfo. "Effective business strategies and solid execution have helped overcome the sluggishness in demand from the U.S. and Japan markets, strengthen our capabilities and competitive position, and gain market share in many of our key business segments in 2009. We hope we will bring greater success and value to our clients and shareholders in 2010 and beyond."

(1) Non-GAAP net income, EPS and related margins exclude share-based

compensation expense, amortization of acquired intangible assets,

change in fair value of contingent consideration and a non-recurring

transitional cost in connection with the services to Expedia. The non-

GAAP measures and related reconciliations to GAAP measures are

described in the accompanying sections of "About Non-GAAP Financial

Measures" and "Reconciliations of Non-GAAP Financial Measures to

Comparable GAAP Measures" at the end of the press release.

(2) Adjustments have been made to non-GAAP measures in prior periods to be

consistent with current period presentation.

Fourth Quarter 2009 Financial Results

Due to the seasonal nature of its business, the Company presents financial analysis on a year-over-year basis between the fourth quarter of 2009 and the fourth quarter of 2008 as in the following paragraphs.

Net Revenues

Net revenues were $43.3 million in the fourth quarter of 2009, up 43.8% from $30.1 million in the fourth quarter of 2008. The increase in net revenues was primarily due to continued expansion of the Company's business in mainland China, Hong Kong and Europe.

Net Revenues by Service Lines

The Company provides three broad sets of services: R&D Outsourcing Services, IT Services and Other Solutions & Services. R&D Outsourcing Services consist of research & development service line and globalization & localization service line. IT Services consist of enterprise solutions, application development & maintenance, and quality assurance & testing service lines. Other Solutions & Services consist of business process outsourcing ("BPO") and system integration ("SI") services and other solutions.

Net revenues from research and development services grew 50.1% compared with the fourth quarter of 2008 and accounted for 62.5% of the Company's net revenues. Net revenues from applications development and maintenance were up 45.1% from the year-ago quarter.

Three Months Ended Three Months Ended

December 31, 2009 December 31, 2008

(in thousands, except percentages)

R&D Outsourcing Services

Research & development

services $27,042 62.5% $18,019 59.9%

Globalization &

localization 1,377 3.2% 1,096 3.7%

IT Services

Enterprise solutions 4,143 9.6% 3,845 12.8%

Application development

& maintenance 7,158 16.6% 4,932 16.4%

Quality assurance &

testing 2,431 5.6% 2,026 6.7%

Other Solutions &

Services 1,102 2.5% 156 0.5%

Total net revenues $43,253 100.0% $30,074 100.0%

Net Revenues by Geographic Markets

Based on the location of our clients' headquarters, China (including Hong Kong and Taiwan) is the Company's largest geographic market, accounting for $18.9 million or 43.8% of the net revenues in the fourth quarter of 2009, followed by 34.7% from clients headquartered in the United States, 16.0% in Europe and 5.0% in Japan.

Measuring the Company's revenues by geographic markets based on the location of the contract signing entities, rather than the location of the clients' headquarters, China accounted for 76.3% of the net revenues in the fourth quarter of 2009, while the United States accounted for 17.9%.

Largest Clients

Revenues from the top five clients totaled 56.9% of net revenues in the quarter, compared to 56.0% in the fourth quarter of 2008.

Gross Profit and Gross Margin

Gross profit in the fourth quarter of 2009 was $16.3 million, an increase of 41.6% from $11.5 million in the fourth quarter of 2008. Gross margin was 37.7% in the fourth quarter of 2009, compared to 38.3% in the fourth quarter of 2008. As a reflection of the company's cost optimization efforts and the stabilization of the pricing environment, the decline in gross margin was narrowed down to 58 basis-point year-over-year in the fourth quarter from 89 basis-point in the third quarter of 2009 (excluding the one-time effect associated with Expedia account).

Operating Expenses

Selling, general and administrative expenses totaled $10.0 million in the fourth quarter of 2009, up 32.8% from $7.6 million a year ago.

Operating Income and Operating Margin

Operating income in the fourth quarter of 2009 was $7.2 million, up 75.0% from $4.1 million in the fourth quarter of 2008. Operating margin was 16.6% in the fourth quarter of 2009, up from 13.7% in the fourth quarter of 2008. Excluding the impact of government subsidies, the operating margin increased approximately 123 basis points, primarily attributable to effective cost control and enhanced operating leverage.

