BEIJING, May 19 /CHICAGOPRESSRELEASE.COM/ — KongZhong Corporation ( KONG),
a leading mobile Internet company in China, today announced its unaudited
first quarter 2010 financial results.
First Quarter 2010 Financial Highlights:
(Note: Unless otherwise indicated, all financial statement amounts used in
this press release are based on United States Generally Accepted Accounting
Principles (GAAP) and denominated in US dollars)
-- Revenues above prior guidance - Total revenues for the First Quarter of 2010 ("1Q10") increased 37% year-over-year to US$ 40.64 million ("mn"), above the Company's revised 1Q10 revenue guidance of US$ 37.5 mn. -- Gross margin decreased - Total gross margin was 44% in 1Q10, a decrease compared with 46% in 4Q09. -- Net income increased - Net income in 1Q10 was US$ 3.17 mn, a 57% increase compared with 4Q09 net income of US$ 2.02 mn. Basic net income per ADS was US$ 0.09 based on 35.57 mn ADS while diluted net income per ADS was US$ 0.08 based on 38.77 mn ADS outstanding as of March 31, 2010. -- Non-GAAP net income increased - Non-GAAP net income was US$ 6.08 mn, a 63% increase compared to 1Q09 Non-GAAP net income of US$ 3.73 mn, while Non-GAAP diluted net income per ADS was US$ 0.15 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures.") -- Cash and cash equivalents - As of March 31, 2010, the Company had US$ 130 mn in cash and cash equivalents or US$ 3.7 per basic ADS in cash and cash equivalents, already taking into account the first payment (cash portion) for the acquisition of Dacheng Networks, or US$ 9.6 mn.
Commenting on the results, the Company’s Chairman and Chief Executive
Officer, Leilei Wang, said, “In the first quarter, KongZhong increased our
efforts to transform our business from a traditional WVAS player into a
cross-platform digital entertainment company. I’m pleased with the progress
our team has made to date, especially our mobile game business, but believe we
still have significant room for development and improvement.
“In 1Q10, despite a difficult wireless services environment, we continued
to grow and lead the Chinese mobile game market by transitioning to China
Mobile’s mobile game monthly subscription package platform. With over 1 mn
average monthly users subscribing to our mobile game package, we believe this
new model creates a more stable source of revenues and stronger recognition by
Chinese users of the KONG mobile game brand.
“On January 14th, we completed our acquisition of Dacheng Networks,
supporting our transition from a traditional wireless services player to a
cross-platform digital entertainment company. In the first quarter, Dacheng’s
flagship game, Loong, achieved 77k average concurrent users and was launched
commercially into the Taiwan, Hong Kong and Malaysia online game markets.
“In addition to a recent expansion pack for Loong, launched on May 8th, we
plan to launch at least two additional 3D online games in the coming months.
First, we plan to launch “E Mo Fa Ze” (or Demon Code Online) commercially on
May 27th and will be launching another 3D online game, called Xia Ke Xing,
sometime in the 3rd quarter of 2010.
“Our strategy for the remainder of this year is two-fold. Firstly, we plan
to transition from a single game under operation, Loong, to a portfolio of
three stable 3D online games, and secondly, we expect to continue our efforts
to license and operate our 3D games in overseas markets. For example, we
recently licensed Loong to the Russian and Vietnam markets and are seeking
similar opportunities for Demon Code Online and Xia Ke Xing.
“Looking further out, based on our current development pipeline, we plan
to launch at least four additional 3D online games in 2011 as we leverage our
two proprietary 3D game engines. We believe that possessing multiple 3D game
engines provides us the flexibility and potential to become a leading mainland
Chinese 3D online game company, and by specifically designing our game engines
to more easily suit the requirements of our overseas online game operators,
increases our export market potential.
