KongZhong Corporation Reports Second Quarter 2014 Unaudited Financial Results
BEIJING, Aug. 27, 2014 /PRNewswire/ -- KongZhong Corporation (NASDAQ: KZ), a leading online games publisher and developer in the PRC, today announced its unaudited financial results for the second quarter ended June 30, 2014.
Second Quarter 2014 Financial Highlights
- Total revenues were US$ 57.87 mn, an increase of 16.7% from the first quarter of 2014 and 32.8% from the same period last year, in line with the guidance range of US$ 57.5 mn to US$ 58.5 mn.
- Total gross profit was US$ 24.50 mn, an increase of 5.1% from the first quarter of 2014 and 37.2% from the same period last year, in line with the guidance range of US$ 24.0 mn to US$ 25.0 mn.
- Net income was US$ 0.07 mn, beating the guidance loss range of US$ 0.5 mn to US$ 1.5 mn. Diluted net income per American Depositary Shares ("ADS") was US$ 0.00.
- Non-GAAP net income was US$ 1.45 mn, exceeding the break even guidance. Non-GAAP diluted net income per ADS was US$ 0.03 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures").
- As of June 30, 2014, the Company had US$ 230.58 mn in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash or US$ 5.07 per ADS in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash.
The Company's Chairman and Chief Executive Officer, Leilei Wang said, "In 2Q14, we successfully released Guild Wars 2 and World of Warplanes to Chinese players and have established a strong long-term operating strategy to become a leader in the Chinese PC game market through the War Saga Brand, Guild Wars 2 and our other differentiated PC games under development. In mobile games, we expect to bring 5 key titles to market in the coming months across 4 main areas, namely (1) licensed mobile games from high-quality partners from Japan and Korean markets in the Puzzle RPG and Action RPG genres (2) Cross border co-development with an experienced Korean mobile game developer, in the Action RPG genre and (3) A self-developed game in the next generation RTS genre and (4) and a self-developed RPG title based upon the 'Kuiba' animated movies series IP. I believe KZ will continue to development positively in the future as a leading and differentiated online game company."
| Three Months Ended |
|||||
| June 30, |
March 31, |
June 30, |
|||
| 2013 |
2014 |
2014 |
|||
| US$ in |
US$ in |
US$ in |
|||
| Revenues |
43,581 |
49,607 |
57,870 |
||
| Internet Games |
23,616 |
25,079 |
32,022 |
||
| Mobile Games |
3,737 |
8,112 |
10,537 |
||
| WVAS |
16,228 |
16,416 |
15,311 |
||
| Sales Tax |
1,582 |
652 |
503 |
||
| Internet Games |
1,337 |
317 |
277 |
||
| Mobile Games |
41 |
42 |
33 |
||
| WVAS |
204 |
293 |
193 |
||
| Cost of Revenue |
24,149 |
25,637 |
32,871 |
||
| Internet Games |
11,115 |
12,073 |
16,126 |
||
| Mobile Games |
2,186 |
4,050 |
5,933 |
||
| WVAS |
10,848 |
9,514 |
10,812 |
||
| Gross Profit |
17,850 |
23,318 |
24,496 |
||
| Internet Games |
11,164 |
12,689 |
15,619 |
||
| Mobile Games |
1,510 |
4,020 |
4,571 |
||
| WVAS |
5,176 |
6,609 |
4,306 |
||
| Gross Margin |
41% |
47% |
42% |
||
| Internet Games |
47% |
51% |
49% |
||
| Mobile Games |
40% |
50% |
43% |
||
| WVAS |
32% |
40% |
28% |
||
Revenues
Total revenues for the second quarter of 2014 were US$ 57.87 mn, an increase of 16.7% from the first quarter of 2014 and 32.8% from the same period of last year.
Internet Games Revenues
Internet Game ("Net Game") revenues were US$ 32.02 mn in the second quarter of 2014, an increase of 27.7% from the first quarter of 2014 and 35.6% from the same period of last year. The increase in Net Game revenues was mainly due to the new launch of Guild War 2 and World of Warplane.
