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iSoftStone Reports Financial and Operating Results for the First Quarter 2013.

BEIJING
  or  , city (1994 est. urban pop. 6,093,300; 1994 est. total pop. 7,240,700), capital of the People’s Republic of China. It is in central Hebei prov.
, May 17, 2013 /PRNewswire/ — iSoftStone Holdings Limited
(“iSoftStone” or “the Company,”
NYSE

:
ISS

See Institutional Shareholder Services (ISS).
), a
leading China-based IT services provider, today reported its unaudited
financial and operating results for the first quarter ended March 31,
2013.

First quarter 201 3 results

* Net revenues increased 11.0% to $95.9 million in the first quarter
2013 from $86.3 million in the first quarter 2012.

* Gross profit increased 11.1% to $30.9 million in the first quarter
2013 from $27.8 million in the first quarter 2012.

* Net income decreased 9.9% to $3.0 million in the first quarter
2013 from $3.3 million in the first quarter 2012.

* Non-GAAP net income (note 1) decreased 23.8% to $5.6 million in
the first quarter 2013 from $7.3 million in the first quarter 2012.

*
Diluted
  
tr.v. di·lut·ed, di·lut·ing, di·lutes
1. To make thinner or less concentrated by adding a liquid such as water.

2. To lessen the force, strength, purity, or brilliance of, especially by admixture.
 earnings per American
Depositary

 Share (“ADS”)
were $0.05 in the first quarter 2013 compared with $0.06 in the first
quarter 2012. Each ADS represents 10 ordinary shares.

* Non-GAAP diluted earnings per ADS (note 1) were $0.10 in the first
quarter 2013 compared with $0.12 in the first quarter 2012.

* Total number of employees increased 15.3% to 14,599 as of March
31, 2013 from 12,661 as of March 31, 2012.

Mr. T

.W. Liu, iSoftStone’s Chairman and Chief Executive
Officer, said, “We are pleased with the financial results we
achieved during the first quarter of 2013. Net revenues for the quarter
were $96 million, up 11% from the same quarter last year. Both revenues
and net income were in line with our expectation.

“During the next three quarters of 2013, we will continue to
expand our business drivers, work aggressively to increase margins and
cash flow, and invest in emerging technologies, like mobile, big data,
and
cloud computing

, to help clients accelerate their business
transformations.

“Although the market continues to be challenging, our strategy
remains focused on opportunities that should create long-term growth and
value. We expect to create satisfied clients, higher employee
performance, and greater value for shareholders in 2013 and in the years
ahead.”

R esults of operations for the first quarter 201 3

Net revenues

Net revenues increased $9.5 million or 11.0% to $95.9 million in the
first quarter 2013 from $86.3 million in the first quarter 2012, mainly
due to strong demand for IT services from clients in Greater China,
partially offset by lower demand from some global clients, primarily in
Japan and the
United States
 officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world’s third largest country in population and the fourth largest country in area.
.

Net revenues by service line

We
derive

v.
1. To obtain or receive from a source.

2. To produce or obtain a chemical compound from another substance by chemical reaction.
 net revenues by providing an integrated suite of IT
services and solutions, including (a) IT services, which primarily
includes application development and maintenance (”
ADM

“), as
well as R&D services and infrastructure and software services, (b)
Consulting & Solutions, and (c)
Business Process Outsourcing

 (”
BPO

BPO Benzoyl Peroxide
BPO Business Process Optimization
BPO Broker Price Opinions
BPO Buffalo Philharmonic Orchestra
“), services. The following table shows our net revenues
by service line.

Net revenues from IT services decreased $0.3 million or 0.6% to
$57.5 million in the first quarter 2013 from $57.9 million in the first
quarter 2012. Net revenues from Consulting & Solutions increased
$8.1 million or 31.5% to $33.6 million in the first quarter 2013 from
$25.6 million in the first quarter 2012, mainly due to wining of a new
public sector consulting & solutions project. We expect that these
types of consulting & solutions businesses will continue to be one
of our growth drivers in the future. Net revenues from BPO services
increased 61.8% to $4.7 million in the first quarter 2013 from $2.9
million in the first quarter 2012 mainly due to three new project
wins.

Net revenues by
geographic
 /geo·graph·ic/ () in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map.


geographic

pertaining to geography.
 markets

We
classify
  
tr.v. clas·si·fied, clas·si·fy·ing, clas·si·fies
1. To arrange or organize according to class or category.

