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Longtop Financial Technologies Limited Announces Unaudited Financial Results for the Fiscal Quarter Ended December 31, 2009
Feb 10, 2010 (04:02 PM EST)


HONG KONG, Feb. 10 /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 quarter ended December 31, 2009, which is the third quarter of its fiscal year ending March 31, 2010.

    FINANCIAL HIGHLIGHTS
    -- Third quarter total revenues of US$54.7 million, an increase of 66.2%
       Year-on-Year;
    -- Third quarter Adjusted(1) Operating  Income of US$29.3 million, an
       increase of 69.3% Year-on-Year;
    -- Third quarter Adjusted Net Income of US$29.3 million, which includes an
       income tax benefit of US$4.0 million. Excluding the income tax benefit
       of US$4.0 million Adjusted Net Income would have increased 53.1%
       Year-on-Year;
    -- Third quarter Adjusted Diluted Earnings Per Share of US$0.53, which
       includes an income tax benefit of US$0.07 per share.  Excluding the
       income tax benefit of US$0.07 Per Share,  Adjusted Diluted Earnings Per
       Share would have been US$0.46, an increase of 43.8% Year-on-Year;
    -- Cash flow from operations was US$39.2 million for the third quarter
       and US$50.1 million for the first nine months;
    -- Excluding Giantstone, full year 2010 revenue guidance increased to
       US$166.0 million from previous guidance of US$158.0 million, and
       Adjusted Diluted Earnings Per Share guidance increased from previous
       guidance of US$1.29 per share to US$1.39 per share, which includes
       US$0.07 per share from an income tax benefit recorded in Q3 2010.

    (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.

"I'm pleased to report that on the back of solid execution from our management and employees, once again our third quarter financial results exceeded our top and bottom line guidance. We see ongoing strong demand from our customers that execute on their long-term IT development plans irrespective of short-term changes in macroeconomic factors. Based on our sales pipeline and ongoing discussions with customers about their IT spending plans, Longtop's growth prospects remain strong for fiscal 2011. I believe Longtop's competitive position is strengthening and we are taking market share from our competitors," commented Weizhou Lian, CEO of Longtop. "Furthermore, this quarter's results underscore the successful integration of Sysnet with insurance being our fastest growing customer segment. I believe the recent acquisition of Giantstone, a leading core banking solution provider in China will offer us new growth opportunities."


    FISCAL THIRD QUARTER DETAILED FINANCIAL RESULTS

    Revenue

    2009 Q3 and 2010 Q3 Revenue - US$000s

                               Three months ended       Nine months ended
                       December  December % Change December  December % Change
                       31, 2008  31, 2009          31, 2008  31, 2009
    Software
     Development        $28,857   $46,397   60.8%   $68,509  $108,109   57.8%
    Other Services
                         $4,041    $8,267  104.6%   $11,905   $17,882   50.2%
    Total Revenue       $32,898   $54,664   66.2%   $80,414  $125,991   56.7%

Total revenues for the quarter ended December 31, 2009, were US$54.7 million, an increase of 66.2% year-on-year (YoY) from US$32.9 million in the corresponding year ago period, and exceeded company guidance of US$48.5 million. Software development revenues of US$46.4 million increased YoY by 60.8% and exceeded Company guidance of US$42.7 million.

Total revenues for the nine months ended December 31, 2009, were US$126.0 million, an increase of 56.7% YoY from US$80.4 million in the corresponding year ago period. Software development revenues, which were 85.8% of total revenues for the nine months ended December 31, 2009, amounted to US$108.1 million, a YoY increase of 57.8%. Excluding revenue from Sysnet, total revenue for the three and nine months ended December 31, 2009, would have increased by 45.5% and 44.9 % respectively.