“While our WVAS business will continue to experience challenges in the
near-term, we expect to maintain positive cashflow and continue our transition
to become a leading cross-platform digital entertainment company for Chinese
"Once again, I continue to be optimistic about KongZhong's ability to transition through this period as a more diversified, more product driven and more profitable company." Financial Results: For the Three For the Three For the Three Months Ended Months Ended Months Ended March 31, December 31, March 31, 2009 2009 2010 (US$ thousands) (US$ thousands) (US$ thousands) Revenues $29,586 $34,334 $40,636 WVAS 23,658 25,267 25,900 Mobile Games 4,944 7,349 9,476 Wireless Internet Service 984 1,718 1,021 Online Games -- -- 4,239 Sales Tax $562 $641 $825 WVAS 433 406 420 Mobile Games 83 148 252 Wireless Internet Service 46 87 55 Online Games -- -- 98 Cost of Revenue $15,010 $18,037 $22,097 WVAS 12,470 13,493 15,356 Mobile Games 2,045 3,511 5,601 Wireless Internet Service 495 1,033 686 Online Games -- -- 454 Gross profit $14,014 $15,656 $17,714 WVAS 10,755 11,368 10,124 Mobile Games 2,816 3,690 3,623 Wireless Internet Service 443 598 280 Online Games -- -- 3,687 Gross profit ratio 47% 46% 44% WVAS 45% 45% 39% Mobile Games 57% 50% 38% Wireless Internet Service 45% 35% 27% Online Games -- -- 87%
WVAS revenues in 1Q10 were US$ 25.9 mn, a 3% increase from 4Q09 and a 9%
increase from the same period last year. Although the bulk of the Company’s
WVAS services, both 2G and 2.5G, were negatively impacted by various new
mobile operator policies implemented during the course of 1Q10, its IVR
services saw a strong seasonal increase due to the Chinese New Year holiday
period. As a result, 2G revenues represented 91% of total WVAS revenues
compared to 81% in 4Q09, while 2.5G services made up 9% of total WVAS revenues.
Total mobile game revenues in 1Q10 were US$ 9.48 mn, a 92% increase from
the same period last year and a 29% increase from 4Q09.
Revenues from downloadable mobile games were US$ 8.95 mn representing a
112% increase from the same period last year and an increase of 37% from 4Q09.
The strong performance in the Company’s downloadable mobile game revenues was
due to the Company’s proactive focus on developing monthly mobile game
subscription packages with China Mobile, which the Company believes provides
both a source of growth potential, but more importantly a more stable source
of revenues due to the recurring nature of monthly subscriptions for a package
of mobile games compared to the previously more prevalent per transaction
downloadable mobile game model.
Revenues from mobile multi-player online games (“MMO” or “online mobile
games”) were US$ 0.53 mn, a decrease of 27% from the same period last year and
a decrease of 36% from 4Q09. In a continuation of trends from the previous
quarter, namely the initial poor performance of “Feng Shen,” the Company’s
newer online mobile game, not compensating for the decline in revenues for
“Tian Jie,” its older online mobile game, the Company’s online mobile game
revenues continued to decline. However, towards the end of 1Q10, a new
expansion pack for Feng Shen was launched which the Company expects to
stabilize its online mobile game revenues in the future. In addition, the
Company intends to refresh its online mobile game content portfolio in 2010 by
launching “Fantasy Tianjie,” a turn-based 2D mobile MMO sometime in 3Q10 and
the second generation version of Tian Jie, currently called Tian Jie 2,
sometime in early 2011.
Revenues from “Tian Jie” accounted for about 96% of the Company’s online
mobile game revenues while revenues from “Feng Shen” accounted for the
remaining 4%, compared to 11% in 4Q09.
Revenues from downloadable mobile games made up 94% of total mobile game
revenues compared to 89% in 4Q09. Revenues from online mobile games made up
roughly 6% of total mobile game revenues compared to 11% in 4Q09.