Provision for income taxes

The provision for income taxes was $0.7 million in the fourth quarter of 2009, compared to $0.3 million of tax credit in the fourth quarter of 2008. As previously disclosed, the Company recorded an income tax reversal of approximately $0.7 million in the prior-year period. The effective tax rate for the fourth quarter of 2009 was 9.3%.

Net Income and EPS

Net income in the fourth quarter of 2009 was $6.7 million, up 27.5% from $5.2 million in the fourth quarter of 2008. Non-GAAP net income was $7.9 million, up 36.1% from $5.8(2) million a year ago. Excluding the effect of the tax reversal in the prior-year period, net income and non-GAAP net income would have grown 46.5% and 45.1%, respectively, on a year-over-year basis.

Diluted EPS was $0.16 in the fourth quarter of 2009, compared with $0.13 in the fourth quarter of 2008. Non-GAAP diluted EPS was $0.18 in the fourth quarter of 2009, compared with $0.14(2) in the fourth quarter of 2008.

Cash and Cash Flow

As of December 31, 2009, VanceInfo had cash and cash equivalents, term deposits and short-term investments totaling $86.2 million. Operating cash flow in the fourth quarter of 2009 was a net inflow of approximately $7 million. Capital expenditure totaled $2.6 million in the quarter.

Days sales outstanding ("DSO") was 113 days(3) for the fourth quarter of 2009.

(3) Calculated by dividing average accounts receivable, net of advance

from customers and billing in excess of cost and estimated earnings,

by the period's annualized gross revenues before business tax.

Full Year 2009 Financial Results

Net Revenues

Net revenues for the full year of 2009 were $148.1 million, up 44.2% from $102.7 million in 2008. The increase was driven primarily by strong organic growth in mainland China and Europe and expansion of business in Hong Kong through acquisition.

Net Revenues by Service Lines

Year Ended Year Ended

December 31, 2009 December 31, 2008

(in thousands, except percentages)

R&D Outsourcing Services

Research & development

services $90,581 61.2% $60,808 59.2%

Globalization &

localization 5,118 3.5% 4,259 4.2%

IT Services

Enterprise solutions 14,429 9.7% 13,542 13.2%

Application development

& maintenance 26,373 17.8% 17,061 16.6%

Quality assurance &

testing 7,807 5.3% 6,717 6.5%

Other Solutions & Services 3,758 2.5% 276 0.3%

Total net revenues $148,066 100.0% $102,663 100.0%

Net Revenues by Geographic Markets

Based on the location of our clients' headquarters, China (including Hong Kong and Taiwan) has become the Company's largest geographic market, accounting for $59.4 million or 40.1% of the net revenues in 2009, followed by 38.3% from clients headquartered in the United States, 15.6% in Europe and 5.7% in Japan.

Largest Clients

Revenues from the top five clients totaled 56.3% of the Company's net revenues in 2009, compared to 53.8% in 2008.

Gross Profit and Gross Margin

Gross profit for the full year of 2009 was $55.9 million, an increase of 40.6% from 2008. Gross margin was 37.8% in 2009, compared to 38.7% in 2008. Excluding the one-time transitional effect of the Expedia account in the third quarter 2009, the gross margin would have been 38.1% for 2009, reflecting the pricing pressure from a number of U.S. headquartered clients during the year.

Operating Expenses

Selling, general and administrative expenses were $34.7 million in 2009, up 34.0% from $25.9 million in 2008.

Operating Income and Operating Margin

Operating income in 2009 was $22.9 million, up 55.6% from $14.7 million in 2008. Operating margin was 15.5% for 2009, up 113 basis points from 14.3% for 2008.

Net Income and EPS

Net income for the full year 2009 was $21.5 million, up 33.7% from $16.1 million in 2008. Net margin was 14.5% in 2009, compared with 15.7% in 2008. Non-GAAP net income(1) was $25.1 million for the full year of 2009, up 37.3% from $18.3 million in 2008. Non-GAAP net margin(1) was 17.0%, compared with 17.8% in 2008. The decrease in net margin and non-GAAP net margin was primarily due to lower interest income in 2009.

