eFuture Announces Third Quarter 2011 Unaudited Financial Results

BEIJING, Nov. 14, 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 third quarter ended September 30, 2011.

Note: Beijing Wangku Hutong Information Technology Co., Ltd. ("Wangku") has been classified as a discontinued operation for the nine months ended September 30, 2011, following eFuture's announcement on March 21, 2011, of the sale of its 51% stake in Wangku. The comparative figures for the thirdquarter and nine months ended September 30,2010 have been retrospectively reclassified to exclude discontinued operations, in accordance with US GAAP.

Third Quarter 2011 Financial Highlights

• Total revenue increased 35% year-over-year to RMB41.9 million (US$6.6 million).
• Gross profit increased 59% year-over-year to RMB15.3 million (US$2.4 million).
• Adjusted EBITDA improved to RMB1.1 million (US$0.2 million), compared to minus RMB4.4 million in the third quarter 2010.
• Operating loss was RMB3.2 million (US$0.5 million), an improvement from an operating loss of RMB9.9 million in the third quarter 2010.
• Net loss was RMB2.5 million (US$0.4 million), an improvement from a net loss of RMB4.8 million in the third quarter 2010.    
• Adjusted net income improved to RMB1.6 million (US$0.3 million), compared to an adjusted net loss of RMB3.9 million in the third quarter 2010.
• Basic and diluted net losses per share were RMB0.62 (US$0.10), as compared to basic and diluted net losses per share of RMB1.33 in the third quarter 2010. 
• Adjusted diluted net earnings per share improved to RMB0.39 (US$0.06), as compared to diluted net losses per share of RMB1.10 in the third quarter 2010. 

Mr. Adam Yan, Chairman and Chief Executive Officer, said, "I'm pleased to report healthy revenue growth of 35% year-over-year during the third quarter 2011, in line with guidance. As we entered our seasonally stronger second half of the year, we successfully leveraged our prime position in China's retail and consumer goods industry ecosystem to increase demand for our suite of one-stop, client-driven, end-to-end total solutions. While we are ultimately aiming for a more equal balance between our higher-margin software revenue and our more stable service fee income, the latter accounted for 60% of total revenue during the quarter, underpinned by particularly strong demand for our delivery services offering. Our sustained efforts to enhance margins resulted in an improved level of operating expenses relative to revenue due to better operating efficiency and the cost control initiatives we've implemented during recent quarters. We expect operating expenses to stabilize at this level as we maintain our emphasis on cost control as well as continued investment for future growth.

Looking ahead, we plan to expand our business as existing customers extend their operations to take advantage of opportunities within China's buoyant retail and consumer goods market. While we seek to boost contributions from our higher-margin software business by offering new or upgraded products, we are continuing to expand our services revenues in order to achieve a more stable income stream throughout the year. The recent launch of our cloud service business represents a broadening of our portfolio of innovative solutions and services, and offers additional opportunities to extend relationships with existing clients and attract new ones. In addition to providing a cost-effective solution for clients, the monthly fee payments for our cloud service offering also result in recurring revenue for eFuture."

Mr. Sean Zheng, Chief Financial Officer, added, "While we're excited about the launch of our cloud service business, we view it as a potential additional growth driver over the long term, and we expect short- and mid-term revenue growth to be driven primarily by the continued development of new products within our more established business lines. In the short-term, the delivery team restructuring that we've just completed will allow us to take on more projects starting next year, and will also allow us to achieve greater levels of efficiency and further lower our costs. With revenue traditionally skewed towards the final months of the year, we anticipate fourth-quarter revenue to total between RMB50 million and RMB60 million."

THIRDQUARTER 2011 FINANCIAL RESULTS

Revenue

Total revenue for the third quarter of 2011 increased 35% to RMB41.9 million (US$6.6 million), compared with RMB30.9 million in the third quarter 2010.

Revenue Breakdown

Software license revenue for the third quarter 2011 increased 19% year-over-year to RMB13.5 million (US$2.1 million), mainly due to increased demand from existing customers for grocery solutions.

Hardware revenue in the third quarter 2011 decreased 69% year-over-year to RMB3.0 million (US$0.5 million) from RMB9.8 million in the third quarter 2010. The decrease was mainly due to uncompleted contracts not having reached the point of revenue recognition as at September 30, 2011.

Service fee income for the third quarter 2011 increased 160% year-over-year to RMB25.3 million (US$4.0 million), compared to RMB9.7 million in the third quarter 2010, mainly due to continued strong growth from delivery services.

Cost of Revenue

Cost of revenue for the third quarter of 2011 increased 25% to RMB26.5 million (US$4.2 million), from RMB21.3 million in the third quarter 2010.

Cost of Revenue Breakdown

Gross Profit and Gross Margin

Gross profit for the third quarter 2011 increased 59% year-over-year to RMB15.3million (US$2.4 million) from RMB9.7 million in the third quarter 2010. Consolidated gross margin for the third quarter 2011 was 37%, compared to 31% in the third quarter 2010. The increase was mainly due to an improved revenue mix, with higher-margin service fee income accounting for 60% of total revenue during the third quarter 2011, compared with 31% in the comparative period.

Operating Expenses

Research and development expenses ("R&D") for the third quarter 2011 decreased 76% year-over-year to RMB0.3 million (US$54,582), or 1% of total revenue, compared to RMB1.5 million, or 5% of total revenue in the third quarter 2010. The decrease in R&D expenses was due to the Company's continued focus on projects at the capitalization stage, which resulted in development costs being capitalized rather than expensed.