    Software Development Revenue by customer type - US$000s

                         Three months ended             Nine months ended
                      December  December  % Change  December December % Change
                      31, 2008  31, 2009            31, 2008 31, 2009
    Big Four Banks      13,000    18,464    42.0%     34,028   47,272    38.9%
    Other Banks         11,177    18,106    62.0%     25,099   39,980    59.3%
    Insurance            3,699     8,309   124.6%      6,868   16,195   135.8%
    Enterprises            981     1,518    54.7%      2,514    4,662    85.4%
       Total            28,857    46,397    60.8%     68,509  108,109    57.8%

Software development revenue from the Big Four Banks was US$18.5 million in the third quarter, an increase of 42.0% YoY, and US$47.3 million for the nine months ended December 31, 2009, an increase of 38.9% YoY. Big Four Banks accounted for 43.7% of software development revenues for the nine months ended December 31, 2009, as compared to 49.7% in the corresponding year ago period.

Software development revenue from Other Banks was US$18.1 million in the third quarter, a YoY increase of 62.0%, and US$40.0 million for the nine months ended December 31, 2009, an increase of 59.3% YoY. Other Banks accounted for 37.0% of software development revenues for the nine months ended December 31, 2009, as compared to 36.6% in the corresponding year ago period.

Software development revenue from Insurance was US$8.3 million in the third quarter, a YoY increase of 124.6% and US$16.2 million for the nine months ended December 31, 2009, an increase of 135.8% YoY. Insurance accounted for 15.0% of software development revenues in the nine months ended December 31, 2009. Sysnet, a leading IT insurance services provider acquired by Longtop in Q1 2010, contributed US$5.2 million in software development revenue for the nine months ended December 31, 2009, of which $3.3 million was recorded in Q3 2010.

Software development revenue from Enterprises was US$1.5 million and US$4.7 million for the three and nine months ended December 31, 2009, a YoY increase of 54.7% and 85.4% respectively.

Other services revenue increased by 104.6% YoY in the third quarter to US$8.3 million primarily due to a US$3.1 million contribution from Sysnet's system integration business. Sysnet's other services revenue was US$4.2 million from the acquisition date to December 31, 2009.



    Gross Margins

                             Three months ended      Nine months ended
                       December December   Change   December December  Change
                                         (Decrease)                  (Decrease)
                       31, 2008 31, 2009            31, 2008 31, 2009

    Adjusted Software
     Development          76.4%    75.1%   (1.3%)     74.2%    73.1%   (1.1%)
    Gross Margin %
    Adjusted Other
     Services Gross       33.8%    50.6%   16.8%      51.9%    40.3%  (11.6%)
    Margin %
    Adjusted Total Gross
     Margin %             71.2%    71.4%    0.2%      70.9%    68.4%   (2.5%)

Adjusted Total Gross Margin was 71.4% and 68.4% for the three and nine months ended December 31, 2009, as compared to 71.2% and 70.9% in the corresponding year-ago periods. Approximately one percentage point of the 2.5% YoY decline in Adjusted Total Gross Margin for the nine months ended December 31, 2009, was due to a decline in Adjusted Software Development Gross Margin associated with: (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 existing Adjusted Software Development Gross Margin, and (iii) in order to meet customer requirements a larger percentage of the workforce are being located in higher cost centers such as Beijing. The remaining 1.5 percentage point decline in Adjusted Total Gross Margin for the nine months ended December 31, 2009 was primarily attributable to a gross margin reduction of ATM maintenance and system integration business lines which are included as Other Services. Full year 2010 Adjusted Total Gross Margin is expected to be approximately 67%, equal to the Company's previous guidance.



    Operating Expenses

                            Three months ended          Nine months ended
                         December December    %     December  December    %
                         31, 2008 31, 2009  Change  31, 2008  31, 2009  Change
    Adjusted Operating
     Expenses - US$000s    6,113    9,720    59.0%   15,119    24,600   62.7%
    Adjusted Operating
     Expenses -
     % of revenue          18.6%    17.7%             18.8%     19.6%

Adjusted Operating Expenses were 19.6% of revenue for the nine months ended December 31, 2009, which is in line with full year Company guidance of 20.0%. Adjusted Operating Expenses increased by 62.7% YoY in the nine months ended December 31, 2009, which was slightly higher than the YoY software development revenue growth of 57.8% primarily due to the inclusion of Sysnet, which has lower operating margins than Longtop.



