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

   Camelot Information Systems Inc. Announces Unaudited Second Quarter 2013                               Financial Results  PR Newswire  BEIJING, Aug. 22, 2013  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:    oNet revenues were $62.5 million in the second quarter of 2013, as compared     to $62.1 million in the same period in 2012.   oNet revenues from enterprise application services (EAS) were $42.1     million, as compared to $41.2 million in the same period in 2012.   oNet revenues from financial industry IT services (FIS) were $20.4 million,     as compared to $20.9 million in the same period in 2012.   oGross profit was $12.2 million, as compared to $16.2 million in the same     period in 2012.   oLoss from operations was $5.4 million, as compared to income from     operations of $3.5 million in the same period in 2012. Adjusted operating     loss^1 was $4.4 million, as compared to adjusted operating income of $4.5     million in the same period in 2012.   oNet 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 Camelot^1 was $7.5 million, as compared     to adjusted net income attributable to Camelot of $3.5 million in the same     period in 2012.  [1]For more information about the adjusted (i.e. non-GAAP) financial measures contained in this press release, please see "Use of Non-GAAP Financial Measures" below.   "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.  Net Revenues by Segment (in thousands, except percentage) Segment                                Three Months Ended  Three Months Ended                                        June 30, 2013       June 30, 2012 Enterprise application services (EAS)  $42,105    67.4%    $41,213    66.4% Financial industry IT services (FIS)   20,358     32.6%    20,873     33.6% Total net revenues                     $62,463    100.0%   $62,086    100.0%  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 outstanding^2 ("DSO") were 211 days in the second quarter of 2013, an increase of six days from 205 days in the same period of 2012.  [2] Calculated by dividing average accounts receivable, net of deferred revenue, by rolling gross revenues before business tax and related surcharges, and multiplying by 360 days. Rolling gross revenues are for the 12 months ended March 31, 2013.  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:  US Toll free:                          (877) 415-3183 US Toll / International:               (857) 244-7326 Hong Kong toll free:                   800.96.3844 HK Toll:                               852.3002.1672 UK toll free:                          08082347616 UK toll:                               44.207.365.8426 South China toll free / China Telecom: 10 800 130 1713 North China toll free / China Netcom:  10 800 713 1756 China toll:                            86 4008811630 Taiwan toll free:                      0809090400  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:  US Toll free:            (888) 286-8010 US Toll / International: (617) 801-6888  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 -  CAMELOT INFORMATION SYSTEMS INC. Condensed Consolidated Balance Sheets (Unaudited) (U.S. Dollars in Thousands, Except per Share Data)                                             June 30,          December 31,                                             2013              2012 Assets Current assets Cash and cash equivalents                   $63,112           $93,876 Term deposits                               -                 313 Restricted cash                             970               1,137 Short-term investments                      -                 1,284 Billed accounts receivable                  49,298            45,279 Unbilled accounts receivable                123,447           105,240 Other current assets                        25,901            23,395 Total current assets                        262,728           270,524 Property and equipment, net                 4,245             4,393 Intangible assets                           11,012            11,949 Long term investment                        707               - Other long-term assets                      2,005             2,062 Total assets                                280,697           288,928 Liabilities and equity Current liabilities Consideration payable in connection with    -                 2,992 business acquisition Other current liabilities                   84,392            79,877 Total current liabilities                   84,392            82,869 Other non-current liabilities               2,416             2,786 Total liabilities                           86,808            85,655 Equity ^(a)                                 193,889           203,273 Total liabilities and equity                280,697           288,928 Note: (a) As of June 30, 2013, there were 190,926,475 ordinary shares issued and 185,269,020 shares outstanding.    CAMELOT INFORMATION SYSTEMS INC. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (U.S. Dollars in Thousands, Except per Share Data)                            Three Months              Six Months                            Ended June 30,            Ended June 30,                            2013         2012         2013         2012 Net revenues               $62,463      $62,086      $122,097     $119,209 Cost of revenues^(1)(2)    (50,290)     (45,869)     (98,158)     (90,298) Gross profit               12,173       16,217       23,939       28,911 Selling and                (3,223)      (3,493)      (6,703)      (8,102) marketing^(1)(2) General and                (11,733)     (7,401)      (21,326)     (15,385) administrative^(1)(2) Research and development   (2,631)      (1,797)      (5,290)      (3,464) costs Changes in fair value of contingent consideration for                        –            (50)         –            (97)  acquisition Total operating expense    (17,587)     (12,741)     (33,319)     (27,048) Government subsidies       –            –            133          – (Loss) income from         (5,414)      3,476        (9,247)      1,863 operations Interest expense           (33)         (54)         (48)         (146) Interest income            122          210          335          559 (Loss) income before       (5,325)      3,632        (8,960)      2,276 provisions for income tax Income tax expense         (3,218)      (758)        (3,868)      (465) Net loss of an equity      (6)          –            (9)          – investment, net of tax Net (Loss) income          (8,549)      2,874        (12,837)     1,811 Noncontrolling interest    87           (460)        88           (235) Net (Loss) income attributable to Camelot Information                (8,462)      2,414        (12,749)     1,576  Systems Inc.^(3) Earnings per share Basic-ordinary shares      (0.05)       0.01         (0.07)       0.01 Diluted-ordinary shares    (0.05)       0.01         (0.07)       0.01 Earnings per ADS Basic-ADSs                 (0.18)       0.05         (0.28)       0.04 Diluted-ADSs               (0.18)       0.05         (0.28)       0.03 Weighted average shares outstanding Basic-ordinary shares      185,264,624  177,621,367  185,167,362  177,621,367 Diluted-ordinary shares    185,264,624  186,288,689  185,167,362  186,302,302 Weighted average ADSs outstanding Basic-ADSs                 46,316,156   44,405,342   46,291,841   44,405,342 Diluted-ADSs               46,316,156   46,572,172   46,291,841   46,575,576 Net (Loss) income          (8,549)      2,874        (12,837)     1,811 Other comprehensive (loss) income, net of tax: Change in cumulative foreign currency translation       1,971        (1,717)      2,142        (1,649)  adjustments Comprehensive (loss)       (6,578)      1,157        (10,695)     162 income Less: comprehensive loss(income) attributable to the                     33           (447)        28           (230)  noncontrolling interest Comprehensive (loss) income attributable to Camelot                    (6,545)      710          (10,667)     (68)  Information Systems Inc. (1) Includes the following amounts of share-based compensation expenses for the periods indicated:                            Three Months Ended        Six Months Ended                            June 30,                  June 30,                            2013         2012         2013         2012 Cost of revenues           $22          $19          $44          $43 Selling and marketing      122          430          244          1,517 General and administrative 509          39           1,017        537 Total share-based          $653         $488         $1,305       $2,097 compensation expenses (2) Includes the following amounts of amortization expense related to intangible assets acquired for business  combination for the periods indicated                            Three Months Ended        Six Months Ended                            June 30,                  June 30,                            2013         2012         2013         2012 Cost of revenues           $16          $32          $32          $64 Selling and marketing      224          417          509          898 General and administrative 73           71           145          142 Total acquisition-related intangible amortization    $313         $520         $686         $1,104 expenses (3) The following table sets forth the reconciliation of our adjusted net loss attributable to Camelot Information Systems  Inc. to the U.S. GAAP net loss attributable to Camelot Information Systems Inc.:                            Three Months Ended        Six Months Ended                            June 30,                  June 30,                            2013         2012         2013         2012 Net loss attributable to Camelot Information Systems Inc.               ($8,462)     $2,414       ($12,749)    $1,576  (U.S. GAAP) Share-based compensation   653          488          1,305        2,097 Acquisition-related        313          520          686          1,104 intangible amortization Changes in fair value of   -            50           -            97 contingent consideration Total adjusted amounts     966          1,058        1,991        3,298 Adjusted net (loss) income attributable to Camelot                            ($7,496)     $3,472       ($10,758)    $4,874 Information Systems Inc.    CAMELOT INFORMATION SYSTEMS INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (U.S. Dollars in Thousands)                                       Three-Month Periods  Six-Month Periods                                       Ended June 30,       Ended June 30,                                       2013       2012      2013       2012 Cash flow from operating activities: Net (Loss)income                   ($8,549)   $2,874    ($12,837)  $1,811 Adjustments to reconcile net (loss) income to net cash used in operating activities:  Depreciation of property and 237        257       478        522 equipment  Amortization of intangible   504        818       1,063      1,508 assets  Deferred income taxes        (23)       (112)     532        370  Provision for account        (683)      (362)     (882)      (791) receivable  Provision for other current  –          633       –          633 assets  Share-based compensation     653        488       1,305      