2. To designate (a document, for example) as confidential, secret, or top secret.
 our net revenues by the following geographic markets:
Greater China (which includes China,
Taiwan
 , Portuguese Formosa, officially Republic of China, island nation (2005 est. pop. 22,894,000), 13,885 sq mi (35,961 sq km), in the Pacific Ocean, separated from the mainland of S China by the 100-mi-wide (161-km) Taiwan
,
Hong Kong
 , Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov.
, and
Macau
 see Macao.


Macau
 or Macao Chinese Aomen

Special administrative region (pop., 2005 est.: 470,000), southern China.
) and
Global (which includes the United States,
Europe
 , 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000).
, Japan, and others),
based on the headquarters locations of our clients. The following table
shows our net revenues by geographic markets.

Reflecting our growth in the
Chinese
 subfamily of the Sino-Tibetan family of languages (see Sino-Tibetan languages), which is also sometimes grouped with the Tai, or Thai, languages in a Sinitic subfamily of the Sino-Tibetan language stock.
 market and the country’s
relative economic strength, in the first quarter 2013, net revenues in
Greater China continued to grow more than the net revenues in the Global
market, especially with Japan and United States experiencing weaker
macro-economic conditions than in Greater China. Our net revenues from
Greater China clients increased $14.3 million or 27.8% to $65.8 million
in the first quarter 2013 from $51.4 million in the first quarter 2012.
Net revenues from U.S. clients decreased $2.9 million or 13.2% to $19.3
million in the first quarter 2013 from $22.2 million in the first
quarter 2012 mainly due to reduced demand from one major client in the
U.S. market. Net revenues from European clients decreased 9.5% to $5.2
million in the first quarter 2013 from $5.8 million in the first quarter
2012. Net revenues from Japanese clients decreased $1.5 million or 23.8%
from the prior first quarter due to lower demand from Japanese
clients.

Net revenues by client industry

We focus on serving clients in four target industry verticals, each
with large and growing demand for IT services and solutions: technology;
communications; banking,
financial services

 and insurance
(”
BFSI

“); and energy, transportation, and public sector. The
following table shows our net revenues by client industry.

Net revenues from technology clients decreased $1.5 million or 6.1%
to $23.4 million in the first quarter 2013 from $24.9 million in the
first quarter 2012 due to reduced demand from one major technology
client in China. Net revenues from communications clients increased $0.9
million or 2.6% to $33.8 million in the first quarter 2013 from $32.9
million in the first quarter 2012. Net revenues from BFSI clients
increased $2.9 million or 18.7% to $18.7 million in the first quarter
2013 from $15.8 million in the first quarter 2012
attributable

 largely
to business intelligence projects and IT services projects for a
domestic bank and an insurance company. Net revenues from energy,
transportation, and public sector clients increased $6.4 million or
82.2% to $14.2 million in the first quarter 2013 from $7.8 million in
the first quarter 2012 due to wining of a new public sector consulting
& solutions project. Net revenues from all other industries
increased $0.8 million to $5.8 million in the first quarter 2013 from
$5.0 million in the first quarter 2012, mainly resulting from three new
project wins from a global
human resources

 solution company, a global
BPO company, and a Chinese publishing company.

In
January
 see month.
 2013, our 75% owned subsidiary, iSoftStone Technology
Service Co., Ltd. (”
ISST

ISST International Schools Sports Tournament
ISST In-Service Support Team
“) started operations. We expect the
substantial majority of our technology and communications business will
be conducted through ISST. In addition to our client and partner
Huawei
; Pinyin:  
,
clients that are expected to be served by ISST include

telecommunications

 carriers, telecommunications equipment manufacturers,
e-commerce and internet companies, and makers of computer software,
semiconductors, and computer peripherals, primarily located in China.
During the first quarter 2013, which was the first quarter that ISST was
operational, ISST had net revenues of $38 million.

Net revenues by largest five clients

Net revenues from our largest five clients totaled $48.9 million or
51.0% of total net revenues in the first quarter 2013 compared with
$41.4 million or 47.9% in the first quarter 2012.

Net revenues by pricing method

We provide our services on a time-and-expense basis, a fixed-price
basis, or for certain BPO services, on the basis of volume of work
processed for our clients. The following table shows our net revenues by
pricing method.

Net revenues from time-and-expenses basis projects increased $6.8
million or 23.3% to $36.2 million in the first quarter 2013 from $29.4
million in the first quarter 2012. Net revenues from fixed-price basis
projects increased $2.5 million or 4.5% to $58.8 million in the first
quarter 2013 from $56.3 million in the first quarter 2012.

Cost of revenues, gross profit, and
gross profit margin

A measure calculated by dividing gross profit by net sales.
 

