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eFuture Announces Fourth Quarter and Full Year 2010 Unaudited Financial Results

/ Source: GlobeNewswire

BEIJING, April 28, 2011 (GLOBE NEWSWIRE) -- eFuture Information Technology Inc. (Nasdaq:EFUT) (the "Company" or "eFuture"), a leading provider of software and services in China's rapidly growing retail and consumer goods industries, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2010. eFuture expects to file its annual report on or before June 30, 2011 upon completion of the audit but has not set an expected filing time.

Note: bFuture Information Technology Co., Ltd. ("bFuture") and Beijing Wangku Hutong Information Technology Co., Ltd. ("Wangku") have been reclassified as discontinued businesses for the year ended December 31, 2010, following eFuture's announcements on August 31, 2010 and March 21, 2011, respectively, regarding the sale of its 51% stakes in the two entities. The comparative figures for the year ended December 31,2009 have been retrospectively reclassified to exclude discontinued operations, in accordance with U.S. GAAP.

Fourth Quarter 2010 Financial Highlights

  • Total revenue increased 28% year-over-year to RMB73.5 million (US$11.1 million).
  • Gross profit increased 15% year-over-year to RMB28.1 million (US$4.3 million).
  • Adjusted EBITDA was RMB10.4 million (US$1.6 million), a 131% increase compared with RMB4.5 million in the fourth quarter 2009.
  • Operating income was RMB2.6 million (US$0.4 million), compared with an operating loss of RMB3.6 million in the fourth quarter 2009.
  • Net income was RMB0.5 million (US$0.1 million), an improvement from a net loss of RMB2.2 million in the fourth quarter 2009.
  • Adjusted net income increased 29% to RMB9.2 million (US$1.4 million), compared with adjusted net income of RMB7.1 million in the fourth quarter 2009.
  • Basic and diluted net earnings per share were RMB0.12 (US$0.02), as compared to basic and diluted net loss per share of RMB0.67 in the fourth quarter 2009.
  • Adjusted diluted net earnings per share improved to RMB2.21 (US$0.33), as compared to diluted net earnings per share of RMB2.05 in the fourth quarter 2009.

Full Year 2010 Financial Highlights

  • Total revenue increased 40% year-over-year to RMB151.9 million (US$23.0 million).
  • Gross profit increased 52% year-over-year to RMB60.4 million (US$9.2 million). Gross margin was 40%, compared with 37% in 2009.
  • Adjusted EBITDA improved to RMB2.8 million (US$0.4 million), compared with a loss of RMB1.5 million in 2009.
  • Operating loss was RMB21.8 million (US$3.3 million), compared with an operating loss of RMB24.4 million in 2009.
  • Net loss was RMB17.3 million (US$2.6 million), compared with a net loss of RMB25.3 million in 2009.
  • Adjusted net income improved to RMB6.0 million (US$0.9 million), compared with adjusted net income of RMB2.5 million in 2009.
  • Basic and diluted net loss per share were RMB4.53 (US$0.69), as compared to basic and diluted net loss per share of RMB7.51 in 2009.
  • Adjusted diluted net earnings per share improved to RMB1.56 (US$0.24), as compared to diluted net earnings per share of RMB0.75 in 2009.

Mr. Adam Yan, Chairman and Chief Executive Officer ("CEO"), said, "I am pleased to report continued business expansion in the fourth quarter 2010, which enabled us to surpass our guidance and deliver 28% year-over-year top-line growth. This growth was mainly driven by our fast moving consumer goods ("FMCG"), Grocery, Logistics and Department Store verticals, which maintained their rapid growth trajectories during what is our seasonally strongest quarter. The strong performance rounded out a very solid 2010 as revenue for the full year grew 40%, service fee income increased 58% and adjusted net income more than doubled over 2009. Despite the anticipated seasonal slowdown in the first quarter, we are optimistic about the outlook for 2011 as a whole. In addition to benefitting from China's booming retail and consumer goods industries, we believe that our innovative and attractive software and services offerings will enable our growth to outpace that of the industry as we continue to strengthen our software core business while expanding our scope in order to increase recurring maintenance and cloud service revenues."

