VanceInfo Technologies Inc. (NYSE:VIT) (“VanceInfo” or the “Company”), an IT service provider and one of the leading offshore software development companies in China, today reported its unaudited financial results for the first quarter ended March 31, 2009.

First Quarter 2009 Financial and Operating Highlights

• Net revenues in the first quarter of 2009 increased to $30.1 million, up 46.8 % from $20.5 million in the first quarter of 2008.
• Operating income in the first quarter of 2009 was $4.3 million, up 65.7% from the first quarter of 2008. Operating margin expanded to 14.4% in the first quarter of 2009, up from 12.7% in the first quarter of 2008.
• Diluted earnings per share (“EPS”) were $0.10 in the first quarter, up from $0.08 in the first quarter of 2008. Non-GAAP diluted EPS, which excludes share-based compensation expense, was $0.10 in the first quarter, compared to $0.08 in the first quarter of 2008.
• Employees totaled 6,075, including 5,426 billable professionals, as of March 31, 2009.

First Quarter 2009 Financial Results

Due to the seasonal nature of its business, the Company presents financial analysis on a year-over-year basis between the first quarter of 2009 and the first quarter of 2008 as in the following paragraphs.

Net revenues were $30.1 million in the first quarter of 2009, up 46.8% from $20.5 million in the first quarter of 2008. The increase in net revenues was primarily due to continued expansion of business with existing key clients and the addition of new customers.

The Company provides two broad sets of services: R & D Outsourcing Services and IT Services. R & D Outsourcing Services consists of research & development service line and globalization & localization service line. IT Services consists of enterprise solutions, application development & maintenance, and quality assurance & testing service lines.

Net revenues from R & D Outsourcing Services accounted for 63.7% of the total revenues during the first quarter of 2009 and grew 48.3% compared to the first quarter of 2008. Net revenues from IT Services represented the remaining 36.3% of the revenues and was up 44.1% from the year-ago quarter, largely driven by a 76.5% year-over-year growth in application development and maintenance services.

Based on the location of our clients’ headquarters, the United States continued to be the Company’s largest geographic market, accounting for $13.3 million or 44.2% of net revenues in the first quarter of 2009, followed by 29.2% from clients headquartered in China, 18.4% in Europe, and 8.1% in Japan.

Measuring the Company’s revenues by geographic markets based on the location of the contract signing entities, rather than the location of the clients’ headquarters, China accounted for 73.3% of net revenues in the first quarter of 2009, while the United States accounted for 16.9% and Japan accounted for 7.4% in the same period.

Revenues from the top five clients totaled 58.3% of net revenues in the quarter, compared to 51.1% in the first quarter of 2008. The continued strength in a number of large clients reflects the Company’s strong customer relationship driven by solid delivery results and the industry’s vendor consolidation trend.

Gross profit in the first quarter of 2009 was $11.2 million, an increase of 44.3% from $7.8 million in the first quarter of 2008. Gross margin was 37.3% in the first quarter of 2009, compared to 38.0% in the first quarter of 2008. The margin decline reflects stronger seasonality effect due to higher revenue contribution from Chinese clients and recent pricing pressure from certain customers.

Sales and marketing expenses were $1.04 million in the first quarter of 2009, up 6.2% from $0.98 million in the first quarter of 2008. General and administrative expenses were $6.3 million in the first quarter of 2009, up 46.1% from $4.3 million a year ago.

Operating income in the first quarter of 2009 was $4.3 million, up 65.7% from $2.6 million in the first quarter of 2008. Operating margin expanded to 14.4% in the first quarter of 2009, up from 12.7% in the first quarter of 2008. The increase was partly attributable to the Company’s cost saving measures as well as a government grant relating to the Company’s training of new employees with college degrees. The Company expects continued financial support from the Chinese government in areas such as employee training and process improvements.

The provision for income taxes was $0.4 million in the first quarter of 2009, compared to $0.6 million in the first quarter of 2008. The effective tax rate was 9.5% in the first quarter of 2009, reflecting the preferential tax rate of 7.5% for the Company’s main operating entity as a High and New Technology Enterprise.

Net income in the first quarter of 2009 was $3.8 million, up 26.6% from $3.0 million in the first quarter of 2008. Net margin was 12.8% in the first quarter of 2009, compared to 14.8% in the first quarter of 2008. Non-GAAP net income, which excludes share-based compensation expense, was $4.2 million, up 23.5% from $3.4 million a year ago. Non-GAAP net margin was 13.9%, compared to 16.5% in the prior year period. The decrease in net margin was due to lower interest income and a foreign exchange loss for the quarter.

Diluted earnings per share (“EPS”) were $0.10 in the first quarter of 2009, compared to $0.08 in the first quarter of 2008. Non-GAAP diluted EPS, which excludes share-based compensation expense, was $0.10 in the first quarter of 2009, compared to $0.08 in the first quarter of 2008.

The non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying sections of “About Non-GAAP Financial Measures” and “Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures.”

Share Repurchase Activity

In February 2009, the Company’s Board of Directors approved a share repurchase program authorizing the Company to acquire up to $10 million worth of the Company’s outstanding American Depositary Shares (“ADSs”) within the next 12 months. As of March 31, 2009, 2,800 shares were repurchased for a total consideration of $13,192 under this program.

Recent Developments

In May 2009, VanceInfo signed a multi-year master agreement with a leading global online travel service provider. Under this partnership, VanceInfo will provide application development and maintenance services to the new client, helping it to enhance its core platforms and services as the client continues to expand its global reach. The Company will work closely with the client to build a potentially sizable global delivery team over the next 12 months.