Diluted EPS in 2009 was $0.52, up from $0.40 in 2008. Non-GAAP diluted EPS(1) was $0.60 in 2009, up from $0.45(2) in 2008.

Recent Development

Strategic Investment in Financial Service Solutions Provider

In February 2010, VanceInfo, through one of its subsidiaries, made a strategic investment in Beijing Viatt Information Technology Co. Ltd ("Viatt"), an IT services and solution provider for Chinese domestic financial institutions.

Under the terms of the agreement, VanceInfo made a loan of approximately $0.4 million, which is convertible into a 20% stake in Viatt with an exclusive right to acquire the remaining 80% of the equity in the next 12 to 18 months at VanceInfo's sole discretion.

Preliminary Agreements Related to Acquiring Premises in Beijing

VanceInfo, through its wholly owned subsidiary, VanceInfo Creative Software Technology Ltd., or VanceInfo Beijing, entered into two preliminary agreements with a Beijing-based developer in late 2009 relating to VanceInfo Beijing's proposed acquisition of the use right to a parcel of land with 37,492 square meters of permitted floor space in Zhongguancun Software Park in Beijing. The Company plans to build a new office complex on the premises, which is to serve as VanceInfo's new headquarters. Under the agreements, VanceInfo Beijing will pay approximately RMB119.3 million (or US$17.5 million) relating to the land use right, payable in installments upon obtaining the required governmental approval. The Company expects an enhanced development environment and significant cost savings upon completion of the project. Currently, the necessary governmental permits are being applied for. Given the initial application stage, there is significant uncertainty regarding whether or when these governmental permits will be obtained.

Outlook for the First Quarter and Full Year 2010

-- First quarter 2010 net revenues to be between $43 million and $44

million, representing a 43% to 46% increase from the corresponding

period in 2009.

-- First quarter 2010 diluted EPS to be between $0.13 and $0.14 on a GAAP

basis, representing a 30% to 40% increase from the corresponding period

in 2009; and non-GAAP diluted EPS excluding share-based compensation to

be between $0.15 and $0.16, based on 42.9 million total ADS-equivalent

average shares outstanding.

-- The first quarter guidance reflects strong seasonality effect from the

extended Chinese New Year holiday as the Company's revenue contribution

from China increased significantly during the past year.

-- 2010 net revenues to be between $192 million and $205 million,

representing a 30% to 38% increase from 2009.

-- 2010 diluted EPS to be between $0.66 and $0.70 on a GAAP basis, and

between $0.75 and $0.79 on a non-GAAP basis, based on 43.4 million

total ADS-equivalent average shares outstanding.

-- The EPS outlook assumes an effective income tax rate between 8.5% and

10.5%.

Conference Call

VanceInfo will host a corresponding conference call and live webcast to discuss the results at 7:30 AM Eastern Standard Time (EST) on Thursday, February 25, 2010 (8:30 PM Beijing/Hong Kong time). Please dial-in five minutes prior to the call to register and receive further instruction.

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

- U.S. Toll Free Dial-in Number: + 1 800.706.7749

- International Dial-in Number: +1 617.614.3474

- Hong Kong Dial-in Number: +852 3002-1672

Passcode: Vance

The conference call will be available live via webcast on the Investors section of VanceInfo Technologies website at http://ir.vanceinfo.com . The archive replay will be available on VanceInfo's website shortly after the call.

A dial-in replay of the conference call will be available until March 4, 2010 at +1 888.286.8010 or +1 617.801.6888, passcode: 93824149.

About VanceInfo

VanceInfo Technologies Inc. is an IT service provider and one of the leading offshore software development companies in China. VanceInfo was the first China software development outsourcer listed on the New York Stock Exchange.

The Company ranked number one among Chinese offshore software development service providers for the North American and European markets as measured by 2008 revenues, according to International Data Corporation.

VanceInfo's comprehensive range of IT services includes research & development services, enterprise solutions, application development & maintenance, quality assurance & testing, globalization & localization and other solutions and services. VanceInfo provides these services primarily to corporations headquartered in the United States, Europe, Japan and China, targeting high-growth industries such as technology, telecommunications, financial services, manufacturing, retail, and distribution.