For the second quarter of 2014, mainland China online game operations achieved average monthly active users ("MAUs") of 2.6 mn and aggregated monthly paying accounts ("APAs") of 427k with monthly average revenue per user ("ARPU") of RMB 152. The increase in 2Q14 mainland China online game operations metrics were due to the contribution of new users from Guild Wars 2 and World of Warplanes.
| Three Months Ended |
|||
| June 30, 2013 |
March 31, 2014 |
June 30, 2014 |
|
| MAU |
1,741k |
1,696k |
2,616k |
| APA |
291k |
280k |
427k |
| ARPU |
165 |
181 |
152 |
Internet game revenues made up 55.3% of total revenues in the second quarter of 2014.
Mobile Games Revenues
Total mobile game revenues were US$ 10.54 mn, a 29.9% increase from the first quarter of 2014, and a 182.0% increase from the same period of last year.
Total mobile game revenues made up 18.2% of total revenues in the second quarter of 2014.
WVAS Revenues
WVAS revenues were US$ 15.31 mn, a 6.7% decrease from the first quarter of 2014, and a 5.7% decrease from the same period of last year.
WVAS made up 26.5% of total revenues in the second quarter of 2014.
Gross Profit
Total gross profit for the second quarter of 2014 was US$ 24.50 mn, a 5.1% increase from the first quarter of 2014 and a 37.2% increase from the same period last year.
Total gross margin was 42.3% in the second quarter of 2014.
Internet Game Gross Profit
Internet game gross profit was US$ 15.62 mn, a 23.1% increase from the first quarter of 2014. Internet game gross margin was 48.8% compared to 50.6% in the first quarter of 2014.
Mobile Game Gross Profit
Mobile games gross profit was US$ 4.57 mn, a 13.7% increase from the first quarter of 2014. Mobile games gross margin was 43.4% compared to 49.6% in the first quarter of 2014.
The decline in mobile games gross margins was due to increased contribution from carrier billing channel revenues which have lower margins than other billing channels.
WVAS Gross Profit
WVAS gross profit was US$ 4.31mn, a 34.8% decrease from the first quarter of 2014. WVAS gross margin was 28.1% compared to 40.3% in the first quarter of 2014 and 31.9% from the same period last year. The decrease in WVAS gross margins was mainly attributed to the increase of revenue sharing costs to our media and distribution partners in the second quarter of 2014 compared to 1Q14.
Operating Expenses
Total operating expenses in the second quarter of 2014 were US$ 25.98 mn compared to US$ 15.04 mn in the first quarter of 2014.
Product development expenses in the second quarter of 2014 were US$ 6.51 mn compared to US$ 5.93 mn in the first quarter of 2014. The increase in product development expenses were due to the slight increase of game operation team staff costs.
Sales and marketing expenses in the second quarter of 2014 were US$ 16.01 mn compared to US$ 6.74 mn in the first quarter of 2014. The increase in 2Q14 marketing expenses were related to promotional activities associated with the commercial release of Guild Wars 2, the commercial release of World of Warplanes and the marketing of the War Saga brand.
General and administrative expenses in the second quarter of 2014 were US$ 3.46 mn compared to US$ 2.36 mn in the first quarter of 2014. The increase in G&A was partly due to higher stock based compensation expenses.
The Company's total headcount remained stable in the second quarter of 2014 at 1,201 staff compared to 1,116 staff at the end of the first quarter of 2014.
Earnings
US GAAP net income and diluted income per ADS were US$ 0.07 mn and US$ 0.00, respectively. Non-GAAP net income and earnings per ADS were US$ 1.45 mn and US$ 0.03, respectively.
Total ADS on a diluted basis outstanding during the second quarter of 2014 were 47.31 mn, compared to 47.03 mn outstanding during the first quarter of 2014.
| For the purpose of earnings |
Number during three March 31, 2014 |
Number during three June 30, 2014 |
| ADS (in mns) |
45.39 |
45.52 |
| Add: Dilution impact from |
0.54 |
0.56 |
| Warrants issued to business |
1.10 |
1.23 |
| ADS on diluted basis |
47.03 |
47.31 |
Balance Sheet
As of June 30, 2014, the Company had US$ 230.58 mn in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash or US$ 5.07 per ADS in in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash.
