2007'12.05.Wed
KongZhong Corporation Reports Unaudited Third Quarter 2007 Financial Results
November 20, 2007
BEIJING, Nov. 20 /Xinhua-PRNewswire-FirstCall/ --
KongZhong Corporation (Nasdaq: KONG), one of China's
leading providers of wireless value-added services and a
wireless media company providing news, content, community
and mobile advertising services through its wireless
Internet sites, today announced its unaudited third quarter
2007 financial results.
(Logo:
http://www.xprn.com.cn/xprn/sa/20061108202413-56.gif )
Third Quarter 2007 Financial Highlights:
-- Total revenues were $17.12 million, in line with the
Company's third-
quarter revenue guidance of $16.5 million to $17.5
million.
-- Total mobile advertising revenues increased 19%
sequentially to
$265,000.
-- US GAAP net income was $0.54 million. Diluted
earnings per ADS were
$0.02.
-- Non-GAAP net income was $1.37 million. Non-GAAP
diluted earnings per
ADS were $0.04. Non-GAAP Financial Measures are
described and
reconciled to the corresponding GAAP measures in the
section titled
"Non-GAAP Financial Measures".
Commenting on the results, Yunfan Zhou, Chairman and
Chief Executive Officer said, "This quarter we are
doing better than last quarter in terms of both revenues
and net income, thanks to the continuous growth of our
mobile advertising revenues and our cost controlling
efforts. Also in this quarter, we launched the official
Chinese NBA mobile website, which will be one of the major
drivers to increase traffic and user base of our wireless
Internet sites and our mobile advertising revenues. We
believe we have laid good foundation for the growth of our
wireless Internet business."
Business Highlights:
-- On September 14, 2007, the Company announced its
cooperation with the
NBA and launched the official Chinese NBA mobile
website cn.NBA.com,
the first-ever official NBA site on mobile phones.
-- On July 26, 2007, the Company was awarded the
"Best Wireless Media"
award at the 2007 iResearch New Marketing
Conference.
-- On November 2, 2007, the Company's in-house
developed mobile on-line
game "Tian Jie (Reincarnation) On-Line"
was named "Most Popular Mobile
on-line Game" at the 2007 China Joy Best Games
Contest. In addition
KongZhong Mammoth, the Company's wireless game
subsidiary, received the
"Best Mobile Game Developer" award.
-- The Company signed a cooperation agreement with
China Interactive
Sports, the operator of www.Sports.cn ,
www.Olympic.cn and
www.Sport.org.cn , to build and operate the 2008
Beijing Olympics
channel of Kong.net.
-- The Company signed a cooperation agreement with
51job, Inc. (Nasdaq:
JOBS), China's largest recruitment services
provider, to build and
operate the recruiting channel of Kong.net.
Financial Results:
(Note: Unless otherwise stated, all financial statement
amounts used in this press release are based on US GAAP and
denominated in US dollars.)
WVAS segment
For the Three
For the Three
Months Ended
Months Ended
Jun. 30, 2007
Sep. 30, 2007
(US$ thousands)
(US$ thousands)
WVAS Revenues
2.5G:
WAP $2,062
$1,938
MMS 3,582
2,744
JAVA(TM) 631
849
2G:
SMS 7,216
7,564
IVR 2,158
2,603
CRBT 1,074
1,123
Total WVAS revenues 16,723
16,821
WVAS Cost of revenues 8,552
8,006
WVAS Gross profit 8,171
8,815
WVAS Operating expenses
Product development 2,221
2,111
Sales & marketing 2,324
2,990
General & administrative 1,956
1,474
Subtotal 6,501
6,575
WVAS Operating income $1,670
$2,240
WVAS Gross margin 49 %
52 %
WVAS Operating margin 10 %
13 %
Total WVAS revenues for the third quarter were $16.82
million, remaining flat sequentially. Revenues from 2.5G
services accounted for approximately 33% of total WVAS
revenues and revenues from 2G services represented the
remaining 67%.