Safe Harbor

This news release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, should, expects, anticipates, future, intends, plans, believes, estimates, and similar statements. Among other things, the management's quotations and "Outlook for the First Quarter and Full Year 2010" contain forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Potential risks and uncertainties include, but are not limited to, the company's dependence on a limited number of clients for a significant portion of its revenues, the economic slowdown in its principal geographic markets, the quality and portfolio of its services lines and industry expertise, and the availability of a large talent pool in China and supply of qualified professionals, as well as the PRC government's investment in infrastructure construction and adoption of various incentives in the IT service industry. Further information regarding these and other risks is included in VanceInfo's filings with the U.S. Securities and Exchange Commission. All information provided in this news release and in the attachments is as of February 25, 2010, and VanceInfo 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.

About Non-GAAP Financial Measures

To supplement VanceInfo's consolidated financial results presented in accordance with GAAP, VanceInfo uses the following measures defined as non-GAAP financial measures by the SEC: net income and diluted EPS excluding share-based compensation expense, amortization of acquired intangible assets, change in fair value of contingent consideration and a non-recurring transitional cost in connection with the services to Expedia. The non-GAAP net income and diluted EPS for prior periods have been reclassified so that the presentations are consistent. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP financial measures to comparable GAAP measures" set forth at the end of this release.

VanceInfo believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain expenses and expenditures that may not be indicative of its operating performance. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance and when planning and forecasting future periods. A limitation of using non-GAAP net income and diluted EPS is that these non-GAAP measures exclude the share-based compensation charges, amortization of acquired intangible assets and change in fair value of contingent consideration that have been and will continue to be for the foreseeable future a significant recurring expense in the business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are comparable to non-GAAP financial measures. The reconciliations of the forward-looking guidance for non-GAAP financial measures to the most directly comparable GAAP financial measures in the accompanying table include all information reasonably available to VanceInfo at the date of this press release. The table includes adjustments that the Company can reasonably predict.

VANCEINFO TECHNOLOGIES INC.

Condensed Consolidated Balance Sheets (Unaudited)

(US dollars in thousands, except share data)

December 31, December 31,

2009 2008

Assets

Current assets

Cash and cash equivalents $64,057 $79,963

Term deposits 10,000 1,466

Short-term investments 12,122 --

Accounts receivable 60,524 36,827

Other current assets 8,378 3,369

Total current assets 155,081 121,625

Property and equipment, net 15,000 11,260

Goodwill and other

intangible assets 32,522 19,695

Other long-term assets 2,588 2,871

Total assets $205,191 $155,451

Liabilities and shareholders' equity

Current liabilities $32,659 $22,062

Other liabilities 9,970 1,886

Total liabilities 42,629 23,948

Shareholders' equity (a) 162,562 131,503

Total liabilities and

shareholders' equity $205,191 $155,451

Note:

(a) As of December 31, 2009, there were 39,888,092 ordinary shares

issued and outstanding.

VANCEINFO TECHNOLOGIES INC.

Condensed Consolidated Statements of Operations (Unaudited)

(US dollars in thousands, except per share data)

Three months ended Year ended

December 31, December 31,

2009 2008 2009 2008(a)

Net revenues $43,253 $30,074 $148,066 $102,663

Cost of revenues(b) 26,929 18,549 92,171 62,911

Gross profit 16,324 11,525 55,895 39,752

Selling, general

and administrative

expenses(b) 10,048 7,568 34,710 25,905

Change in fair

value of

contingent

consideration 62 -- 62 --

Other operating

income 982 155 1,754 858

Income from

operations 7,196 4,112 22,877 14,705

Interest income 191 334 856 2,028

Interest expenses 18 2 86 69

Exchange

differences (61) 441 (119) 703

Income before

income taxes

and earnings

in equity

investment 7,308 4,885 23,528 17,367

Provision for

income taxes 683 (318) 2,089 1,298

Income before

earnings in

equity

investment 6,625 5,203 21,439 16,069

Earnings in

equity

investment 34 20 69 20

Net income $6,659 $5,223 $21,508 $16,089

Net (income)/loss

attributable to

noncontrolling

interest -- -- -- 84

Net income

attributable to

VanceInfo

Technologies Inc. $6,659 $5,223 $21,508 $16,173

Earnings per share

Basic - ordinary

shares $0.17 $0.14 $0.56 $0.43

Diluted - ordinary

shares 0.16 0.13 0.52 0.40

Weighted average

shares outstanding

(in thousands)

Basic - ordinary

shares 39,130 37,315 38,389 37,276

Diluted - ordinary

shares 42,716 40,238 41,576 40,696

Notes:

(a) Amount in relation to noncontrolling interest, formerly referenced

to as minority interest, for the year ended December 31, 2008 is

reclassified in accordance with guidance issued by FASB regarding

noncontrolling interests in consolidated financial statements, which

was adopted by the Company on January 1, 2009.

