Longtop Financial Technologies Limited (LFT)

F2Q2011 (Qtr End 09/30/2010) Earnings Call

November 15, 2010 8:00 am ET

Executives

Charles Zhang - Head of IR

Weizhou Lian - CEO

Derek Palaschuk - CFO

Wei Zhao - VP, Sales

Analysts

Joe Vafi - Jefferies & Company

Karl Keirstead - BMO Capital Markets

Donald Lu - Goldman Sachs

Glenn Greene - Oppenheimer

Joseph Foresi - Janney Montgomery Scott

Tim Fox - Deutsche Bank

Chris Schulter - William Blair & Company

Jon Maietta - Needham & Company

Presentation

Operator

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Welcome to today's Longtop second quarter fiscal year 2011 results announcement. I am pleased to present Mr. Charles Zhang, Head of Investor Relations. (Operator Instructions)

Charles Zhang

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

Thank you for joining us for Longtop's fiscal second quarter 2011 earnings conference call.

Our strong performance is evidenced by 52.7% software development revenue growth in the first half of fiscal year. Roughly 37% was organic, and of course, the continuing strong demand for Longtop's solutions and our excellent executions were again increasing our full year revenue and adjusted net income guidance on the back of the success, and I'm highly confident we can achieve our revised guidance.

We now expect full year 2011's organic software revenue growth of at least 38% as compared to the 30% guidance we gave at the beginning of the year. While next year's IT budget has not been released, we are highly confident that we can achieve the 2012 fiscal year analyst consensus for revenue of $291 million.

I would like to take this opportunity to open up some investor concerns following our recent research report on IT spending of one of our largest customers. I sympathize with our investors because this is contradicting information in the market.

Firstly, the third party report mentioned that revenue from this customer would be flat in our fiscal 2011 when compared to 2010. These rumors of the customer cutting spending with us has been circulating since the beginning of our fiscal year. Based on our revenue for the first half of the year, backlog and the frontlog, the only way there would be anything less than double-digit growth in fiscal 2011 for this customer was occurrence of a false measure event resulting in our engineer's inability to deliver the service.

In fact, revenue from this customer for fiscal 2011 is well ahead of the guidance we gave at the beginning of the year.

Secondly, looking at next fiscal year, having worked with this customer for 16 years and regularly talking with them, it's also inconvincible for me result of false measure event how our 2012 revenue could be half of 2011. Even though we don't have next year's budget, based on the project we are doing now and our preliminary discussions with our customer, I am confident revenue from this customer in fiscal 2012 will once more increase over 2011.

Thirdly, with respect to some of our customers doing more work in-house in the immediate future, it is not appropriate for us to comment on their IT development strategies, as this is a internal matter. I can tell our investors that none of our major customers have indicated to me or my (inaudible) that they will require less service from Longtop over the next few years.

On this call, I will also like to make a personal commitment to our investors that if we believe there is going to be a material, massive long term change in our major customer relationships, we would communicate this on a timely basis. We have always said, the spending could be cyclical from year-to-year and vary from customer to customer, but as a whole, demand is greater than supply.

Since our IPO in October 2007 we have been seeing the big four banks as a growth would grow by 20% CAGR over 5 years, and over the last 3 years the CAGR for our big four customers has been 38%. At the beginning of the year we guided 20% year-on-year growth for our big four customers, and after two quarters we see it will be around 30%. I am highly confident, over the next 2 years, our CAGR for our big four customers will be at least 20% we committed to in October of 2007.

Let me give you some customer highlights during this quarter. I am particularly pleased with the strong demand from our fastest growing big four bank customer which will continue over the next number of years.

We are making increasingly strong progress at several leading national joint stock banks and big city banks. We continue to increase our product penetration by cross-selling more solutions and our branding.

(inaudible) opportunity to provide solutions to smaller banks who are beginning to upgrade or replace their IT systems and investing in new applications, a number of years ago I thought their budgets were too small but this is no longer the case, opening another potential growth opportunity for us.

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