Mr. Sean Zheng, Chief Financial Officer ("CFO"), commented, "Our efforts to enhance our product mix and optimize our sales network have made a substantial and positive impact on our revenue base, and our contracts backlog grew to approximately US$14 million as of December 31, 2010 from US$7.2 million as of December 31, 2009. Our efficient operating platform and cost saving initiatives have simultaneously enabled us to successfully expand our margin profile. As we work towards our objective of driving profitable growth, we are also diligently focused on strengthening our balance sheet, as evidenced by our 103% year-on-year increase in cash flow from operations in 2010. With US$11 million in cash and cash equivalents at year-end 2010 we possess a solid base for further business expansion in 2011."

FOURTH QUARTER 2010 FINANCIAL RESULTS

Revenue

Total revenue for the fourth quarter 2010 increased 28% to RMB73.5 million (US$11.1 million) from RMB57.3 million in the fourth quarter 2009.

Revenue Breakdown

Software license revenue for the fourth quarter 2010 increased 13% year-over-year to RMB28.1 million (US$4.3 million), mainly driven by an increase in sales to new clients. Hardware revenue in the fourth quarter 2010 decreased 5% year-over-year to RMB18.3 million (US$2.8 million) from RMB19.3 million in the fourth quarter 2009, mainly due to the increased mix of hardware with lower average selling prices. Service fee income for the fourth quarter increased 105% year-over-year to RMB27.1 million (US$4.1 million), compared to RMB13.2 million in the year-ago period, mainly due to strong growth from delivery services.

Cost of Revenue

Cost of revenue for the fourth quarter 2010 increased 38% to RMB45.5 million (US$6.9 million) from RMB33.0 million in the fourth quarter 2009.

Cost of Revenue Breakdown

Gross Profit and Gross Margin

Fourth quarter 2010 gross profit increased 15% year-over-year to RMB28.1million (US$4.3 million) from RMB24.4 million in the fourth quarter 2009. Consolidated gross margin for the fourth quarter 2010 was 38%, compared with 43% in the fourth quarter 2009.

Operating Expenses

Research and development ("R&D") expenses for the fourth quarter 2010 increased 81% year-over-year to RMB4.6 million (US$0.7 million), or 6% of total revenue, compared with RMB2.6 million, or 4% of total revenue in the fourth quarter 2009. This was mainly due to higher salaries and bonuses for R&D staff.

General and administrative expenses ("G&A") for the fourth quarter 2010 decreased 21% year-over-year to RMB12.5 million (US$1.9 million), representing 17% of total revenue, compared with RMB15.9 million, or 28% of total revenue in the fourth quarter 2009, mainly due to share based compensation expenses having been expensed on a quarterly basis during 2010, as opposed to on an annual basis in 2009, with the entire amount being expensed in the fourth quarter 2009.

Selling and distribution ("S&D") expenses for the fourth quarter 2010 decreased 13% year-over-year to RMB8.4 million (US$1.3 million). S&D expenses accounted for 11% of total revenue, compared with RMB9.6 million, or 17% of total revenue in the fourth quarter 2009. The decrease was mainly attributable to a one-time reclassification of project-related costs.

Operating Income (Loss)

Operating income in the fourth quarter 2010 was RMB2.6 million (US$0.4 million), compared with an operating loss of RMB3.6 million in the fourth quarter 2009.

Net Income (Loss) and Earnings (Loss) Per Share

As a result of the foregoing, fourth quarter 2010 net income was RMB0.5 million (US$0.1 million), an improvement compared with a net loss of RMB2.2 million in the fourth quarter 2009. Adjusted net income for the fourth quarter was RMB9.2 million (US$1.4 million), compared to adjusted net income of RMB7.1 millionin the fourth quarter 2009.