Wireless Internet service (“WIS”) revenues were US$ 1.02 mn in 1Q10,
representing an increase of 4% from the same period last year but decrease of
41% from 4Q09. The decline in sequential WIS revenues was mainly due to the
suspension of the WAP billing platform across the Company’s mobile operator
partners. In 1Q10, 40% of WIS revenues were from wireless advertising with the
remaining 60% of revenues from premium services on the Kong.net mobile
Internet site and revenues coming from the Company’s Internet literature site,
From January 14th 2010, revenues from our newly acquired Online Game
business unit, or Dacheng Networks (under “Online Games”), recorded US$ 4.24
mn in revenues, all primarily from Dacheng’s main online game, Loong. Of this,
roughly 93% were related to mainland Chinese operations of Loong and the other
roughly 7% from overseas license fees and the net revenue share from overseas
online game operation partners.
For the full quarter, Loong’s mainland China operations achieved average
concurrent users (“ACUs”) of 77k, aggregate paying accounts of 185k with
quarterly ARPU of RMB 172.
Change to Presentation of Sales tax
Prior to October 1, 2009, the Company recorded sales tax in general and
administrative expenses. Since October 1, 2009, the Company has presented
sales tax as separate item in gross profit in the consolidated statements of
operations in an effort to provide better comparability to the Company’s peers.
The Company has applied this change in accounting principle retrospectively to
all prior periods presented.
As a result, the gross profit and gross margin discussion below is based
on the revised presentation of sales tax as a separate line item vs. as part
of general and administrative expenses as previously.
Total gross profit was US$ 17.71 mn in 1Q10, a 26% increase compared to
the same period last year and a 13% increase compared to 4Q09, primarily due
to the contribution from the Company’s acquisition of Dacheng Networks in 1Q10
(under “Online Games”). Total gross margin was 44% in 1Q10 compared to 46% in
WVAS gross profit in 1Q10 was US$ 10.12 mn, a 6% decrease compared to the
same period last year and an 11% decrease from 4Q09. 1Q10 WVAS gross margin
was 39% compared to 45% in 4Q09. The decline in gross margin levels was due to
the new Chinese mobile operator policies implemented during the 1Q period and
the lower gross margin nature of the Company’s IVR business.
Mobile games gross profit for 1Q10 was US$ 3.62 mn or a slight decline
compared to US$ 3.69 mn in 4Q09 but an increase of 29% from US$ 2.82 mn in the
same period last year. Mobile games gross margin was 38% compared to 50% in
4Q09 and 57% in 1Q09. The decline in mobile game gross margins was due to the
Company’s proactive shift to a new mobile game billing platform (namely China
Mobile’s monthly mobile game subscription package) in order to offset the
impact of the transaction-based portion of the G+ mobile game billing platform
which was suspended at the beginning of December. While this new mobile game
platform is expected to be a more stable source of recurring revenue, in the
short-term, it relies more on the Company’s mobile operator partner’s
resources and includes an additional operator distribution channel fee.
However, as the current mobile services policy environment stabilizes, the
Company expects to be able to leverage more of its own distribution resources,
bypassing these additional fees.
Wireless Internet service gross profit for 1Q10 was US$ 0.28 mn compared
to $ 0.60 mn in 4Q09 and $0.44 mn in the same period last year. The decline in
WIS gross profit is directly related to the suspension of WAP billing across
the Company’s mobile operator partners. Wireless Internet gross margins were
27%, a decrease from the 35% gross margin level in 4Q09.
Online Game gross profit for 1Q10 was US$ 3.69 mn for the period from
January 14th 2010 to March 31st 2010 with gross margins of 87%.
Operating Expenses For the Three For the Three For the Three Months Ended Months Ended Months Ended March 31, December 31, March 31, 2009 2009 2010 (US$ thousands) (US$ thousands) (US$ thousands) Product development $4,848 $4,221 $6,841 Sales and marketing 4,077 4,953 4,406 General and administrative 2,456 2,856 2,796 Total Operating Expenses $11,381 $12,030 $14,043
Total operating expenses increased 17% sequentially to US$ 14.04 mn in
1Q10 compared to US$ 12.03 mn in 4Q09, primarily due to the inclusion of
Dacheng Networks in 1Q10.