    Operating Income and Net Income

                                Three months ended      Nine months ended
                             December December   %    December December   %
                                               Change                   Change
                             31, 2008 31, 2009        31, 2008 31, 2009
    Adjusted Operating
     Income - US$000s         17,299   29,288  69.3%   41,923   61,613   47.0%
    Adjusted Operating
     Income - % of revenue     52.6%    53.6%           52.1%    48.9%

Adjusted Operating Income of US$29.3 million for the third quarter exceeded company guidance of US$26.0 million and increased YoY by 69.3%. Adjusted Operating Income of US$61.6 million for the nine months ended December 31, 2009, increased 47.0% YoY. Adjusted Operating Margin for the nine months ended December 31, 2009, of 48.9% was lower than the corresponding period in fiscal 2009 due primarily to the decline in Adjusted Total Gross Margin.



    Net Income

                          Three months ended            Nine months ended
                       December  December % Change December December % Change
                       31, 2008  31, 2009          31, 2008 31, 2009

    Adjusted Net
     Income - US$000s    16,532    29,313   77.3%    40,597   61,431   51.3%
    Adjusted Net
     income per
     Diluted Share         0.32      0.53   65.6%      0.78     1.14   46.2%
    Adjusted Net
     Income - % of
     revenue              50.3%     53.6%             50.5%    48.8%
    US GAAP Net
     Income - US$000s    14,356    25,807   79.8%    34,640   53,100   53.3%
    US GAAP Net income
     per Diluted Share     0.28      0.46   64.3%      0.66     0.98   48.5%
    US GAAP Net Income
     - % of revenue       43.6%     47.2%             43.1%    42.1%



    Reconciliation between US GAAP Net Income and Adjusted Net Income

                             Three months ended          Nine months ended
                         December December % Change December December % Change
                         31, 2008 31, 2009          31, 2008 31, 2009
    Adjusted Net
     Income - US$000s     $16,532 $29,313    77.3%   $40,597  $61,431   51.3%

    Stock compensation     $1,463  $2,196    50.1%    $4,205   $5,199   23.6%
    Amortization of
     acquired intangible
     assets                  $661    $960    45.2%    $1,643   $2,602   58.4%
    Amortization of
     acquired deferred
     compensation             $52     $90    73.1%      $109     $270  147.7%
    Acquisition related
     expenses                 $--    $260                $--     $260
    Sub-total              $2,176  $3,506    61.1%    $5,957   $8,331   39.9%

    US GAAP Net Income    $14,356 $25,807    79.8%   $34,640  $53,100   53.3%

US GAAP and Adjusted Net Income for the quarter ended December 31, 2009, includes US$4.0 million (US$0.07 per fully diluted share)for an income tax benefit ("Q3 2010 Income Tax Benefit") recorded in Q3 2010 associated with Longtop's qualification as a Key Software Company for the 2009 calendar year. Excluding the US$4.0 million Q3 2010 Income Tax Benefit, Adjusted Net Income would have increased 53.1% as compared to Adjusted Net Income of US$16.5 million in the corresponding year ago period, and exceeded Company guidance of US$23.5 million and US$0.43 per fully diluted share. US GAAP net income for the quarter ended December 31, 2009, excluding the US$4.0 million Q3 2010 Income Tax Benefit, would have increased 51.9% as compared to US GAAP net income of US$14.4 million in the corresponding year ago period.

Adjusted Net Income for the nine months ended December 31, 2009, excluding the US$4.0 million Q3 2010 Income Tax Benefit (US$0.07 per fully diluted share), would have increased 41.5% as compared to Adjusted Net Income of US$40.6 million in the corresponding year ago period. US GAAP net income for the nine months ended December 31, 2009, excluding the US$4.0 million Q3 2010 Income Tax Benefit (US$0.07 per fully diluted share), would have increased 41.7% as compared to US GAAP net income of US$34.6 million in the corresponding year ago period.

Operating cash flow was US$39.2 million for the Third quarter, and US$50.1 million for the nine months ended December 31, 2009, an increase of 46.8% YoY.

Unrestricted cash balances at December 31, 2009 less short-term borrowings, were US$362.5 million.