Basic and diluted earnings per share in the fourth quarter 2010 were RMB0.12 (US$0.02), compared to basic and diluted loss per share of RMB0.67 in the fourth quarter 2009. Fourth quarter 2010 adjusted diluted earnings per share was RMB2.21 (US$0.33), compared to adjusted diluted earnings per share of RMB2.05 in the fourth quarter 2009.

EBITDA

Adjusted EBITDA for the fourth quarter of 2010 was RMB10.4 million (US$1.6 million), compared to RMB4.5 million in the fourth quarter 2009.

FULL YEAR 2010 FINANCIAL RESULTS

Revenue

Total revenue for 2010 increased 40% to RMB151.9 million (US$23 million) from RMB108.8 million in 2009.

Revenue Breakdown

For the full year 2010, software license revenue increased 18% year-over-year to RMB63.9 million (US$9.7 million), due to increased revenue from new clients. Hardware revenue increased 66% year-over-year in 2010 to RMB35.8 million (US$5.4 million), compared to RMB21.5 million in 2009. Although eFuture has made the strategic decision to focus on software license and service fee income due to the higher-margin nature of these services, the Company continues to provide hardware as part of its total solution and as a complement to its other offerings. Full-year 2010 service fee income increased 58% year-over-year to RMB52.2 million (US$7.9 million), compared to RMB33.1 million in 2009, due to strong growth from delivery services.

Cost of Revenue

Cost of revenue for 2010 increased 33% to RMB91.5 million (US$13.9 million) from RMB69.0 million in 2009.

Cost of Revenue Breakdown

Gross Profit and Gross Margin

Gross profit for 2010 increased 52% year-over-year to RMB60.4 million (US$9.2 million), from RMB39.9 million in 2009. Consolidated gross margin for 2010 was 40%, compared with 37% in 2009.

Operating Expenses

R&D expenses for 2010 increased 158% year-over-year to RMB8.2 million (US$1.2 million), or 5% of total revenue, compared with RMB3.2 million, or 3% of total revenue in 2009. This was mainly due to increased costs incurred on research projects that are still in the preliminary project stage of software development.

G&A expenses for 2010 increased 17% year-over-year to RMB39.4 million (US$6.0 million), or 26% of total revenue, compared with RMB33.6 million, or 31% of total revenue in 2009, mainly due to increases in bad debt provision for other receivables related to previously acquired companies.

S&D expenses for 2010 increased 26% year-over-year to RMB34.8 million (US$5.3 million). S&D expenses accounted for 23% of total revenue, compared with RMB27.5 million, or 25% of total revenue in 2009, mainly due to increased sales headcounts to drive revenue growth, as well as to increased sales commissions as result of revenue growth.

Operating Loss

Operating loss in 2010 was RMB21.8 million (US$3.3 million), an improvement from an operating loss of RMB24.4 million in 2009.

Net Income (Loss) and Earnings (Loss) Per Share

Net loss for the full year 2010 was RMB17.3 million (US$2.6 million), an improvement from a net loss of RMB25.3 million in 2009. Adjusted net income for 2010 was RMB6.0 million (US$0.9 million), compared to adjusted net income of RMB2.5 million in 2009.

Basic and diluted loss per share for the full year 2010 were RMB4.53 (US$0.69), as compared to basic and diluted loss per share of RMB7.51 in 2009. For the full year 2010, adjusted diluted earnings per share were RMB1.56 (US$0.24), compared to adjusted diluted earnings per share of RMB0.75 in 2009.

EBITDA

Adjusted EBITDA for 2010 was RMB2.8 million (US$0.4 million), compared to a loss of  RMB1.5 million in 2009.

Balance Sheet and Cash Flow

As of December 31, 2010, cash and cash equivalents amounted to RMB73.3 million (US$11.1 million), an increase of RMB15.8 million from December 31, 2009. This increase was mainly due to strong revenue growth and increased advances from customers, both of which resulted from our sales organization restructuring in the first quarter 2010 and consequent business expansion.

Total accounts receivable as of December 31, 2010 increased 1% to RMB14.6 million (US$2.2 million) from RMB14.4 million as of December 31, 2009, as eFuture maintained its active collections process.