Investment in Ourgame
In the first quarter 2014, the Company invested RMB 100 mn in Ourgame International Holdings Limited ("Ourgame" also known as "LianZhong"). On June 30, 2014, Ourgame has successfully listed on the Hong Kong Stock Exchange under the stock code "6899.HK".
The market value of this long-term investment was about US$ 28.44 mn at the end of the second quarter of 2014 compared to our holding cost of roughly US$ 16.38 mn at the end of the second quarter of 2014. The fair value of this investment was recorded under available-for-sale securities, and the gain of US$ 12.06 mn was recorded under Other Comprehensive Income.
Business Outlook (For the third quarter ending September 30, 2014)
The Company expects total revenues for the third quarter of 2014 to be within the range of US$ 64 mn to US$ 65 mn. The Company expects total gross profit to be within the range of US$ 26 mn to US$ 27 mn. We expect net income to be US$ 9 mn to US$ 10 mn and Non-GAAP net income is expected to be US$ 10 mn to US$ 11 mn.
Conference Call
KongZhong's management will hold a conference call and webcast to discuss the results at 7:30 PM Eastern Daylight Time (EDT) on Wednesday, August 27, 2014 (7:30 AM Beijing/Hong Kong time, Thursday, August 28, 2014)
The conference call will be available live via webcast on the Investor Relations section of KongZhong's website at http://ir.kongzhong.com. The archive replay will be available on the website shortly after the call.
The company welcomes all interested parties to participate in the live conference call. The dial-in details are as below:
- U.S. Toll Free Dial-in Number: +1 866 519 4004
- Hong Kong Toll Free Dial-in Number: 800 930 346
- Hong Kong Dial-in Number: +852 2475 0994
- Mainland China Dial-in Number: 800 819 0121, 400 620 8038
- International Dial-in Number: +65 6723 9381
Passcode: 84141367
The live conference call via webcast and archive replay will be available on the Investor Relations section of KongZhong's website at http://ir.kongzhong.com.
A dial-in replay of the conference call will be available until September 4, 2014:
- U.S. Toll Free Dial-in Number: +1 855 452 5696
- Hong Kong Toll Free Dial-in Number: 800 963 117
- Mainland China Dial-in Number: 800 870 0206, 400 602 2065
- International Dial-in Number: +61 2 8199 0299
Passcode: 84141367
About KongZhong
KongZhong Corporation (NASDAQ: KZ), listed on Nasdaq in 2004, is a leading online game developer and operator in China. KongZhong operates three main business units, namely Internet Games, Mobile Games and WVAS. Under Internet Games, KongZhong operates the largest Chinese military gaming platform under the "WAR SAGA" brand, which includes games such as World of Tanks, World of Warplanes and World of Warships. On May 15, 2014, KongZhong officially launched the most-anticipated 3D fantasy MMORPG Guild Wars 2 in China. KongZhong has the exclusive publishing rights for World of Tanks, World of Warplanes and World of Warships, Guild Wars 2, Auto Club Revolution, Blitzkrieg 3 and other titles in Mainland China.
KongZhong entered the smartphone game industry in 2011 through an acquisition of smartphone game engine and has expanded its mobile game development team across 4 cities across Mainland China. KongZhong offers popular mobile games in China and overseas with over 10 smartphone games across various genres being under development, including RPG, RTS, military, fantasy and etc. For more information, please visit http://ir.kongzhong.com.
Safe Harbor Statements
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, mobile games and online 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, mobile games and online games industries and the effect of such pressure on revenues; our ability to develop new products that are commercially successful; unpredictable changes in technology, consumer demand and usage preferences in the markets we operate; our ability to protect our intellectual property rights; the short operating history of certain of our business segments, in particular the online games segment; 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, mobile games and online games segments; changes in the regulations or policies of the Ministry of Industry and Information Technology and other government authorities relevant to our businesses; 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 and online games markets. 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.