2,097  (Gains)loss on disposal of   –          (7)       25         11 property and equipment  Change in fair value of contingent consideration for          –          50        –          97 acquisition  Net loss of an equity        6          –         9          – investment, net of tax Changes in operating assets and liabilities: Accounts receivable          (9,989)    (19,409)  (19,135)   (27,072)  Other assets                 (1,099)    193       (2,727)    (452)  Accounts payable             936        4,430     (2,375)    1,744  Other liabilities            6,638      4,948     3,135      (2,045) Net cash used in operating activities (11,369)   (5,199)   (31,409)   (21,567) Cash flow from investing activities:  Purchase of term deposits    –          (330)     (67)       (1,063)  Maturity of term deposits    109        316       387        11,084  Deposit of restricted cash   109        170       149        3,728  Maturity of short term       –          –         1,286      – investment  Proceeds from disposal of    –          –         9          4 property and equipment  Purchase of property and     (202)      (170)     (290)      (311) equipment  Purchase of intangible       –          (966)     –          (1,022) assets and other assets  Purchase of businesses, net  –          –         –          (3,500) of cash acquired  Capital injection into a     –          –         (708)      – joint venture Net cash provided by(used in)         16         (980)     766        8,920 investing activities Cash flow from financing activities:  Proceeds from bank borrowing 3,061      337       3,343      2,881  Repayment of bank borrowing  (255)      (622)     (879)      (8,127)  Payment of contingent        (3,012)    (3,151)   (3,012)    (5,100) consideration for an acquisition Net cash used in financing activities (206)      (3,436)   (548)      (10,346) Effect of foreign exchange rate       519        (11)      427        20 changes Net decrease in cash and cash         (11,040)   (9,626)   (30,764)   (22,973) equivalents Cash and cash equivalents, beginning  74,152     43,781    93,876     57,128 of period Cash and cash equivalents, end of     63,112     34,155    63,112     34,155 period    CAMELOT INFORMATION SYSTEMS INC. Reconciliations of Adjusted Financial Measures to Comparable GAAP Measures (Unaudited) (US Dollars in Thousands, Except per Share Data and Percentage)              Three Months Ended                   Three Months Ended              June 30, 2013                        June 30, 2012              GAAP     Adjustments        Adjusted GAAP    Adjustments     Adjusted Cost of      $50,290  ($38)       (a)    $50,252  $45,869 ($51)       (a) $45,818 revenues Gross profit 12,173   38          (a)    12,211   16,217  51          (a) 16,268 Operating    17,587   (928)       (a)    16,659   12,741  (1,007)     (a) 11,734 expenses Operating    (5,414)  966         (a)    (4,448)  3,476   1,058       (a) 4,534 income(loss) Net          (8,462)  966         (a)(d) (7,496)  2,414   1,058       (a) 3,472 income(loss) Net gross    19.5%    0.1%        (b)    19.6%    26.1%   0.1%        (b) 26.2% margin Net operating    (8.7%)   1.5%        (a)    (7.2%)   5.6%    1.7%        (a) 7.3% margin Net margin   (13.5%)  1.5%        (a)    (12.0%)  3.9%    1.7%        (a) 5.6% Diluted EPS  ($0.05)  $0.01       (c)    ($0.04)  $0.01   $0.01       (c) $0.02 Diluted      ($0.18)  $0.02       (c)    ($0.16)  $0.05   $0.02       (c) $0.07 EPADS              Six Months Ended                     Six Months Ended              June 30, 2013                        June 30, 2012              GAAP     Adjustments        Adjusted GAAP    Adjustments     Adjusted Cost of      $98,158  ($76)       (a)    $98,082  $90,298 ($107)      (a) $90,191 revenues Gross profit 23,939   76          (a)    24,015   28,911  107         (a) 29,018 Operating    33,319   (1,915)     (a)    31,404   27,048  (3,191)     (a) 23,857 expenses Operating    (9,247)  1,991       (a)    (7,256)  1,863   3,298       (a) 5,161 income(loss) Net          (12,749) 1,991       (a)(d) (10,758) 1,576   3,298       (a) 4,874 income(loss) Net gross    19.6%    0.1%        (b)    19.7%    24.3%   0.1%        (b) 24.4% margin Net operating    (7.6%)   1.6%        (a)    (6.0%)   1.6%    2.7%        (a) 4.3% margin Net margin   (10.4%)  1.6%        (a)    (8.8%)   1.3%    2.8%        (a) 4.1% Diluted EPS  ($0.07)  $0.01       (c)    ($0.06)  $0.01   $0.02       (c) $0.03 Diluted      ($0.28)  $0.05       (c)    ($0.23)  $0.03   $0.07       (c) $0.10 EPADS    Notes: (a) The non-GAAP adjustments include share-based compensation expense, amortization expense related to intangible assets acquired for business acquisition and changes in fair value of contingent consideration, which are presented in the notes (1) and (2) below "Condensed Consolidated Statements of Operations (Unaudited)" for the reconciliation process (b) Adjustments to exclude acquisition-related intangible-asset amortization expense and share-based compensation recorded in cost of sales of $38, $51, $76 and $107 for the three-month periods ended June 30, 2013 and 2012, and the six-month periods ended June 30, 2013 and 2012, respectively. (c) Adjusted diluted EPS is computed by dividing adjusted net income attributable to Camelot Information Systems Inc. by the weighted average number of diluted ordinary shares outstanding used in computing the GAAP diluted EPS for the respective periods. (d) Net income refers to net income attributable to Camelot.  SOURCE Camelot Information Systems Inc.  Website: http://www.camelotchina.com  
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