Product development expenses in 1Q10 were US$ 6.84 mn compared to US$ 4.22
mn in 4Q09 or a 62% increase. The large increase in product development
expenses reflects the acquisition of Dacheng Networks product development team
as well as the addition of US$ 1.1 mn for the amortization of intangibles
related to the acquisition of Dacheng Networks.
Sales and marketing expenses in 1Q10 were US$ 4.41 mn compared to US$ 4.95
mn in 4Q09 and US$ 4.08 mn in the same period last year. The small sequential
decrease in sales and marketing reflects cost management in the Company’s WVAS,
mobile game and WIS businesses with regards to sales and marketing activities
offset by the inclusion of sales and marketing expenses as part of the
acquisition of Dacheng and marketing activities for Loong.
General and administrative expenses in 1Q10 were US$ 2.80 mn compared to
US$ 2.86 mn in 4Q09, or a decrease of roughly 2% quarter-over-quarter.
The Company’s total headcount increased to 1,330 as of March 31st, 2010
compared to 1,002 as of December 31, 2009 with the Company’s acquisition of
Operating profit for 1Q10 was US$ 3.67 mn compared to US$ 3.63 mn in 4Q09.
Operating margins were 9% in 1Q10 compared to 11% in 4Q09. The decline in
operating margins were due to the direct and indirect impact of new Chinese
mobile operator policies across the Company’s WVAS, mobile games and WIS
business lines as well as the addition of amortization of intangibles related
to the acquisition of Dacheng Networks.
Net income and Non-GAAP net income in 1Q10 were US$ 3.17 mn and US$ 6.08
mn, respectively. Diluted earnings per ADS and diluted Non-GAAP earnings per
ADS were US$ 0.08 and US$ 0.15 or 1Q10, respectively.
Total diluted ADS outstanding as of March 31, 2010 were 38.77 mn, compared
to 39.27 mn as of December 31, 2009.
Balance as of Balance as of December 31, 2009 March 31, 2010 Basic ADS 34.33 35.57 Add: Outstanding options and nonvested shares 3.68 2.27 Warrant to NGP 1.26 0.93 Diluted ADS 39.27 38.77 Note: Basic ADS as of March 31st 2010 includes 1.07 mn ADS issued as part of 1st payment to shareholders of Dacheng Networks.
As of March 31, 2010, the Company had $130 mn in cash and cash equivalents
or US$ 3.7 per basic ADS in cash and cash equivalents, already taking into
account the first payment (cash portion) for the acquisition of Dacheng
Networks, or US$ 9.6 mn.
Business Outlook (For the 3-month period ending June 30, 2010):
The Company expects total revenues for 2Q10 to be within the range of US$
34.5mn to 35.5mn, with business unit revenues at the mid-point expected to
roughly consist of WVAS revenues of US$ 16.5 mn, mobile game revenues of US$
13.0 mn, WIS revenues of US$ 1.0 mn and Online Game revenues of US$ 4.5mn.
The Company expects total gross profit to be within the range of US$
16.5mn to 17.5 mn, total operating profit and net profit to be US$ 2.5mn to
3.0 mn, while Non-GAAP net profit to be roughly US$ 5.3 mn to US$ 5.8 mn.
The Company’s management team will conduct a conference call at 7:30 am
Beijing time on May 20th, 2010 (7:30 pm Eastern time and 4:30 pm Pacific time
on May 19th 2010). A webcast of this conference call will be accessible on the
Company’s web site at http://ir.kongzhong.com .