Revenues from 2.5G services, which include services
delivered using wireless application protocol (WAP),
multimedia messaging service (MMS), and JAVA(TM)
technologies, decreased 12% sequentially to $5.53 million.
WAP revenues in the third quarter of 2007 were $1.94
million, a decrease of 6% sequentially, mainly as a result
of the continuing effects of China Mobile policies
introduced in May 2007, including sending fee reminders to
mobile phone users each time they download a WAP product,
and excluding KongZhong and other third-party WAP service
providers from the embedded menus of mobile handsets that
are customized for China Mobile. MMS revenues in the third
quarter of 2007 were $2.74 million, a decrease of 23%
sequentially, mainly as a result of the loss of
monthly-subscription users in the first quarter and the
second quarter. JAVA(TM) revenues in the third quarter
were $0.85 million, an increase of 35% sequentially.
Revenues from 2G services, including short messaging
service (SMS), interactive voice response (IVR), and color
ring back tone (CRBT), increased 8% sequentially to $11.29
million in the third quarter of 2007, as we enhanced our 2G
sales and promotion efforts. SMS revenues in the third
quarter of 2007 increased 5% sequentially to $7.56 million.
IVR revenues in the third quarter of 2007 were $2.60
million, a 21% increase sequentially. CRBT increased 5%
sequentially to $1.12 million in the third quarter of 2007.
The aggregate revenues from China Unicom, China Telecom
and China Netcom accounted for approximately 25% of the
total third quarter WVAS revenues, while revenues from
China Mobile accounted for the remaining 75%. This was
consistent with the relative market positions of the four
major telecommunications operators in the PRC mobile
industry.
WVAS Expenses
The WVAS cost of revenues in the third quarter of 2007
totaled $8.01 million, a decrease of 6% sequentially. WVAS
gross margin in the third quarter of 2007 increased to 52%
compared to 49% in the second quarter of 2007.
Total WVAS operating expenses in the third quarter of
2007 were $6.58 million, an increase of 1% sequentially.
Product development expenses decreased by 5% sequentially
and represented 13% of revenues. Sales and marketing
expenses increased by 29% sequentially and represented 18%
of revenues, mainly due to increased sales and promotion
activities. General and administrative expenses decreased
by 25% sequentially and represented 9% of revenues, mainly
due to the Company's cost-controlling efforts.
Wireless Internet segment
For the Three
For the Three
Months Ended
Months Ended
Jun. 30, 2007
Sep. 30, 2007
(US$ thousands)
(US$ thousands)
Mobile advertising
revenues $223
$265
Other revenues 13
35
Total Revenues 236
300
Cost of revenues 158
174
Gross (loss) profit 78
126
Operating expenses 2,372
2,597
Operating loss $(2,294)
$(2,471)
Total mobile advertising revenues, which were mainly
generated from KongZhong's wireless Internet portal
Kong.net, increased 19% sequentially to $265,000 in the
third quarter of 2007.
Operating expenses related to the Company's wireless
Internet sites were $2.60 million, which included $1.49
million in marketing and advertising expenses.
The Company's total headcount was 791 as of September
30, 2007.
Earnings
US GAAP net income totaled $0.54 million in the third
quarter of 2007. Diluted US GAAP earnings per ADS were
$0.02 for the third quarter.
Non-GAAP income in the third quarter of 2007 was $1.37
million, a 47% increase sequentially. Diluted Non-GAAP
earnings per ADS were $0.04.
Balance Sheet and Cash Flow
At the end of the quarter, the Company had $119.53
million in cash and cash equivalents. Cash in-flow from
operating activities totaled $2.37 million in the first
nine months of 2007.
Business Outlook:
Based on information available on November 20, 2007,
the Company expects total revenues for the fourth quarter
of 2007 to be between $17.5 million and $18.5 million.