Commenting on the results, Derek Palaschuk, CFO of Longtop, said: "In the third quarter revenue and Adjusted Net Income once more substantially exceeded guidance. A robust third quarter cash flow from operations of US$39.2 million and US$50.1 million for the first nine months together with the proceeds from the November 2009 secondary offering will allow us to continue to invest intelligently in our existing operations and grasp further consolidation opportunities through acquisitions that will help extend our leading position in China's financial technology industry."

BUSINESS OUTLOOK

Longtop anticipates for the quarter and ending March 31, 2010, excluding Giantstone:

i) Total revenues of US$40.0 million, representing an increase of 54.4% YoY from revenues of US$25.9 million in the corresponding year ago period. Software development revenues are expected to be US$34.0 million, a YoY increase of 61.1% from US$21.1 million in the corresponding year ago period.

ii) Adjusted Operating Income of US$16.0 million, representing an increase of 50.9% YoY from Adjusted Operating Income of US$10.6 million in the corresponding year ago period.

iii) Adjusted Net Income of US$15.5 million, representing an increase of40.9% YoY from Adjusted Net Income of US$11.0 million in the corresponding year ago period.

iv) Adjusted Diluted Earnings Per Share of US$0.26, representing an increase of 23.8% YoY from Adjusted Diluted Earnings Per Share of US$0.21 in the corresponding year ago period. .

Longtop anticipates for its fiscal year ending March 31, 2010, excluding Giantstone:

i) Total revenues of US$166.0 million, representing an increase of 56.2% YoY from revenues of US$106.3 million in fiscal 2009. Software development revenues are expected to be US$142.0 million, a YoY increase of 58.5% from US$89.6 million in fiscal 2009;

ii) Adjusted Operating Income of US$77.5 million, an increase of 47.6% YoY from Adjusted Operating Income of US$52.5 million in fiscal 2009.

iii) Adjusted Net Income of US$77.0 million, an increase of 49.2% YoY from Adjusted Net Income of US$51.6 million in fiscal 2009. Excluding the Q3 2010 Income Tax Benefit of US$4.0 million, Adjusted Net Income would have increased 41.5% YoY;

iv) Adjusted Diluted Earnings Per Share of US$1.39, an increase of 41.8% from Adjusted Diluted Earnings Per Share of US$0.98 in fiscal 2009. Excluding the Q3 2010 Income Tax Benefit of US$0.07 per fully diluted share, Adjusted Diluted Earnings per Share would have increased 34.7% YoY.

CONFERENCE CALL AND WEBCAST

Longtop's senior management team will host a conference call and audio web cast at 7:30 PM Eastern Time on February 10, 2010 (or 4:30 PM U.S. Pacific Time on February 10, 2010, and 8:30 AM Beijing/Hong Kong time on February 11, 2010). The conference call will last for approximately one hour.

    The dial-in numbers for the conference call are as follows:
    U.S. Toll Free: 1866 549 1292 (back-up number: +852 3005 2050)
    China Toll Free: 400 681 6949 (back-up number: +852 3005 2050)
    Hong Kong and International: +852 3005 2050.

    Passcode: 765115#

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 revenues, cost of revenues, operating expenses, net income and 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 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 impairment, (3) acquisition related expenses such as fees paid to investment bankers, due diligence and legal costs paid to third parties which would have been included as a cost of acquisition under Accounting Standards Codification (ASC) 805, "Business Combinations" (formerly FASB Statement No. 141 (revised 2007), "Business Combinations"; (4) post acquisition adjustments to the fair value of contingent consideration which would have been included as a cost of acquisition under ASC 805 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, Adjusted Net Income would have been US$5.2 million lower or US$56.2 million for the nine months ended December 31,2009 and our Adjusted Net Income margin would have been 4.0% lower.

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.

Pursuant to ASC 805 which became effective for business combinations made by us whose acquisition date is on or after April 1, 2009, acquisition-related expenses such as fees paid to investment bankers, due diligence and legal costs paid to third parties 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

Pursuant to ASC 805, as of the acquisition date we are required to estimate and record the fair value of contingent acquisition consideration. Generally contingent consideration is re-measured at fair value in each reporting period with changes in fair value recognized in earnings. If the estimated contingency is settled for a different amount than we have recorded at the time of the acquisition, the difference would be recorded in our Consolidated Statement of Operations. The contingent acquisition consideration is not related to the performance of our business lines, 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 ended December 31, 2009 and the fiscal year ended March 31, 2010, 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 September 30, 2009, 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/ .

