Marbridge Daily

iSoftStone Files for NYSE IPO

SEC, 11/24/10

Chinese IT outsourcing and consulting provider iSoftStone Information Service Corporation has filed for an initial public offering (IPO) of American depository shares (ADSs) on the New York Stock Exchange under the ticker symbol "ISS." The IPO is being underwritten by J.P. Morgan, UBS, Morgan Stanley, and Needham & Company LLC.

In 2007, 2008 and 2009, iSoftStone's net revenues were USD 36.4 mln, USD 82.5 mln and USD 134.4 mln, respectively, and in the nine months ended September 30, 2009 and 2010, net revenues were USD 90.0 mln and USD 135.2 mln.

IT Services, Consulting & Solutions, and Business Process Outsourcing (BPO) service lines accounted for 64.1%, 33.1% and 2.8% of net revenues in 2009, and 67.2%, 29.4% and 3.4% of net revenues in the nine months ended September 30, 2010, respectively.

iSoftStone has focused on providing IT services and solutions to four vertical industries: technology; communications; banking, financial services and insurance, or BFSI; and energy, transportation and public sector. These industry verticals accounted for 40.0%, 32.6%, 14.3% and 10.0% of net revenues in 2009, and 34.4%, 38.9%, 14.7% and 7.0% of iSoftStone's net revenues in the nine months ended September 30, 2010, respectively.

iSoftStone breaks down revenue into two geographic markets: Greater China (which includes China, Taiwan, Hong Kong and Macau) and Global (which includes the United States, Europe, Japan and others), which accounted for 57.6% and 42.4% of net revenues in 2009 and 55.6% and 44.4% of net revenues in the nine months ended September 30, 2010, respectively.

iSoftStone currently as 19 sales and delivery centers, of which 12 are located in China, spanning tier-one cities, such as Beijing, Shanghai and Shenzhen, as well as key tier-two and tier-three cities, such as Dalian, Nanjing, Tianjin, Wuhan and Wuxi. iSoftStone also has operations in the United States, Europe and Japan that are close to the main offices of key global clients.

In 2007, 2008 and 2009, iSoftStone's net income (loss) increased from a net loss of USD 10.3 mln, to a net loss of USD 3,000 and then to net income of USD 9.0 mln, and in the nine months ended September 30, 2009 and 2010, net income decreased from USD 5.7 mln to USD 0.3 mln, primarily due to share-based compensation charges on options granted to directors, employees and consultants.

iSoftStone conducted first-round fundraising on November 16, 2005, April 28, 2006 and March 13, 2007, and issued and sold an aggregate of 78,451,178 series-A preference shares in a private placement to AsiaVest Opportunities Fund IV and Infotech Ventures Cayman Company Limited, at a price per share of USD 0.1485 for a total consideration of USD 11.65 mln. iSoftStone also granted AsiaVest Opportunities Fund IV a warrant to purchase up to 16,835,017 additional series A preference shares at a price per share of USD 0.1485 exercisable by November 16, 2007. On March 13, 2007, AsiaVest Opportunities Fund IV exercised the warrant and purchased the shares for a total consideration of USD 2.5 mln.

Second-round funding took place on March 16, 2007, when iSoftStone issued and sold an aggregate of 84,440,020 Series B preference shares in a private placement to Fidelity Asia Ventures Fund L.P., Fidelity Asia Principals Fund L.P., Mitsui Ventures Global Fund, AsiaVest Opportunities Fund IV and Infotech Pacific Ventures L.P. at a price per share of USD 0.2369 for a total consideration of USD 20 mln. These investors were also granted warrants to purchase up to an aggregate of additional 84,440,020 Series B preference shares at a price per share of USD 0.2961 exercisable by September 17, 2008. On February 22, 2008, all these investors exercised the warrants and purchased an aggregate of 84,440,020 Series B preference shares from iSoftStone for a total consideration of USD 25 mln.

On December 23, 2009, April 21, 2010 and April 22, 2010 iSoftStone issued and sold notes convertible into ordinary shares in the aggregate principal amount of USD 38 mln in a series of private placements to the Everbright Entities, FIL Limited, AsiaVest Opportunities Fund IV, Infotech Pacific Ventures L.P., Mitsui Ventures Global Fund, Jinyuan and Hua Ying. These convertible notes bear interest on the principal amount at a rate of 1% per annum until the initial maturity date of December 22, 2012, provided they are not previously redeemed or converted. On April 1, 2010, FIL Limited transferred the convertible notes it held to Asia Ventures II L.P.

To view iSoftStone's full earnings report, please click here.

Keywords: Needham overseas JP Morgan IPO IT outsourcing NYSE funding revenue BPO iSoftStone AsiaVest first-round Infotech Pacific Ventures IT services Mitsui Ventures Morgan Stanley second-round UBS profit Everbright Bank