Conference Call:
The Company's management team will conduct a conference
call at 8:30 am Beijing time on November 20, (7:30 pm
Eastern time and 4:30 pm Pacific time on November 19,
2007). A webcast of this conference call will be
accessible on the Company's web site at
http://ir.kongzhong.com .
KongZhong Corporation
Condensed Consolidated Statements of Income
(US$ thousands, except percentages, per share data, and
share count)
(Unaudited)
For the Three For the
Three For the Three
Months Ended Months
Ended Months Ended
Sep. 30, 2006 Jun. 30,
2007 Sep. 30, 2007
(Note 1) (Note
2) (Note 3)
Revenues $25,082
$16,959 $17,121
Cost of revenues 11,394
8,710 8,180
Gross profit 13,688
8,249 8,941
Operating expense
Product development 3,186
3,068 3,216
Sales & marketing 4,531
3,849 4,481
General & administrative 2,053
1,956 1,475
Subtotal 9,770
8,873 9,172
Operating income (loss) 3,918
(624) (231)
Non-operating income
(expenses)
Interest income 1,036
952 945
Other expense (4)
-- --
Subtotal 1,032
952 945
Income before tax expense 4,950
328 714
Income tax expense 131
289 170
Net income $4,819
$39 $544
Basic earnings per ADS $0.14
$0.00 $0.02
Diluted earnings per ADS $0.14
$0.00 $0.02
ADS outstanding (million) 35.15
35.58 35.58
ADS used in diluted EPS
calculation (million) 35.66
35.77 35.75
Note 1: The conversion of Renminbi (RMB) into US
dollar (USD) for the
third quarter of 2006 is based on the weighted
average rate of
USD 1.00=RMB 7.9678 (The exchange rate quoted
by the People's
Bank of China).
Note 2: The conversion of Renminbi (RMB) into US
dollar (USD) for the
second quarter of 2007 is based on the
weighted average rate of
USD 1.00=RMB 7.6804 (The exchange rate quoted
by the People's
Bank of China).
Note 3: The conversion of Renminbi (RMB) into US
dollar (USD) for the
third quarter of 2007 is based on the weighted
average rate of
USD 1.00=RMB 7.5626 (The exchange rate quoted
by the People's
Bank of China).
KongZhong Corporation
Condensed Consolidated Statements of Cash Flows
(US$ thousands)
(Unaudited)
For the 9
For the 9
Months
Ended Months Ended
Sep. 30,
2006 Sep. 30, 2007
(Note
1) (Note 2)
Cash Flows From Operating Activities
Net Income $21,028
$2,146
Adjustments
Amortization of deferred stock
compensation 1,337
1,878
Depreciation and amortization 2,284
2,050
Disposal of property and equipment 4
8
Gain on sales of investment
(1,241) (208)
Changes in operating assets and
liabilities
(6,862) (3,503)
Net Cash Provided by Operating
Activities 16,550
2,371
Cash Flows From Investing Activities
Proceeds from sales of investment 1,741
208
Purchase of property and equipment
(2,164) (1,336)
Acquisition of subsidiaries
(17,325) (17,000)
Net Cash Used in Investing Activities
(17,748) (18,128)
Cash Flows From Financing Activities
Exercised employee share options 1,538
144
Net Cash Provided by Financing
Activities 1,538
144
Foreign Currency Translation Adjustments 1,125
3,736
Net increase (decrease) in Cash and Cash
Equivalents $1,465
$(11,877)
Cash and Cash Equivalents, Beginning of
Period $117,142
$131,402
Cash and Cash Equivalents, End of Period $118,607
$119,525
Note 1: The conversion of Renminbi (RMB) into US
dollar (USD) for the
first nine months of 2006 is based on the
weighted average rate
of USD 1.00=RMB 8.0106 (The exchange rate
quoted by the People's
Bank of China).
Note 2: The conversion of Renminbi (RMB) into US
dollar (USD) for the
first nine months of 2007 is based on the
weighted average rate
of USD 1.00=RMB 7.6683 (The exchange rate
quoted by the People's
Bank of China).