    For more information, please contact:

    For Investors:
     Longtop Financial Technologies Limited
     Charles Zhang, CFA
     Email: ir@longtop.com
     Phone: +86-10-8421-7758

    For Media:
     IR Inside BV
     Caroline Straathof
     Email: caroline.straathof@irinside.com
     Phone: +31-6-5462-4301


                            CONSOLIDATED BALANCE SHEETS

                                       March 31, 2009       December 31, 2009
                                          (In U.S. dollar thousands, except
                                              share and per share data)
    Assets
    Current assets:
      Cash and cash equivalents           $238,295                   $389,699
      Restricted cash                          463                      3,745
      Accounts receivable, net              29,861                     87,625
      Inventories                            4,982                      5,864
      Amounts due from related parties         682                        681
      Deferred tax assets                      979                      1,449
      Other current assets                   4,712                     12,549

      Total current assets                 279,974                    501,612

    Fixed assets, net                       14,858                     26,468
    Prepaid land use right                   5,167                      5,090
    Intangible assets, net                  11,526                     27,041
    Goodwill                                24,837                     35,177
    Deferred tax assets                      1,479                      1,479
    Other assets                               632                     17,933

      Total assets                        $338,473                   $614,800

    Liabilities and shareholders' equity
    Current liabilities:
      Short-term borrowings                   $486                    $27,183
      Accounts payable                       3,299                     22,283
      Deferred revenue                      16,010                     37,240
      Amounts due to related parties            17                        110
      Deferred tax liabilities                 867                      1,064
      Accrued and other current
       liabilities                          23,810                     37,892
      Total current liabilities             44,489                    125,772

    Long-term liabilities:
      Obligations under capital leases,
       net of current portion                   98                         --
      Deferred tax liabilities               1,242                      3,943
      Other non-current liabilities            286                      3,872

      Total liabilities                     46,115                    133,587

    Shareholders' equity:
    Ordinary shares $0.01 par value
     (1,500,000,000 shares  authorized,
     51,036,816 and 56,164,938 shares
     issued and outstanding as of March
     31, 2009 and December 31, 2009,
     respectively)                            $510                       $562
    Additional paid-in capital             243,194                    378,583
    Retained earnings                       29,451                     82,551
    Accumulated other comprehensive
     income                                 19,203                     19,517

    Total shareholders' equity             292,358                    481,213

    Total liabilities and shareholders'
     equity                               $338,473                   $614,800



                       CONSOLIDATED STATEMENTS OF OPERATIONS

                                   Three Months Ended      Nine Months Ended
                                  December    December    December    December
                                  31, 2008    31, 2009    31, 2008    31, 2009
                                  (In U.S. dollar thousands, except share and
                                                per share data)
    Revenues:
    Software development          $28,857     $46,397     $68,509    $108,109
    Other services                  4,041       8,267      11,905      17,882
    Total revenues                 32,898      54,664      80,414     125,991

    Cost of revenues:
    Software development            7,346      12,756      19,116      31,900
    Other services                  3,134       4,389       6,880      11,530
    Total cost of revenues         10,480      17,145      25,996      43,430
    Gross profit                   22,418      37,519      54,418      82,561

    Operating expenses:
    Research and development        1,318       2,549       3,631       6,028
    Sales and marketing             3,393       5,549       7,801      14,112
    General and administrative      2,584       3,639       7,020       9,139
    Total operating expenses        7,295      11,737      18,452      29,279
    Income from operations         15,123      25,782      35,966      53,282

    Other income (expenses):
    Interest income                   922       1,096       4,438       3,096
    Interest expense                  (13)       (336)       (305)       (530)
    Other income (expense), net         3           8        (292)        313

    Total other income                912         768       3,841       2,879

    Income before income tax
     expense                       16,035      26,550      39,807      56,161
    Income tax expense             (1,679)       (743)     (5,167)     (3,061)