Inventories as of December 31, 2010 increased to RMB15.6 million (US$2.4 million), an increase of 184% compared with RMB5.5 million as of December 31, 2009, mainly due to strong client demand, which resulted in an increase in the number of contracts classified as work in progress and in the amount of hardware to be delivered to the clients.

For the year ended December 31, 2010, net cash provided by operating activities was RMB22.1 million (US$3.3 million), while net cash used in investing activities was RMB18.2 million (US$2.8 million), which was primarily attributable to the final cash payment for Proadvancer. Net cash provided by financing activities was RMB12.2 million (US$1.8 million), which was mainly due to cash received from subscribers for eFuture's ordinary shares in the third quarter 2010.

RECENT DEVELOPMENTS

Sales of bFuture and Wangku stakes

eFuture announced on August 31, 2010 that it had sold its 51% ownership stake in bFuture. On March 21, 2011, eFuture announced the sale of its 51% stake in Wangku. eFuture management believes that the sale of its interests in bFuture and Wangku was both strategically and financially prudent, and that focusing on its core software business and fast-growing professional services business will enable the Company to deliver higher and more consistent returns over the long term.

Management changes

eFuture appointed Mr. Sean Zheng to the position of CFO effective January 11, 2011. Mr. Zheng replaced Mr. Adam Yan, eFuture's Chairman and CEO, who had held the position of Acting CFO since July 16, 2010, following the resignation of Ms. Ping Yu from the position of CFO on the same date.

The Company also appointed Mr. Hongjun Zou, one of eFuture's co-founders and Senior Vice Presidents ("SVP"), to the role of Chief Innovation Officer ("CIO"), effective January 1, 2011. Mr. Zou's appointment follows the resignation of Mr. Jack Qiu from his role as CIO and SVP on December 31, 2010.

Mr. Deliang Tong resigned from the position of Chief Operating Officer ("COO") of eFuture, and from the position of President of eFuture's wholly owned subsidiary, eFuture (Beijing) Royalstone Information Technology Inc. ("eFuture Beijing"), effective September 1, 2010. To streamline eFuture's management team, its President, Mr. Dehong Yang, combined the duties of COO with his existing role, and was also appointed President of eFuture Beijing, effective September 1, 2010.

FIRST QUARTER 2011 GUIDANCE

eFuture expects total revenue for the first quarter 2011 to be in the range of approximately RMB15 million (US$2.3 million) to RMB19 million (US$2.9 million). Adjusted EBITDA for the first quarter 2011 is expected to be in the range of approximately loss RMB3 million (US$0.5 million) to loss RMB6 million (US$0.9 million).

CONFERENCE CALL INFORMATION

eFuture's management will host a conference call on Friday, April 29, 2011 at 5:00 am (U.S. Pacific) / 8:00 am (U.S. Eastern) / 8:00 pm (Beijing) to discuss the Company's 2010 fourth quarter and full year financial results and recent business activity. The conference call may be accessed by dialing:

Please dial in 10 minutes before the call is scheduled to begin.

A replay of the conference call may be accessed by phone at the following numbers until Friday, May 6, 2011:

Additionally, a live and archived webcast of the conference call will be available on the investor relations section of eFuture's website at .

CURRENCY CONVENIENCE TRANSLATION

For the convenience of readers, certain RMB amounts have been translated into US dollars at the rate of RMB6.6 to US$1.00, the noon buying rate for US dollars in effect on December 31, 2010 for cable transfers of RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

USE OF NON-GAAP FINANCIAL MEASURES

To supplement eFuture's unaudited consolidated financial results presented in accordance with U.S. GAAP, eFuture uses the following non-GAAP measures defined as non-GAAP financial measures by the U.S. Securities and Exchange Commission: (i) adjusted EBITDA excluding amortization of acquired software technology, amortization of intangibles, impairment of intangible assets, share-based compensation expenses and depreciation; (ii) adjusted net income excluding amortization of acquired software technology, amortization of intangibles, impairment of intangible assets, share-based compensation expenses and accretion on convertible notes; and (iii) adjusted basic and diluted earnings per share excluding amortization of acquired software technology, amortization of intangibles, share-based compensation expenses and accretion on convertible notes.