In the first quarter of 2009, the Company was listed on two leading global outsourcing rankings: the 2009 Global Outsourcing 100 list by the International Association of Outsourcing Professionals (IAOP), and the 2009 Global Services 100 list by Global Services and neoIT. In the IAOP ranking, VanceInfo has been promoted to the Leaders category, where the Company was awarded a top 10 spot on the sub-list “Leaders – Research & Development Services”. VanceInfo was also listed on the “Leaders: Emerging Asian Markets” top 10 sub-list of the Global Services ranking.

Outlook for the Second Quarter and Full Year 2009

VanceInfo expects to generate net revenues between $31 million and $32 million in the second quarter of 2009, representing a 27% to 31% increase from the second quarter of 2008. Second quarter diluted EPS is expected to be between $0.10 and $0.11 on a GAAP basis and between $0.11 and $0.12 on a non-GAAP basis, which excludes share-based compensation, based on 40.4 million total ADS-equivalent average shares outstanding.

For the full year 2009, the Company has increased its guidance and expects:

• 2009 net revenues to be at least $128 million, up at least 25% from 2008.
• 2009 diluted EPS to be between $0.46 and $0.48 on a GAAP basis, and between $0.49 and $0.51 on a non-GAAP basis, based on 40.5 million total ADS-equivalent average shares outstanding.

Conference Call

VanceInfo will host a corresponding conference call and live webcast to discuss the quarter’s results at 8:00 AM Eastern Daylight Time (EDT) on Wednesday, May 13, 2009 (8:00 PM Beijing/Hong Kong time). Please dial-in five minutes prior to the call to register and receive further instruction.

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

- U.S. Toll Free Dial-in Number: + 1 866-271-5140
- International Dial-in Number: +1 617-213-8893
- Hong Kong Toll Free Dial-in Number: 800 96-3844
- Hong Kong Dial-in Number: +852 3002-1672
Passcode: Vanceinfo

The conference call will be available live via webcast on the Investors section of VanceInfo Technologies website at http://ir.vanceinfo.com. The archive replay will be available on VanceInfo's website shortly after the call.

A dial-in replay of the conference call will be available until May 20, 2009 at +1 888-286-8010 or +1 617-801-6888; passcode: 74720620

VanceInfo Technologies Inc. is an IT service provider and one of the leading offshore software development companies in China. VanceInfo was the first China software development outsourcer listed on the New York Stock Exchange.

The Company ranked number one among Chinese offshore software development service providers for the North American and European markets as measured by 2007 revenues, according to International Data Corporation.

VanceInfo's comprehensive range of IT services includes research & development services, enterprise solutions, application development & maintenance, quality assurance & testing, and globalization & localization. VanceInfo provides these services primarily to corporations headquartered in the United States, Europe, Japan, and China, targeting high-growth industries such as technology, telecommunications, financial services, manufacturing, retail, and distribution.

This news release includes statements that may constitute forward-looking statements made pursuant to 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, should, expects, anticipates, future, intends, plans, believes, estimates, and similar statements. Among other things, the management’s quotations and “Outlook for the Second Quarter and Full Year 2009” contain forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Potential risks and uncertainties include, but are not limited to, the company’s dependence on a limited number of clients for a significant portion of its revenues, the economic slowdown in its principal geographic markets, the quality and portfolio of its services lines and industry expertise, and the availability of a large talent pool in China and supply of qualified professionals, as well as the PRC government's investment in infrastructure construction and adoption of various incentives in the IT service industry. Further information regarding these and other risks is included in VanceInfo's filings with the U.S. Securities and Exchange Commission. All information provided in this news release and in the attachments is as of May 13, 2009, and VanceInfo does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

To supplement VanceInfo's consolidated financial results presented in accordance with GAAP, VanceInfo uses the following measures defined as non-GAAP financial measures by the SEC: net income excluding share-based compensation expenses, and diluted EPS excluding share-based compensation expenses. 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 GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP financial measures to comparable GAAP measures" set forth at the end of this release.

VanceInfo believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain expenses and expenditures that may not be indicative of its operating performance from a cash perspective. The Company 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. A limitation of using non-GAAP net income excluding share-based compensation expenses, and diluted EPS excluding share-based compensation expenses is that these non-GAAP measures exclude the share-based compensation charges that have been and will continue to be for the foreseeable future a significant recurring expense in the business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are comparable to non-GAAP financial measures. The reconciliations of the forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures in the accompanying table include all information reasonably available to VanceInfo at the date of this press release. The table includes adjustments that the Company can reasonably predict.

Notes:

(a) Amount in relation to noncontrolling interest, formerly referenced to as minority interest, for the three-month periods ended March 31, 2008 is reclassified in accordance with FASB Statement No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No.51", which was adopted by the Company on January 1, 2009.

(b) Depreciation and amortization expenses totaled $1,204 and $841 for the three months ended March 31, 2009 and 2008, respectively.

Notes:

(a) Adjustment to exclude share-based compensation of $333 from operations of which $72 was reported in cost of revenues, $35 was reported in selling and marketing expenses and $226 was reported in general and administrative expenses in the unaudited condensed consolidated statements of operations.

(b) Adjustment to exclude share-based compensation of $346 from operations of which $58 was reported in cost of revenues, $45 was reported in selling and marketing expenses and $243 was reported in general and administrative expenses in the unaudited condensed consolidated statements of operations.

(c) Non-GAAP diluted EPS is computed by dividing Non-GAAP net income attributable to VanceInfo Technologies Inc. by the weighted average number of dilutive ordinary shares outstanding for the respective periods.

Melissa Ning
Senior Director, Investor Relations
VanceInfo Technologies Inc.
Tel: +86-10-8282-5330
E-mail: ir@vanceinfo.com