    Net income                     14,356      25,807      34,640      53,100

    Net income per share:
      Basic ordinary share          $0.28       $0.48       $0.69       $1.02
      Diluted                       $0.28       $0.46       $0.66       $0.98

    Shares used in computation
     of net income per share:
    Basic ordinary share       50,590,358  53,597,293  50,467,808  52,083,391
    Diluted                    52,073,161  55,597,313  52,328,310  54,070,186

    Includes share-based
     compensation related to:
    Cost of revenues software
     development                     $432        $740      $1,211      $1,663
    Cost of revenues other
     services                          63         146         185         284
    General and administrative
     expenses                         477         443       1,422       1,302
    Sales and marketing
     expenses                         389         717       1,102       1,597
    Research and development
     expenses                         102         150         285         353



            UNAUDITED CONSOLIDATED ADJUSTED STATEMENTS OF OPERATIONS

                                   Three Months Ended      Nine Months Ended
                                  December    December    December   December
                                  31, 2008    31, 2009    31, 2008   31, 2009
                              (In U.S. dollar thousands, except share and per
                                                share data)
    Revenues:
      Software development         28,857      46,397      68,509    108,109
      Other services                4,041       8,267      11,905     17,882
      Total revenues               32,898      54,664      80,414    125,991

    Cost of revenues:
      Software development          7,346      12,756      19,116     31,900
      Other services                3,134       4,389       6,880     11,530
      Total cost of
       revenues                    10,480      17,145      25,996     43,430

    Cost of revenue adjustments:
      Share-based compensation
       software development          (432)       (740)     (1,211)    (1,663)
      Share-based compensation
       other services                 (63)       (146)       (185)      (284)
      Amortization of acquired
       intangible assets other
       services                      (363)       (126)       (895)      (470)
      Amortization of acquired
       intangible assets software
       development                    (84)       (387)       (224)      (965)
      Amortization of acquired
       deferred compensation
       other services                 (34)        (33)        (73)       (99)
      Amortization of acquired
       deferred compensation
       software development           (18)        (57)        (36)      (171)

    Adjusted cost of revenues:
       Software development         6,812      11,572      17,645     29,101
       Other services               2,674       4,084       5,727     10,677
       Total adjusted cost
        of revenues                 9,486      15,656      23,372     39,778

    Gross profit                   22,418      37,519      54,418     82,561

    Adjusted gross profit          23,412      39,008      57,042     86,213

    Operating expenses:
      Research and development      1,318       2,549       3,631      6,028
      Sales and marketing           3,393       5,549       7,801     14,112
      General and administrative    2,584       3,639       7,020      9,139
      Total operating expenses      7,295      11,737      18,452     29,279

    Operating expense adjustments:
      Share-based compensation
       research and development      (102)       (150)       (285)      (353)
      Share-based compensation
       sales and marketing           (389)       (717)     (1,102)    (1,597)
      Share-based compensation
       general and administrative    (477)       (443)     (1,422)    (1,302)
      Amortization of acquired
       intangible assets sales and
       marketing                     (152)       (378)       (395)      (968)
      Amortization of acquired
       intangible assets general
       and administrative             (62)        (69)       (129)      (199)
      Acquisition related expenses
       general and administrative      --        (260)         --       (260)

    Adjusted operating expenses:
      Research and development      1,216       2,399       3,346      5,675
      Sales and marketing           2,852       4,454       6,304     11,547
      General and administrative    2,045       2,867       5,469      7,378
      Total adjusted
       operating expenses           6,113       9,720      15,119     24,600

    Income from operations         15,123      25,782      35,966     53,282

    Adjusted income from
     operations                    17,299      29,288      41,923     61,613

    Other income (expenses):
      Interest income                 922       1,096       4,438      3,096
      Interest expense                (13)       (336)       (305)      (530)
      Other (expenses)
       income, net                      3           8        (292)       313

      Total other income              912         768       3,841      2,879

    Income before income tax
     expense                       16,035      26,550      39,807     56,161

    Adjusted income before
     income tax expense            18,211      30,056      45,764     64,492

          Income tax expense       (1,679)       (743)     (5,167)    (3,061)