KongZhong Corporation Condensed Consolidated Statements of Income (US$ thousands, except per share data, and share count) (Unaudited) For the Three For the Three For the Three Months Ended Months Ended Months Ended March 31, December 31, March 31, 2009 2009 2010 Revenues $29,586 $34,334 $40,636 Sales Tax 562 641 825 Cost of revenues 15,010 18,037 22,097 Gross profit 14,014 15,656 17,714 Operating expenses Product development 4,848 4,221 6,841 Sales & marketing 4,077 4,953 4,406 General & administrative 2,456 2,856 2,796 Total operating expenses 11,381 12,030 14,043 Operating profit (loss) 2,633 3,626 3,671 Interest income 1,032 600 406 Investment income -- 88 132 Loss from impairment of cost method investment -- 1,500 -- Interest expense on convertible notes 34 234 253 Income before tax expense 3,631 2,580 3,956 Income tax expense 1,110 563 791 Net income (loss) $2,521 $2,017 $3,165 Basic earnings (loss) per ADS $0.07 $0.06 $0.09 Diluted earnings (loss) per ADS $0.07 $0.05 $0.08 Weighted average ADS outstanding (mn) 35.40 34.33 35.57 Weighted average ADS used in diluted EPS calculation (mn) 36.74 39.27 38.77 KongZhong Corporation Condensed Consolidated Statements of Cash Flows (US$ thousands) (Unaudited) For the Three For the Three Months Ended Months Ended March 31, 2009 March 31, 2010 Cash Flows From Operating Activities Net Income (Loss) $2,521 $3,165 Adjustments to reconcile net income to net cash provided by operating activities Share-based compensation 1,014 1,241 Depreciation and amortization 622 1,960 Disposal of property and equipment (4) -- Investment Income -- 112 Amortization of the debt discount 14 119 Changes in operating assets and liabilities (2,809) (6,117) Net Cash Provided by Operating Activities 1,358 480 Cash Flows From Investing Activities Purchases of subsidiaries (729) (8,604) Purchase of property and equipment (281) (715) Proceeds from disposal of property 4 -- Net Cash Used in Investing Activities (1,006) (9,319) Cash Flows From Financing Activities Proceeds from issuance of convertible notes 6,775 -- Interest paid for convertible notes -- (271) Proceeds from exercise of share options 36 104 Stock Repurchase (1,559) -- Net Cash Used in Financing Activities 5,252 (167) Effect of foreign exchange rate changes 7 11 Net increase in Cash and Cash Equivalents $5,611 (8,995) Cash and Cash Equivalents, Beginning of Period $136,054 $139,289 Cash and Cash Equivalents, End of Period $141,665 $130,294 KongZhong Corporation Condensed Consolidated Balance Sheets (US$ thousands) (Unaudited) March 31, December 31, March 31, 2009 2009 2010 Cash and cash equivalents $141,665 $139,289 $130,294 Short-term investments -- 101 47 Accounts receivable (net) 19,216 25,277 29,747 Other current assets 3,700 4,908 5,010 Total current assets 164,581 169,575 165,098 Rental deposits 529 597 651 Intangible assets (net) 652 2,285 13,986 Property and equipment (net) 3,159 3,116 4,239 Long-term investments 2,963 1,464 1,465 Goodwill 16,564 23,042 90,095 Total assets $188,448 $200,079 $275,534 Accounts payable $9,329 $13,265 $11,838 Deferred revenue -- -- 2,196 Other current liabilities 9,556 10,300 65,828 Total current liabilities 18,885 23,565 79,862 Convertible notes 2,464 3,001 2,983 Non-current deferred tax liability 44 472 3,415 Total liabilities $21,393 $27,038 $86,260 Shareholders' equity 167,055 173,041 189,274 Total liabilities & shareholders' equity $188,448 $200,079 $275,534
Non-GAAP Financial Measures
To supplement the unaudited condensed statements of income presented in
accordance with US GAAP, the Company uses non-GAAP financial measures
(Non-GAAP Financial Measures) of net income and net income per diluted ADS,
which are adjusted from results based on GAAP to exclude certain infrequent or
unusual or non-cash based expenses, gains and losses. The Non-GAAP Financial
Measures are provided as additional information to help both management and
investors compare business trends among different reporting periods on a
consistent and more meaningful basis and enhance investors’ overall
understanding of the Company’s current financial performance and prospects for
The Non-GAAP Financial Measures should be considered in addition to
results prepared in accordance with GAAP, but should not be considered a
substitute for or superior to GAAP results. In addition, the Company’s
calculation of the Non-GAAP Financial Measures may be different from the
calculation used by other companies, and therefore comparability may be
For the periods presented, the Company’s non-GAAP net income and non-GAAP
net income per diluted ADS exclude, as applicable, the amortization of
intangibles, share-based compensation expense and interest expense on
Reconciliation of the Company’s Non-GAAP financial measures to the GAAP
financial measures is set forth below.