Cost of revenues increased $6.4 million or 11.0% to $65.0 million in
the first quarter 2013 from $58.6 million in the first quarter 2012
primarily due to service delivery employees added to enable and match
the growth of our business.

Gross profit increased $3.1 million or 11.1% to $30.9 million in the
first quarter 2013 from $27.8 million in the first quarter 2012. Gross
profit margin was 32.2% both in the first quarter 2013 and 2012.

Operating expenses

 

Operating expenses increased by $3.0 million or 12.7% to $26.4
million in the first quarter 2013 from $23.4 million in the first
quarter 2012 primarily due to higher salary and compensation expenses in
connection with expansion in the number of employees to support the
business growth and annual salary increases for operations
personnel.

Income from operations

Income from operations increased $0.3 million or 8.1% to $4.4
million in the first quarter 2013 from $4.1 million in the first quarter
2012.

Non-GAAP income from operations (Note 1) decreased $1.1 million or
13.4% to $7.0 million in the first quarter 2013 from $8.1 million in the
first quarter 2012 due to higher operating expenses explained above.

Interest expense

Interest expense was $1.2 million in the first quarter 2013 compared
with $0.3 million in the first quarter 2012. Interest expense in the
first quarter 2013 and 2012 was incurred on short-term bank borrowings
and the increase was due to more short-term bank loans borrowed to fund
our working capital needs.

Income taxes

Income tax expense was $0.3 million in the first quarter 2013
compared with $0.7 million in the first quarter 2012. We currently
estimate that the effective tax rate should be
approximately
  
adj.
1. Almost exact or correct:

2.
 15% for the
year 2013.

Net income

Net income decreased $0.3 million or 9.9% to $3.0 million in the
first quarter 2013 from $3.3 million in the first quarter 2012 due to
the factors explained above.

Non-GAAP net income (Note 1) decreased $1.7 million or 23.8% to $5.6
million in the first quarter 2013 from $7.3 million in the first quarter
2012.

Earnings per ADS

Basic earnings per ADS were $0.05 in the first quarter 2013 and
$0.06 in the first quarter 2012.

Diluted earnings per ADS were $0.05 in the first quarter 2013 and
$0.06 in the first quarter 2012.

Non-GAAP diluted earnings per ADS (note 1) were $0.10 in the first
quarter 2013 and $0.12 in the first quarter 2012.

Cash and Cash Flow

As of March 31, 2013, we had a cash balance of $99.9 million. Our
net cash used in operating activities in the first quarter 2013 was
$17.3 million. Our net cash used in investing activities in the first
quarter 2013 was $7.3 million, including capital expenditures of $7.0
million. Within the capital expenditures, $1.7 million related to the

leasehold improvement

 of the newly leased office facility in Beijing. In
the first quarter 2013, we borrowed $6.4 million of short-term bank
loans to fund our growth and repaid $1.6 million of matured short-term
bank loans.

Days sales outstanding

, or
DSO

, was 188 days for the first quarter
2013 and 158 days for the first quarter 2012. DSO is calculated by
dividing average
accounts receivable
 n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business’ problems in paying
, net of deferred revenues, by the
period’s gross revenues, and multiplying by the number of days in
the period. The longer DSO in the first quarter 2013 was mainly due to
faster revenue growth from domestic China clients, especially the
clients in BFSI and public sectors, who tend to have longer payment
cycles.

Recent Development

On May 1, 2013, we entered into a sales and purchase agreement to
acquire 100% of the equity ownership of Beijing Ruantong Xutian
Technology Development Company Limited, the limited purpose company
formed solely to own and lease the facility that we are currently
leasing to be used as our headquarters under a 10-year lease agreement
entered into in August 2012. The agreed purchase price is
RMB

RMB Rolf Maier Bode
RMB Ren Min Bi  
540 million
(about $86.6 million), and the acquisition is expected to be completed
in June 2013. The sale and purchase agreement is subject to customary
conditions for transactions in China, including obtaining required
government consents and tax clearances.

In determining the purchase option and the price of the 100% equity
ownership, our management and Board of Directors considered, among other
factors, the facility’s value based on an independent appraisal by

Jones Lang LaSalle

 Corporate Appraisal and Advisory Limited that
indicated the purchase price was lower than the
appraised value

. We also
considered the benefits of ownership including better economics
favoring

 owning versus leasing due to substantially lower immediate and long-term
costs, avoidance of possible future rent increases, flexibility in using
and modifying the facility, improved financial and operating stability,
and a greater sense of
permanence

law of the Medes and Persians

Darius’s execution ordinance; an immutable law. [O.T.: Daniel 6:8–9]

leopard’s spots

there always, as evilness with evil men. [O.T.: Jeremiah 13:23; Br. Lit.
 from owning that should help to
attract additional business and to
recruit

 and retain employees to
support our long-term operating and financial success.