    Net income                     14,356      25,807      34,640     53,100

    Adjusted net income            16,532      29,313      40,597     61,431

    Net income per share:
      Basic ordinary share          $0.28       $0.48       $0.69      $1.02
      Diluted                       $0.28       $0.46       $0.66      $0.98

    Adjusted net income per
     share:
      Basic ordinary share          $0.33       $0.55       $0.80      $1.18
      Diluted                       $0.32       $0.53       $0.78      $1.14

    Shares used in computation
     of net income and
     adjusted net income
     per share:
      Basic ordinary share     50,590,358  53,597,293  50,467,808 52,083,391
      Diluted                  52,073,161  55,597,313  52,328,310 54,070,186



                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                       Three Months Ended  Nine Months Ended
                                       December  December  December  December
                                       31, 2008  31, 2009  31, 2008  31, 2009
                                      (In U.S. dollar thousands, except share
                                                and per share data)
    Cash flows from operating
     activities:
    Net income                          $14,356   $25,807   $34,640   $53,100

    Adjustments to reconcile net
     income to net cash provided by
     operating activities:
    Share-based compensation              1,463     2,196     4,205     5,198
    Depreciation of fixed assets            791     1,253     2,109     2,675
    Amortization of intangible assets       716     1,103     1,789     2,920
    Provision for doubtful accounts          55       268       101       299
    Loss on disposal of fixed assets        165        26       207        31

    Deferred income taxes                (1,836)     (433)     (965)     (467)

    Changes in assets and liabilities,
     net of effects of acquisitions:
    Accounts receivable                   3,783   (31,339)  (10,681)  (57,595)
    Inventories                             408    (1,343)     (521)     (799)
    Other current assets                  1,236      (474)   (1,118)   (7,700)
    Amounts due from related parties         --       587        --         3
    Prepaid land use right                   82        24    (5,193)       79
    Other non-current assets                104        91      (575)      273
    Other non-current liabilities             6        43      (188)      104
    Accounts payable                     (9,337)   14,409    (1,075)   17,117
    Deferred revenue                      5,011    18,238    12,043    21,214
    Amounts due to related parties           --        33        --        93
    Accrued and other current
     liabilities                          1,836     8,671      (654)   13,535

    Net cash provided by operating
     activities                          18,839    39,160    34,124    50,080

    Cash flows from investing
     activities:
    Change in restricted cash             9,753    (3,209)    5,560    (3,282)
    Proceeds from sale of  fixed
     assets                                  11        --       225        --
    Purchase of fixed assets             (1,005)   (3,066)   (7,766)  (11,897)
    Purchase of intangible assets            --      (280)       (3)     (502)
    Long term investment                     --        --    (3,911)       --
    Acquisitions, net of cash acquired      (19)     (548)   (1,397)  (17,327)
    Deposit made on acquisition              --   (17,574)       --   (17,574)

    Net cash used in (provided by)
     investing activities                 8,740   (24,677)   (7,292)  (50,582)

    Cash flows from financing
     activities:
    Proceeds from short-term
     borrowings                              --    22,556        --    26,947
    Net proceeds from follow-on
     offering                                --   126,648        --   126,648
    Stock options exercised                 425       522     1,203     3,273
    Repayments of capital leases
     obligations                           (139)      (84)     (721)     (352)
    Repayment of acquisition related
     liabilities                             --      (896)       --    (4,845)
    Amounts due to related parties           --        --       (54)       --

    Net cash provided by financing
     activities                             286   148,746       428   151,671

    Effect of exchange rates
     differences                           (429)       40     4,646       235

    Net increase in cash and cash
     equivalents                         27,436   163,269    31,906   151,404

    Cash and cash equivalents,
     beginning of period                208,996   226,430   204,526   238,295
    Cash and cash equivalents, end of
     period                            $236,432  $389,699  $236,432  $389,699

    Supplemental disclosure of cash
     flow information:
    Income taxes paid                    $3,515    $3,760    $6,326    $3,854
    Interest paid                           $13      $261      $308      $336
    Supplemental disclosure of non-
     cash investing and financing
     activities:
    Fixed assets purchased under
     capital leases                         $--       $--      $655       $--

SOURCE Longtop Financial Technologies Limited