First Quarter 2011 Financial Highlights
- Revenues increased 6.5% YoY to US$26.95 million
- Gross Profit increased 22.82% YoY to US$ 13.65 million, with Gross Margin expanding to 50.67 %
- Operating Profit increased 35.83 % YoY to US$ 8.92 million
- Non-GAAP Net Income increased 22.91% YoY to US$ 7.36 million
- Non-GAAP Fully Diluted EPS was US$0.14
- Cash flow from operations was US$1.90 million vs. negative $11.34 million a year ago
"Despite the first quarter usually being the slowest time of the year due to the Chinese New Year holiday, we are pleased to report healthy results and improved quality of earnings," said Mr. Jiang Huai Lin, Chairman and CEO of CNIT. "Year-over-year revenues grew by 6.5%, to US $26.95 million, while gross profit was up by over 22.82% and gross margin expanded to 50.67%. Moreover, cash flow from operations improved significantly from a year ago. Contract wins during the first quarter of 2011 came from 26 regions and were valued at $36 million, an increase of 17.6% compared to the same period last year."
"As stated previously, starting from 2011 we have organized our businesses into two main segments, Information Technology (IT) and Display Technology (DT). IT includes businesses surrounding our variety of software core competencies. Such core competencies are currently primarily in Geographic Information Systems (GIS), Digital Public Security Technologies (DPST) and Digital Hospital Information Systems (DHIS). IT segment revenues are generated from the sales of software and system integration services, as well as hardware other than display products. DT includes businesses surrounding our display technology core competencies both in our traditional businesses such as GIS, DPST and DHIS, and in new industries we are expanding into, such as education and media solutions, and consumer products. DT segment revenues are generated from the sales of display hardware and total display solutions of hardware integrated with proprietary software and content, as well as services. There was significant growth of our DT business, which contributed 29.57% of total revenues in the first quarter, as compared with 22.01% from the same period in 2010. The growing significance of the DT segment reflects the successful execution of our strategic acquisition of Huipu Electronics, and other new business initiatives we announced last year.
Our core IT business continues to perform well. We recently secured an important US$3 million-dollar contract to provide sophisticated GIS to the Shuohuang Railway, one of the country's largest and most critical West-to-East coal transfer lines. In addition, we are pleased to report that our ongoing work for the Chinese National Police-use GIS (PGIS) Standardization Project is making progress on schedule. The 5-year project is providing a steady stream of revenue as we endeavor to install our unique PGIS platforms to traffic, law enforcement and first responder teams around the country. During the period we also won contracts to supply PGIS and PDA equipment to the Shenzhen Traffic Police Mobile Law-enforcement System, and a First Responder Coordination System for Anxi County.
"From our establishment, we have been in a state of constant evolution as we position ourselves to capture opportunities on the horizon. More importantly, during every period of change we have proven our resilience, as demonstrated by our healthy results this quarter and further penetration into new and growing industries in China. We are confident our industry-leading position, track record of successful growth and business execution, combined with thoughtful and assertive business leadership, will support our enduring success in the rest of 2011 and beyond."
First Quarter 2011 Financial Results
For the three months ended March 31, 2011, our revenue was $26.95 million, compared to $25.31 million for the three months ended March 31, 2010, an increase of $1.64 million, or 6.5%. Such increase was primarily due to the strong demand of system integration solutions for the Shenzhen Summer Universiade to be held in August 2011, as well as the strong growth of display products.
Product sales increased by $1.66 million, or 26.13%, for the three months ended March 31, 2011, as compared to $6.35 million in the same period of 2010. Product sales constituted 29.71% of total revenue during the current period, as compared to 25.09% during the same period in the prior year as a result of our efforts to grow our display technology solutions.
Software sales decreased by 8.48 % to $ 13.89 million for the three months ended March 31, 2011, from $15.18 million for the three months ended March 31, 2010. Software sales constituted 51.55% of our total revenue, which decreased from 59.98% during the same period in the prior year. Such decline is a reflection of our decision to be more selective with our order acceptance in an effort to improve the quality of earnings.
Sales of system integration services increased by 76.75% for the three months ended March 31, 2011, as compared to the same period of 2010. As a percentage of revenue, it increased from 11% during the three months ended March 31, 2010 to 18.26% during the current quarter. Such growth primarily resulted from the strong demand of system integration solutions for the Shenzhen Summer Universiade to be held in August 2011.
Other revenue decreased by 86.96%, from $0.99 million in the three months ended March 31, 2010 to $0.13 million in the same period of 2011. Other revenue was derived from maintenance services during the current period while during the three months ended March 31, 2010, we also generated royalty income.
In terms of segment weights, our IT segment accounted for 70.43% of revenues in Q1 2011, as compared with 75.90% in the same period last year. Our Display Technology (DT) segment contributed 29.57% of revenues in Q1 2011, as compared with 24.10% in the same period last year. The revenue increase of our DT segment and the decline in revenue from our IT segment reflect two initiatives we are taking in fiscal year 2011. One initiative is to grow our DT solutions as the broader market starts to demand such previously specialized solutions and the other initiative is to be more selective with our acceptance of orders in an effort to improve the quality of earnings.
Gross Profit and Gross Margin
Our cost of revenues decreased $0.89 million, or 6.30%, to $13.29 million, for the three months ended March 31, 2011, from $14.19 million for the three months ended March 31, 2010. Gross margin was 50.67% for the three months ended March 31, 2011, an increase of 674 basis points from 43.93% in the same period of 2010.
The improvement in gross profit margin was experienced through all of the main categories as a result of our effort to improve our quality of earnings. Such improvement was partially offset by the decrease in the weight of software revenues as we became more selective with the profitability and accounts receivable turnover of software projects.
Administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional advisor fees, audit fees and other expenses incurred in connection with general operations. Our administrative expenses decreased by $0.27 million , or 9.59%, to $2.50 million for the three months ended March 31, 2011 , from $2.77 million in the same period of 2010. Such a decrease was due to our cost control measures, including a reduction of our staff.