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 U.S. GAAP.

eFuture believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding expenses that may not be indicative of its operating performance from a cash perspective or be indicative of its operating performance. eFuture 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. These non-GAAP financial measures also facilitate management's internal comparisons to eFuture's historical performance and liquidity. eFuture computes its non-GAAP financial measures using the same consistent method from quarter to quarter. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision-making. The accompanying paragraphs have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

eFuture's management also believes that EBITDA, defined as earnings before interest, income tax expense, depreciation and amortization, is a useful financial metric to assess its operating and financial performance before the impact of investing and financing transactions and income taxes. In addition, eFuture's management believes that EBITDA is widely used by other companies in the software industry and may be used by investors as a measure of its financial performance. Given the significant investments that eFuture has made in property, equipment, depreciation and amortization expense comprises a meaningful portion of the Company's cost structure. eFuture's management believes that EBITDA will provide investors with a useful tool for comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures. The presentation of EBITDA should not be construed as an indication that the Company's future results will be unaffected by other charges and gains eFuture considers to be outside the ordinary course of its business.

The use of EBITDA and adjusted EBITDA has certain limitations. Depreciation and amortization expense for various long-term assets, income tax expense, interest expense and interest income have been and will be incurred and are not reflected in the presentation of EBITDA. Further, share-based compensation expenses have been and will be incurred and are not reflected in the presentation of adjusted EBITDA. Each of these items should also be considered in the overall evaluation of eFuture's financial results. The term EBITDA or adjusted EBITDA is not defined under U.S. GAAP, and EBITDA or adjusted EBITDA is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. When assessing eFuture's operating and financial performance, you should not consider this data in isolation or as a substitute for its net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, the Company's EBITDA and adjusted EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as eFuture does.

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 EFUTURE INFORMATION TECHNOLOGY INC.

eFuture Information Technology Inc. (Nasdaq:EFUT) is a leading provider of software and services in China's rapidly growing retail and consumer goods industries. eFuture provides integrated software and services to manufacturers, distributors, wholesalers, logistics companies and retailers in China's front-end supply chain (from factory to consumer) market, especially in the retail and fast moving consumer goods industries. For more information about eFuture, please visit .

SAFE HARBOR

This announcement contains forward-looking statements. These statements are made under 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," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, 2011 financial outlook and quotations from management in this announcement, as well as strategic and operational plans, contain forward-looking statements. eFuture may also make written or oral forward-looking statements in periodic reports to the Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to second parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. 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: eFuture's anticipated growth strategies; eFuture's future business development, results of operations and financial condition; expected changes in the Company's revenue and certain cost or expense items; eFuture's ability to attract clients and leverage its brand; trends and competition in the software industry; the Company's ability to control expenses and maintain profit margins; the Company's ability to hire, train and retain qualified managerial and other employees; the Company's ability to develop new software and pilot new business models at desirable locations in a timely and cost-effective manner; the performance of third parties under contracts with the Company; the expected growth of the Chinese economy software market in retail and consumer goods industries; and Chinese governmental policies relating to private managers and operators of software and applicable tax rates.

Further information regarding these and other risks will be included in eFuture's annual report on Form 20-F and other documents filed with the SEC. All information provided in this press release and in the attachments is as of April 28, 2011, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.

CONTACT: Investor Contact: Troe Wen, Company Secretary eFuture Information Technology Inc. +86 10 5293 7699 ir@e-future.com.cn Investor Relations (HK): Mahmoud Siddig Taylor Rafferty +852 3196 3712 eFuture@Taylor-Rafferty.com Investor Relations (US): Kelly Gawlik Taylor Rafferty +1 212 889 4350 eFuture@Taylor-Rafferty.com