For the Three For the Three For the Three Months Ended Months Ended Months Ended March 31, December 31, March 31, 2009 2009 2010 (US$ thousands) (US$ thousands) (US$ thousands) GAAP Net Income (Loss) $2,521 $2,017 $3,165 Share-based compensation 1,014 1,248 1,241 Financial expense on convertible notes 34 234 253 Amortization of intangibles 159 441 1,423 Investment impairment loss -- 1,500 -- Non-GAAP Net Income $3,728 $5,440 $6,082 Non-GAAP diluted net income per ADS (Note 1) $0.10 $0.13 $0.15
Note 1: The non-GAAP adjusted net income per ADS is computed using
non-GAAP net income and number of ADS used in GAAP diluted EPS calculation,
where the number of ADS is adjusted for dilution due to convertible notes
issued to Nokia Growth Partners, or equivalent to 40.67 million ADS.
We are one of the leading providers of digital entertainment services for
consumers in the PRC. We operate four main business units, namely WVAS, WIS,
mobile games and online games. We are one of the leading providers of WVAS to
mobile phone users. We began providing WVAS on the networks of China Mobile in
2002. Since 2004, we have provided WVAS on the networks of China Unicom, China
Telecom, China Netcom and the other major telecommunications operators in the
PRC. Since 2004, we have been offering news, entertainment, community and
mobile advertising services through our wireless Internet sites, including
http://www.Kong.net , http://www.ko.cn and http://www.ct.cn . In 2008, we
began reporting our mobile games business as a stand-alone operating segment,
while it was previously reported as part of our WVAS business. We began our
online games business in 2010, through our acquisition of Dacheng Networks, a
developer and operator of online games.
Safe Harbor Statement:
This press release contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
include, without limitation, statements regarding trends in the wireless
value-added services, wireless media and mobile games industries and our
future results of operations, financial condition and business prospects.
Although such statements are based on our own information and information from
other sources we believe to be reliable, you should not place undue reliance
on them. These statements involve risks and uncertainties, and actual market
trends and our results may differ materially from those expressed or implied
in these forward looking statements for a variety of reasons. Potential risks
and uncertainties include, but are not limited to, continued competitive
pressure in China’s wireless value-added services, wireless media and mobile
games industries and the effect of such pressure on prices; unpredictable
changes in technology, consumer demand and usage preferences in the market;
the state of and any change in our relationship with China’s
telecommunications operators; our dependence on the billing systems of
telecommunications operators for our performance; the outcome of our
investment of operating income generated from the WVAS segment into the
development of our wireless Internet segment and mobile games segment; changes
in the regulations or policies of the Ministry of Industry and Information
Technology and other relevant government authorities; and changes in political,
economic, legal and social conditions in China, including the Chinese
government’s policies with respect to economic growth, foreign exchange,
foreign investment and entry by foreign companies into China’s
telecommunications market. For additional discussion of these risks and
uncertainties and other factors, please see the documents we file from time to
time with the Securities and Exchange Commission. We assume no obligation to
update any forward-looking statements, which apply only as of the date of this
SOURCE KongZhong Corporation