KongZhong Corporation
Condensed Consolidated Balance Sheets
(US$ thousands)
(Unaudited)
Sep. 30, 2006 Jun. 30,
2007 Sep. 30, 2007
(Note 1) (Note
2) (Note 3)
Cash and cash equivalents $118,607
$118,749 $119,525
Accounts receivable (net) 17,471
12,454 13,764
Other current assets 2,110
2,813 3,680
Total current assets 138,188
134,016 136,969
Rental deposits 565
399 434
Intangible assets 2,078
1,628 1,438
Property and equipment (net) 3,426
3,223 3,279
Goodwill 15,751
33,499 33,964
Total assets $160,008
$172,765 $176,084
Accounts payable $5,625
$5,582 $5,604
Other current liabilities 4,712
4,929 5,054
Total current liabilities 10,337
10,511 10,658
Non-current deferred tax liability --
116 103
Minority interest 24
-- --
Total liabilities $10,361
$10,627 $10,761
Shareholders' equity 149,647
162,138 165,323
Total liabilities & shareholders'
equity $160,008
$172,765 $176,084
Note 1: The conversion of Renminbi (RMB) into US
dollar (USD) is based on
the exchange rate of Sep 30, 2006 USD1.00=RMB
7.9087. (The
exchange rate quoted by the People's Bank of
China).
Note 2: The conversion of Renminbi (RMB) into US
dollar (USD) is based on
the exchange rate of June 30, 2007 USD1.00=RMB
7.6155. (The
exchange rate quoted by the People's Bank of
China).
Note 3: The conversion of Renminbi (RMB) into US
dollar (USD) is based on
the exchange rate of Sep 30, 2007 USD1.00=RMB
7.5108. (The
exchange rate quoted by the People's Bank of
China).
Non-GAAP Financial Measures
To supplement the unaudited condensed statements of
income presented in accordance with United States Generally
Accepted Accounting Principles ("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 future.
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, our calculation of the Non-GAAP
Financial Measures may be different from the calculation
used by other companies, and therefore comparability may be
limited.
For the periods presented, the Company's non-GAAP net
income and non-GAAP net income per diluted ADS exclude, as
applicable, the amortization or write-off of intangibles,
gain and loss on investment, and non-cash stock-based
compensation expense.
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
Sep. 30, 2006 Jun. 30,
2007 Sep. 30, 2007
GAAP Net Income $4,819
$39 $544
Non-cash share-based
compensation 521
691 618
Amortization or write-off of
intangibles 192
207 211
Non-GAAP Net Income $5,532
$937 $1,373
Non-GAAP diluted net income per
ADS $0.16
$0.03 $0.04
About KongZhong
KongZhong Corporation is one of China's leading
providers of wireless value-added services and a wireless
media company providing news, contents, community and
mobile advertising services through its wireless Internet
sites. The Company delivers wireless value-added services
to consumers in China through multiple technology platforms
including wireless application protocol (WAP), multimedia
messaging service (MMS), JAVA(TM), short messaging service
(SMS), interactive voice response (IVR), and color
ring-back tone (CRBT). The Company also operates three
wireless Internet sites, Kong.net, Ko.cn and cn.NBA.com,
which enable users to access media, entertainment and
community content directly from their mobile phones.
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. Such forward-looking statements
include, without limitation, statements regarding trends in
the wireless value-added services, wireless Internet and
mobile advertising 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 Internet and mobile advertising
industries and the effect of such pressure on prices;
unpredictable changes in technology, consumer demand and
usage preferences in this 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; changes
in the regulations or policies of the Ministry of
Information Industry 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 press
release.
For more information, please contact:
Investor Contact:
Sam Sun
Chief Financial Officer
Tel: +86-10-8857-6000
Fax: +86-10-8857-5891
Email: ir@kongzhong.com
Media Contact:
Xiaohu Wang
Manager
Tel: +86-10-8857-6000
Fax: +86-10-8857-5900
Email: xiaohu@kongzhong.com
PR
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