Longtop Financial Technologies Limited (LFT)

F1Q2011 Earnings Call Transcript

August 17, 2010 8:00 pm ET

Executives

Charles Zhang – IR

Weizhou Lian – CEO

Derek Palaschuk – CFO

Analysts

Karl Keirstead – Kaufman Bros.

Tim Fox – Deutsche Bank

Jon Maietta – Needham & Company

Donald Lu – Goldman Sachs

Jeff Rossetti – Janney Montgomery Scott

Glenn Greene – Oppenheimer

Presentation

Operator

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Welcome to today's Longtop first quarter fiscal year 2011 result announcement. I am pleased to present Mr. Charles Zhang, Head of Investor Relations. For the first part of this call all participants will be in listen-only mode. And afterwards there will be a question-and-answer session. Mr. Zhang, please begin.

Charles Zhang

Thank you, Larry. Thank you and welcome to our fiscal first quarter 2011 earnings conference call. Joining me on the call today are Weizhou Lian, Chief Executive Officer; and Derek Palaschuk, Chief Financial Officer.

For today's agenda, management will discuss highlights of the quarter. This will be followed by a Q&A session. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements.

Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars.

I would now like to turn the call over to our CEO, Weizhou Lian, and I will translate for Mr. Lian.

Weizhou Lian

[Interpreted] Thank you for joining us for Longtop’s first quarter 2011 earnings conference call. A strong start we have made in fiscal 2011 and the support was more that our customers strong demand for Longtop products and solutions is continuing without impact from the volatility in China or the global macroeconomic environment.

We are again increasing our guidance on the back of this success and I am highly confident we can achieve our revised guidance. We are now guiding for $100 million in adjusted net income, which is an important milestone for Longtop.

Recently, following [ph] the year 2009 we were again named by IDC as the number one and number two market share leader in China’s banking and insurance IT solution market, respectively. We are gaining market share and pulling further away from the competition in both verticals. Longtop remains the only company that is in the Top 10 of both the banking and insurance It solution market.

I will now give you an update on our quarterly progress as regards customers, products as well as M&A activity. With regard to customers (inaudible) we expect healthy growth in all of our customer segments and have increased our full year guidance for organic software revenue year-over-year growth to 32%, up from 30%. We see no pricing pressure from our customers, looking specifically at our customer segment.

Demand from Big Four banks customers continue to be strong and trends are all positive. As we already have more than 10 consultants working on Bi consultant projects with the Big Four banks that is still now our customer we expect to get our first consulting contracts before the end of Q2 2011.

A number of investors are telling us that they have heard our largest customer is considering taking more of the development and maintenance work on their core banking, loan management and other transaction related systems in-house and whether this will impact Longtop. Our customers’ IT development strategy is the internal matter. It is inappropriate for me to comment on their strategy.

However, I can say demand from our largest customer is soft [ph]. We have not experienced any unusual project delays or cancellation. Most of our work for our largest customer is on their (inaudible) action systems such as channel management and business intelligence solutions and we will continue to strive to improve our consulting and delivery capabilities in this area to provide the best services.

As for other segment, demand is particularly strong as national joint stock banks and big city banks are investing aggressively in IT to improve their overall competitiveness. The demand is also driven by the geographical expansion of traditional city banks. I am especially pleased with the progress at a leading national joint stock bank that awarded us an operational risk management contract for this year. With the successful delivery of operational risk management systems, we are now able to cross-sell more solutions to this customer, which previously was doing most of its IT work in-house. This is a good example how we grow our market share in this segment.

With the successful and full integration of Sysnet, we are better positioned in insurance IT solution market. To take advantage of the move at smaller insurance companies to upgrade their legacy core insurance systems, we hope to sign our first contract for our own internally developed core insurance solution this year.

We will continue to execute our product strategy of delivering the highest quality services to maintain our leadership position and focusing on improving our standardized solutions. Turning specifically to our product line.

Since the activation of the joint stock, we have become a leading core banking solution provider. According to IDC, our market share, including Zhongbo for core banking solutions increased to 8.3% in 2009 and ranked number one in the China market. Zhongbo current implementation is going according to the plan and we see increasing demand such that we are increasing our Zhongbo revenue guidance from $15 million to $16 million. We are working on recruiting more staff to meet demand and prepare for the second potential core banking implementation.

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