KongZhong Contacts
Investor Contact
Jay Chang
Chief Financial Officer
Liddy Li
Investor Relations
Tel.: (+86-10) 8857.6000
E-mail: [email protected]
Media Contact
Xingran Chen
Public Relations
Tel.: (+86-10) 8857.6000
E-mail: [email protected]
| KongZhong Corporation |
||||||||
| Condensed Consolidated Statements of Comprehensive Income |
||||||||
| (Unaudited, US$ in thousands, except per share and share data) |
||||||||
| Three Months Ended |
||||||||
| June 30, |
March 31, |
June 30, |
||||||
| 2013 |
2014 |
2014 |
||||||
| Revenues |
43,581 |
49,607 |
57,870 |
|||||
| Sales tax |
1,582 |
652 |
503 |
|||||
| Net revenues |
41,999 |
48,955 |
57,367 |
|||||
| Cost of revenues |
24,149 |
25,637 |
32,871 |
|||||
| Gross profit |
17,850 |
23,318 |
24,496 |
|||||
| Operating expenses |
||||||||
| Product development |
6,455 |
5,934 |
6,510 |
|||||
| Sales and marketing |
4,644 |
6,737 |
16,009 |
|||||
| General and administrative |
2,166 |
2,364 |
3,463 |
|||||
| Total operating expenses |
13,265 |
15,035 |
25,982 |
|||||
| Government subsidy |
652 |
194 |
267 |
|||||
| Income (loss) from operations |
5,237 |
8,477 |
(1,219) |
|||||
| Interest income |
1,431 |
2,269 |
1,751 |
|||||
| Interest expense |
36 |
- |
- |
|||||
| Imputed interest on long-term liabilities |
150 |
150 |
150 |
|||||
| Exchange gain (loss) |
221 |
(348) |
(316) |
|||||
| Income before tax expense |
6,703 |
10,248 |
66 |
|||||
| Income tax expense |
191 |
298 |
- |
|||||
| Net income |
6,512 |
9,950 |
66 |
|||||
| Earnings per ADS, basic |
0.16 |
0.22 |
0.00 |
|||||
| Earnings per ADS, diluted |
0.15 |
0.21 |
0.00 |
|||||
| Weighted average ADS outstanding |
41.93 |
45.39 |
45.52 |
|||||
| Weighted average ADS used in diluted |
42.96 |
47.03 |
47.31 |
|||||
| Net income |
6,512 |
9,950 |
66 |
|||||
| Other comprehensive income (loss) |
4,084 |
(2,799) |
10,561 |
|||||
| Total comprehensive income (loss) |
10,596 |
7,151 |
10,627 |
|||||
| KongZhong Corporation |
|||||||
| Condensed Consolidated Balance Sheets |
|||||||
| (Unaudited, US$ in thousands) |
|||||||
| As of |
As of |
As of |
|||||
| 2013 |
2014 |
2014 |
|||||
| Assets |
|||||||
| Current assets |
|||||||
| Cash and cash equivalents |
69,676 |
118,303 |
68,506 |
||||
| Term deposits |
16,851 |
4,716 |
5,021 |
||||
| Available-for-sale securities |
- |
- |
28,444 |
||||
| Held-to-maturity securities |
57,694 |
42,283 |
92,045 |
||||
| Accounts receivable (net) |
19,246 |
19,526 |
23,245 |
||||
| Restricted cash |
10,520 |
- |
- |
||||
| Other current assets |
6,157 |
8,936 |
8,093 |
||||
| Total current assets |
180,144 |
193,764 |
225,354 |
||||
| Non-current assets |
|||||||
| Rental deposits |
517 |
629 |
890 |
||||
| Intangible assets (net) |
80,633 |
78,127 |
74,223 |
||||
| Property and equipment (net) |
4,699 |
7,076 |
7,048 |
||||
| Long-term investments |
4,000 |
18,380 |
2,000 |
||||
| Goodwill |
89,140 |
89,575 |
89,497 |
||||
| Restricted cash |
36,415 |
36,591 |
36,560 |
||||
| Total non-current assets |
215,404 |
230,378 |
210,218 |
||||
| Total assets |
395,548 |
424,142 |
435,572 |
||||
| Liabilities and Shareholders' Equity |
|||||||
| Current Liabilities |
|||||||
| Accounts payable |
42,605 |
39,460 |
35,016 |
||||
| Deferred revenue |
3,057 |
2,987 |
15,984 |
||||