(b) Depreciation and amortization expenses included in cost of revenues

and selling, general and administrative expenses totaled $2,023 and

$1,138 for the three months ended December 31, 2009 and 2008,

respectively and $6,028 and $3,917 for the year ended December 31,

2009 and 2008, respectively.

VANCEINFO TECHNOLOGIES INC.

Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures

(US dollars in thousands, except per share data and percentages)

Three Months Ended Three Months Ended

December 31, 2009 December 31, 2008

GAAP Adjust- Non-GAAP GAAP Adjust- Non-GAAP

ments ments

Net income $6,659 $1,216 (a) $7,875 $5,223 $562 (c) $5,785 (f)

Net margin 15.4% 2.8% (a) 18.2% 17.4% 1.8% (c) 19.2% (f)

Diluted EPS $0.16 $0.02 (e) $0.18 $0.13 $0.01 (e) $0.14 (f)

Year Ended December 31,2009 Year Ended December 31,2008

GAAP Adjust- Non-GAAP GAAP Adjust- Non-GAAP

ments ments

Net income $21,508 $3,627 (b) $25,135 $16,089 $2,214 (d) $18,303 (f)

Net margin 14.5% 2.5% (b) 17.0% 15.7% 2.1% (d) 17.8% (f)

Diluted EPS $0.52 $0.08 (e) $0.60 $0.40 $0.05 (e) $0.45 (f)

Notes:

(a) Adjustment to exclude acquisition related intangible assets

amortization expense of $722, change in fair value of contingent

consideration of $62 and share-based compensation of $432 from

operations in the unaudited condensed consolidated statements of

operations.

(b) Adjustment to exclude acquisition related intangible assets

amortization expense of $1,668, a one-time transitional cost of $332

associated with services to Expedia, change in fair value of

contingent consideration of $62 and share-based compensation of $1,565

from operations in the unaudited condensed consolidated statements of

operations.

(c) Adjustment to exclude acquisition related intangible assets

amortization expense of $211 and share-based compensation of $351 from

operations in the unaudited condensed consolidated statements of

operations.

(d) Adjustment to exclude acquisition related intangible assets

amortization expense of $823 and share-based compensation of $1,391

from operations in the unaudited condensed consolidated statements of

operations.

(e) Non-GAAP diluted EPS is computed by dividing non-GAAP net income

attributable to VanceInfo Technologies Inc. by the weighted average

number of diluted ordinary shares outstanding used in computing the

GAAP diluted EPS for the respective periods.

(f) The non-GAAP net income, net margin and diluted EPS for prior periods

have been reclassified so that the presentations are consistent with

those of current period.

VANCEINFO TECHNOLOGIES INC.

Reconciliations of Forward-Looking Guidance for

Non-GAAP Financial Measures to Comparable GAAP Measures

(Unaudited)

Three Months Ending March 31, 2010

GAAP Adjustments Non-GAAP

Range of Estimate Range of Estimate

From To From To

Diluted EPS(a) $0.13 $0.14 $0.02(b) $0.15 $0.16

Year Ending December 31, 2010

GAAP Adjustments Non-GAAP

Range of Estimate Range of Estimate

From To From To

Diluted EPS(a) $0.66 $0.70 $0.09(b) $0.75 $0.79

Notes:

(a) Based on 42.9 million and 43.4 million total ADS-equivalent average

shares outstanding for the first quarter and full year 2010,

respectively.

(b) Reflects estimated adjustment for acquisition related intangible

assets amortization expense and share-based compensation expenses of

approximately $0.9 million for the first quarter 2010 and $4.2 million

for the full year 2010.

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