General and administrative expenses ("G&A") increased 5% year-over-year to RMB10.7 million (US$1.7 million), or 26% of total revenue, compared to RMB10.2 million, or 33% of total revenue in the third quarter 2010, mainly due to headcount and salary increases.

Selling and distribution ("S&D") expenses for the third quarter 2011 decreased 6% year-over-year to RMB7.4 million (US$1.2 million), or 18% of total revenue, compared to RMB7.9 million, or 26% of total revenue in the third quarter 2010, reflecting improved efficiency in generating sales.

Operating Loss

Operating loss in the third quarter 2011 was RMB3.2 million (US$0.5 million), an improvement from an operating loss of RMB9.9 million in the third quarter 2010.

Net Loss and Losses Per Share

Net loss for the third quarter 2011 was RMB2.5 million (US$0.4 million), an improvement from a net loss of RMB4.8 million in the third quarter 2010.

Adjusted net income for the third quarter 2011 was RMB1.6 million (US$0.3 million), an improvement compared to an adjusted net loss of RMB3.9 millionin the third quarter 2010.

Basic and diluted losses per share in the third quarter 2011 were RMB0.62 (US$0.10), compared to basic and diluted losses per share of RMB1.33 in the third quarter 2010. Adjusted diluted earnings per share were RMB0.39 (US$0.06), compared to adjusted diluted losses per share of RMB1.10 in the third quarter 2010.

EBITDA

Adjusted EBITDA for the third quarter 2011 improved to RMB1.1 million (US$0.2 million), compared to minus RMB4.4 million in the third quarter 2010.

Balance Sheet and Cash Flow

As of September 30, 2011, cash and cash equivalents amounted to RMB51.0 million (US$8.0 million), a decrease of RMB22.2 million compared to RMB73.3 million as of December 31, 2010, due largely to substantial expenditures on inventory and work in process in response to increased client demand in 2011. In addition, it is typical within China's IT services industry for project expenditures to exceed cash collection during the first three quarters of the year, with cash collections being triggered by the completion of projects in the fourth quarter.

Total accounts receivable as of September 30, 2011 increased 20% to RMB17.4 million (US$2.7 million) from RMB14.6 million as of December 31, 2010 due to the higher proportion of service fee income within the revenue mix. According to contractual terms, the cash collection period for service fee contracts tends to be longer than for other business lines, therefore impacting accounts receivable.

Inventory and work in process increased 208% to RMB48.1 million (US$7.5 million) from RMB15.6 million at the end of December 2010, as some large, on-going projects were incomplete as of September 30, 2011. The Company estimates that the majority of its inventory and work in process as of September 30, 2011 will be recognized as cost of revenue by the end of 2011, in line with the revenue recognition of the related projects.

Advances from customers increased 61% to RMB68.7 million (US$10.8 million) from RMB42.7 million as of December 31, 2010, attributable to the lengthening of revenue recognition cycles resulting from the growth in the size and scope of contracts signed. This resulted in an increased level of installment payments having been made before the associated contracts had reached the point of revenue recognition.

For the quarter ended September 30, 2011, net cash provided by operating activities was RMB61,548 (US$9,650), mainly due to the collection of advance payments from customers and the decrease in advances to suppliers offsetting the rise in inventory and work in process due to increased client demand. Net cash used in investing activities was RMB3.2 million (US$0.5 million), mainly reflecting cash paid for the purchase of property and equipment and expenditures on intangible assets, including capitalized projects.

RECENT DEVELOPMENTS

Official launch of cloud service offering

On October 31, 2011, eFuture announced the official launch of its cloud service offering, which will consist of a mobile-based Sales Force Automation ("SFA") platform that sales teams of consumer goods companies can access via Android or iPhone. Designed specifically for the fast moving consumer goods industry, the user-friendly solution speeds up and simplifies all aspects of the sales process. eFuture's cloud service offering enables clients to increase revenue by taking advantage of real-time information on replenishment and promotions, as well as by allowing sales teams to intensify their focus on managing customer relationships, and by providing tools to enhance the performance of travelling sales representatives.

Rather than being required to make a significant upfront license fee payment, cloud service users are charged a monthly fee, therefore resulting in a cost-effective solution for clients and recurring revenue for eFuture. The Company views its cloud service business as a potential additional growth driver over the long term, and expects short- and mid-term revenue growth to be driven primarily by the continued development of its more established business lines.

FOURTH QUARTER AND FULL YEAR 2011 GUIDANCE

eFuture expects total revenue for the fourth quarter 2011 to be in the range of approximately RMB50 million (US$7.8 million) to RMB60 million (US$9.4 million). Adjusted EBITDA for the fourth quarter 2011 is expected to be in the range of approximately minus RMB5 million (minus US$0.8 million) to RMB1 million (US$0.2 million).

CONFERENCE CALL INFORMATION

eFuture senior management will host a conference call on Tuesday, November 15, 2011 at 5:00 am (US Pacific) / 8:00 am (US Eastern) / 9:00 pm (Beijing) to discuss the Company's third quarter 2011 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 Tuesday, November 22, 2011:

Additionally, a live and archived webcast of the conference call will be available on the investor relations section of eFuture's website at http://www.e-future.com.cn.

CURRENCY CONVENIENCE TRANSLATION

For the convenience of readers, certain RMB amounts have been translated into US dollars at the rate of RMB6.3780 to US$1.00, the noon buying rate for US dollars in effect on September 30, 2011 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 http://www.e-future.com.cn.

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 third 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 November 14, 2011, and the Company undertakes no duty to update such information or any other forward-looking information, except as required under applicable law.