We will fund the purchase of the equity ownership by (a) assuming
the current owner’s existing debt on the facility of RMB215 million
(about $34.5 million) having an eight year maturity and a current annual
interest rate of 7.2%, (b) RMB100 million (about $16.0 million) from our
existing cash balances, and (c) approximately RMB225 million (about
$36.1 million) from borrowings under our existing short-term
credit
facilities

 npl

 npl

 
 and from medium-term credit facilities currently being
negotiated.

The currently leased facility has an area of approximately 43,200
square meters and can host up to 4,000 seats. The facility, replacing
four existing rented office buildings, will be used as our company
headquarters and will help accommodate the growth of our business and
the higher number of employees, especially IT employees serving clients
in Beijing. The building is located within the
Zhongguancun
; Pinyin: ), or Zhong Guan Cun, is a technology hub in Haidian District, Beijing.
 Software
Park in
northwest

 Beijing.

Further information about the lease, facility, and
lessor
 n. the owner of real property who rents it to a lessee pursuant to a written lease.
 can be
found on numbered page 47 of the Form 20-F that iSoftStone filed with
the U.S Securities and Exchange Commission on April 24, 2013. That
document is available online from the SEC or from www.isoftstone.com in
the Investors section under SEC Filings.

Outlook for the second quarter 201 3 and year 201 3

For the second quarter 2013, iSoftStone expects to achieve the
following targets:

* Net revenues for the second quarter 2013 to be at least $108
million.

* Net income for the second quarter 2013 to be at least $4.8
million.

* Non-GAAP net income for the second quarter 2013 to be at least $8
million.

* Non-GAAP diluted earnings per ADS for the second quarter 2013 to
be at least $0.14, assuming 59 million average ADSs will be outstanding
in the second quarter 2013. One ADS represents 10 ordinary shares.

For the year 2013, iSoftStone expects to achieve the following
targets:

* Net revenues in 2013 to be at least $467 million.

* Net income in 2013 to be at least $28 million.

* Non-GAAP net income in 2013 to be at least $41 million.

* Non-GAAP diluted earnings per ADS in 2013 to be at least $0.68,
assuming 60 million average ADSs will be outstanding in 2013. One ADS
represents 10 ordinary shares.

The above quarterly and annual outlook for net income reflects an
estimated effective income tax rate of 15% and the contractual

allocation

 of all ISST profits to iSoftStone in 2013.

Non-GAAP measures

To supplement our financial results presented in
accordance

 with
U.S.
generally accepted accounting principles

 (”
GAAP

See generally accepted accounting principles (GAAP).
“), we use
various non-GAAP financial measures that are adjusted from results based
on U.S. GAAP to exclude share-based compensation, amortization of
intangible assets from acquisitions, and changes in fair value of

contingent

 consideration in business combinations.

Reconciliations of our non-GAAP financial measures to our U.S. GAAP
financial measures are shown in tables at the end of this earnings
release, which provide more details about the non-GAAP financial
measures.

Our non-GAAP financial information is provided as additional
information to help investors compare business trends among different
reporting periods on a consistent basis and to enhance investors’
overall understanding of the historical and current financial
performance of our
continuing operations

Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the
 and our prospects for the
future. Our non-GAAP financial information should be considered in
addition to results prepared in accordance with U.S. GAAP, but should
not be considered a substitute for or superior to U.S. GAAP results. In
addition, our calculation of this non-GAAP financial information may be
different from the calculation used by other companies, and therefore
comparability may be limited.

Note 1

Our non-GAAP information (including non-GAAP operating expenses,
income from operations, net income, and diluted earnings per ADS)
excludes share-based compensation, changes in fair value of contingent
consideration in connection with business combination, and amortization
of intangible assets from acquisitions. For reconciliations of our
non-GAAP measures to our U.S. GAAP measures, please see the
reconciliation tables at the end of this earnings release.

Conference Call on May 17 , 201 3

iSoftStone will host an earnings conference call and live webcast
covering its first quarter 2013 financial results on May 17, 2013 at
8:00 a.m. Eastern Daylight Time (
New York
 Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
), which is also 8:00 p.m. in
Beijing and Hong Kong on May 17.