| Other current liabilities |
20,972 |
21,095 |
22,427 |
||||
| Total current liabilities |
66,634 |
63,542 |
73,427 |
||||
| Non-current Liabilities |
|||||||
| Other long-term liabilities |
18,984 |
19,410 |
9,560 |
||||
| Total liabilities |
85,618 |
82,952 |
82,987 |
||||
| Shareholders' equity |
309,930 |
341,190 |
352,585 |
||||
| Total liabilities and shareholders' equity |
395,548 |
424,142 |
435,572 |
||||
| KongZhong Corporation |
|||||
| Condensed Consolidated Statements of Cash Flows |
|||||
| (Unaudited, US$ in thousands) |
|||||
| Six Months Ended |
|||||
| June 30, |
June 30, |
||||
| 2013 |
2014 |
||||
| Cash Flows From Operating Activities |
|||||
| Net income |
13,317 |
10,016 |
|||
| Adjustments to reconcile net income to net cash provided |
|||||
| Depreciation and amortization |
3,042 |
5,567 |
|||
| Imputed interest on long-term liabilities |
300 |
300 |
|||
| Impairment loss on intangible assets |
251 |
- |
|||
| Share-based compensation |
1,000 |
1,101 |
|||
| Changes in operating assets and liabilities |
1,425 |
12,358 |
|||
| Net Cash Provided by Operating Activities |
19,335 |
29,342 |
|||
| Cash Flows From Investing Activities |
|||||
| Purchase of intangible assets |
(1,080) |
(98) |
|||
| Purchase of term deposits |
(16,583) |
(2,479) |
|||
| Proceeds from disposal of term deposits |
- |
1,868 |
|||
| Long-term investment |
- |
(16,380) |
|||
| Purchase of held-to-maturity securities |
(162,117) |
(134,372) |
|||
| Proceeds from disposal of held-to-maturity securities |
122,358 |
93,858 |
|||
| Purchase of property and equipment |
(2,521) |
(2,857) |
|||
| Restricted cash |
(10,351) |
- |
|||
| Net Cash Used in Investing Activities |
(70,294) |
(64,460) |
|||
| Cash Flows From Financing Activities |
|||||
| Proceeds from exercise of employee stock options |
55 |
429 |
|||
| Deferred payments for acquisition of business |
(3,000) |
- |
|||
| Deferred payments for intangible assets |
(5,463) |
(23,405) |
|||
| Repurchase of ordinary shares |
(10,124) |
(12) |
|||
| Proceeds from exercise of warrants |
17,820 |
- |
|||
| Proceeds from bank borrowing |
9,000 |
- |
|||
| Repayment of bank borrowing |
(9,057) |
- |
|||
| Net Cash Used in Financing Activities |
(769) |
(22,988) |
|||
| Effect of foreign exchange rate changes |
709 |
(816) |
|||
| Net decrease in Cash and Cash Equivalents |
(51,019) |
(54,922) |
|||
| Cash and Cash Equivalents, Beginning of Period |
120,695 |
123,428 |
|||
| Cash and Cash Equivalents, End of Period |
69,676 |
68,506 |
|||
| Non-GAAP Financial Measures |
|||||||
| To supplement the unaudited condensed statements of comprehensive income presented in accordance |
|||||||
| (US$ in thousands, except per share and share data) |
|||||||
| Three Months Ended |
|||||||
| June 30, |
March 31, |
June 30, |
|||||
| 2013 |
2014 |
2014 |
|||||
| GAAP net income |
6,512 |
9,950 |
66 |
||||
| Share-based compensation |
444 |
333 |
768 |
||||
| Imputed interest on long-term liabilities |
150 |
150 |
150 |
||||
| Amortization of intangibles |
717 |
180 |
462 |
||||
| Non-GAAP net income |
7,823 |
10,613 |
1,446 |
||||
| Weighted average ADS used in diluted |
42.96 |
47.03 |
47.31 |
||||
|
|
0.18 |
0.23 |
0.03 |
||||
SOURCE KongZhong Corporation
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