The dial-in details for the live conference call are:

A live and archived webcast of the conference call will be available
on the Investors section of iSoftStone’s website at
www.isoftstone.com. To join the webcast, please go to iSoftStone’s
website at least 15 minutes before the start of the call to register and

download

 and install any necessary audio software.

A telephone replay of the call will be available about two hours
after the conclusion of the conference call through 11:59 p.m. Eastern
Daylight Time on May 24, 2013. The dial-in details for the telephone
replay are:

Safe harbor

 statement

This news release contains “forward-looking” statements
within the meaning of Section 27A of the Securities Act of 1933, as

amended
  
v. a·mend·ed, a·mend·ing, a·mends

v.tr.
1. To change for the better; improve:

2.
, and Section 21E of the Securities Exchange Act of 1934, as
amended, and as defined in the
Private Securities Litigation Reform Act

 of 1995. These forward-looking statements include our preliminary
unaudited results for the first quarter 2013, our financial outlook for
the second quarter and year 2013, the planned acquisition our
headquarters and IT operations building in Beijing and the continued
success of our strategy (including the success of our focus on
optimizing business mix, expanding key verticals, improving operational
efficiencies and boosting capabilities in emerging technologies and
domain expertise, and improving profit margin and
operating cash flow

),
and our ability to make continued long-term investments, particularly in
light of a challenging global economic environment and slowdown of the
China and global economy.

Our forward-looking statements are not historical facts but instead
represent only our belief regarding expected results and events, many of
which, by their nature, are inherently uncertain and outside of our
control. Our actual results and other
circumstances

 may differ, possibly
materially, from the anticipated results and events indicated in these
forward-looking statements. Announced results for the first quarter 2013
are preliminary, unaudited, and subject to audit adjustment. Our planned
purchase of our Beijing headquarters and IT operations building is
subject to various conditions and may not close when planned or at all
and we may not achieve lower immediate and long-term costs of ownership
versus leasing. In addition, we may not meet our financial outlook for
the second quarter and year 2013, continue to
execute

 our strategy,
including expanding our business drivers, focusing on cash flow and
margin improvement, and investing in technical competencies and domain
expertise to support future growth, or otherwise grow our business in
the manner planned, successfully complete planned acquisitions,
strategic investments or joint ventures or recognize the anticipated
benefits of our acquisitions, strategic investments or joint venture, on
a timely basis or at all. Our clients may vary their purchasing patterns
in response to the economic environment in Greater China and globally.
In addition, other risks and uncertainties that could cause our actual
results to differ from what we currently anticipate include: our ability
to effectively manage our rapid growth; intense competition from
China-based and international IT services companies; our ability to
attract and retain sufficiently trained professionals to support our
operations; and our ability to anticipate and develop new services and
enhance existing services to keep pace with rapid changes in technology
and in our selected industries. For additional information on these and
other important factors that could adversely affect our business,
financial condition, results of operations, and prospects, please see
“Risk Factors” that begins on page 7 of our 2012 Annual Report
on Form 20-F that we filed with the U.S. Securities and Exchange
Commission on April 24, 2013, which can be found on our website at
www.isoftstone.com and at www.sec.
gov

.

All projections (including our second quarter 2013 and year 2013
financial outlook) in this release are based on limited information
currently available to us, which is subject to change. Although these
projections and the factors influencing them will likely change, we
undertake no obligation to update or revise these forward-looking
statements, whether as a result of new information, future events, or
otherwise, except as required by law. Such information speaks only as of
the date of this release.

About iSoftStone Holdings Limited

Founded in 2001, iSoftStone is a leading China-based IT services
provider serving both greater China and global clients. iSoftStone
provides an integrated suite of IT services and solutions, including
consulting & solutions, IT services, and business process
outsourcing services. The company focuses on industry verticals that
include technology, communications, banking, financial services,
insurance, energy, transportation, and public sectors.

iSoftStone’s American depositary shares began trading on the

New York Stock Exchange

 on
December
 see month.
 14, 2010.

For more information, please visit www.isoftstone.com.

iSoftStone Holdings Limited Mr.
Jonathan
  [short for Jehonathan, Heb.,=Yahweh has given].

1 In the Bible, Saul’s son and David’s friend, both killed at the battle of Mt. Gilboa. David showed kindness to his son Mephibosheth.
 Zhang Chief Financial
Officer ir@isoftstone.com

Christensen

 

Mr. Tom
Myers

 tmyers@christensenir.com Beijing +86 139 1141 3520 Mr.
Victor Kuo vkuo@christensenir.com Beijing +86 10 5826 4939

www.isoftstone.com

SOURCE iSoftStone Holdings, Ltd.