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KongZhong Corporation Reports Unaudited Second Quarter 2012 Financial Results
Aug 14, 2012 (06:08 PM EDT)
BEIJING, Aug. 14, 2012 /PRNewswire-Asia/ -- KongZhong Corporation (NASDAQ: KONG), a leading provider of digital entertainment services for consumers in the PRC, today announced its unaudited financial results for the second quarter of 2012.
Second Quarter 2012 Financial Highlights:
Commenting on the results, the Company's Chairman and Chief Executive Officer, Leilei Wang said, "I'm very pleased with our financial performance in the second quarter of 2012, but am even more excited about the Internet game pipeline we are building for 2013 and the strong potential of our smartphone mobile game business."
WVAS revenues in 2Q12 were US$ 20.94 mn, a 9.5% increase from 1Q12. WVAS revenues were relatively stable compared to prior periods although the WVAS operating environment remains difficult.
WVAS made up 41.9% of total revenues in 2Q12.
Mobile Games Revenues
Total mobile game revenues in 2Q12 were US$ 6.20 mn, an 11.5% increase from 1Q12. Feature phone mobile games revenues in 2Q12 were US$ 4.86 mn and continued to underperform our expectations as our mobile operator partners implemented more strict operating policies and continued to adjust its mobile game marketing strategies. We see these difficulties continuing in 3Q12 for our legacy feature-phone mobile game business.
However, for the first full financial quarter, since we acquired Noumena, we reported revenues from smartphone mobile games separately as part of our total mobile game business.
Smart phone mobile game revenues in 2Q12 were US$ 1.34 mn representing 21.6% of total mobile game revenues. At the end of 2Q12, we have begun to integrate our existing mobile game development teams onto Noumena's smartphone mobile game engine and expect to increase the number of smartphone games we offer to the market in the coming quarters. Up to the end 2Q12, our smartphone mobile games had been downloaded over 20.0 mn times cumulatively and during the 2Q12 period, we averaged over 1.0 mn monthly active users to our smartphone games.
Mobile game revenues made up 12.4% of total revenues in 2Q12.
Internet Games Revenues
Internet Game ("Net Game") revenues were US$ 22.86 mn in 2Q12, a 19.3% increase from 1Q12. Net Game revenues were driven by the continued strong performance of World of Tanks ("WoT").
Domestic Net game revenues were US$ 20.91 mn, a 15.5% increase from 1Q12 due to the continued growth of the WoT community. Overseas Net game revenues were US$ 1.95 mn, an 84.3% increase from 1Q12 due to the launch of Kung Fu Hero in Taiwan. Total overseas revenues as a percentage of total Net game revenues in 2Q12 were 8.5% compared to 5.5% in 1Q12.
For the 2Q12 3-month period, mainland China online game operations achieved average concurrent users ("ACUs") of 302k and aggregated paying accounts ("APAs") of 821k with quarterly average revenue per user ("ARPU") of RMB161.
Net game revenues made up 45.7% of total revenues in 2Q12.
Total gross profit was US$ 21.64 mn in 2Q12, a 15.4% increase compared to 1Q12. Total gross margin was 43.3% in 2Q12, relatively stable compared to 1Q12.
WVAS Gross Profit
WVAS gross profit in 2Q12 was US$ 6.78 mn, a 10.4% increase from 1Q12. 2Q12 WVAS gross margin was 32.4%.
Mobile Game Gross Profit
Mobile games gross profit in 2Q12 was US$ 2.76 mn, an 18.0% increase from 1Q12 as although policies from our mobile operator partners in our mobile game monthly subscription business continued to lead to a higher churn, positive contribution from our smartphone mobile games business improved overall mobile games gross profit sequentially. 2Q12 mobile games gross margin improved overall to 44.6% from 42.1% in 1Q12.
Internet Game Gross Profit
Internet game gross profit in 2Q12 was US$ 12.09 mn, a 17.8% increase from 1Q12. 2Q12 Internet game gross margin was 52.9%.
Total operating expenses in 2Q12 were US$ 14.29 mn compared to US$ 12.65 mn in 1Q12.
Product development expenses in 2Q12 were US$ 4.42 mn compared to US$ 4.08 mn in 1Q12 or an 8.4% increase. The increase was from salary increase and intangible assets amortization rising from the acquisition of Noumena in late March.
Sales and marketing expenses in 2Q12 were US$ 7.15 mn compared to US$ 5.71 mn in 1Q12. The increase in sales and marketing was driven by activities related to the marketing of World of Tanks. We expect to maintain our marketing activities for WoT and other new Net games at around the 2Q12 level in the following quarters.
General and administrative ("G&A") expenses in 2Q12 were US$ 2.72 mn compared to US$ 2.86 mn in 1Q12. We expect G&A expenses to be maintained at roughly 2Q12 levels in the coming periods.
The Company's total headcount remained stable in 2Q12 at 985 compared to 982 at the end of 1Q12.
Operating income for 2Q12 was US$ 7.51 mn compared to operating profit US$ 6.09 mn in 1Q12. 2Q12 operating margin was 15.02% compared to 13.90% in 1Q12.
Net income andNon-GAAP net income in 2Q12 were US$ 7.89 mn and US$ 10.10 mn, respectively. Diluted income per ADS and diluted Non-GAAP earnings per ADS were US$ 0.18 and US$ 0.23 in 2Q12, respectively.
Total ADS on a diluted basis outstanding during 2Q12 were 43.87 mn, compared to 41.91 mn outstanding during 1Q12.
As of June 30, 2012, the Company had US$ 173.03 mn in cash and cash equivalents, held-to-maturity and trading securities or US$ 4.10 per basic ADS in cash and cash equivalents, held-to-maturity and trading securities.
Stock Repurchase Program:
The Company began to repurchase its ADSs in the open market on September 30, 2011. As of July 31, 2012, 2.35mn ADSs, representing 94.14 mn ordinary shares of the Company, were repurchased at an average price of $ 6.37 per ADS for a total repurchase amount of USD 15 mn.
Business Outlook (For the 3-month period ending September 30, 2012):
The Company expects total revenues for 3Q12 to be within the range of US$ 50 mn to US$ 51 mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of US$ 20.5 mn, mobile game revenues of US$ 6.5 mn and Net Game revenues of US$ 23.5 mn.
The Company expects total gross profit to be within the range of US$ 21.5 mn to US$ 22.5 mn, total operating profit to be US$ 7 mn to US$ 8 mn, net profit to be US$ 7 mn to US$ 8 mn, and Non-GAAP net profit is expected to be US$ 10 mn to US$ 11 mn.
The Company's management team will conduct a conference call at 7:30 am Beijing time on August 15, 2012 (7:30 pm Eastern time and 4:30 pm Pacific time on August 14, 2012). A webcast of this conference call will be accessible on the Company's web site at http://ir.kongzhong.com.
Non-GAAP Financial Measures
To supplement the unaudited condensed statements of comprehensive 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 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, 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 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 of intangibles, share-based compensation expense, interest expense on convertible note, loss on extinguishment of debt upon prepayment of convertible senior note and change of contingent payable, as well as is adjusted for the dilution impact on ADS numbers of the options, nonvested shares and convertible note.
Reconciliation of the Company's Non-GAAP financial measures to the GAAP financial measures is set forth below.
We are one of the leading providers of digital entertainment services for consumers in the PRC. We operate three main business units, namely WVAS, mobile games and Internet games. We are one of the leading providers of WVAS to mobile phone users and have been in cooperation with all major telecommunications operators in the PRC since 2002. In 2005, we began providing feature-phone mobile games on the networks of China Mobile with the acquisition of Tianjin Mammoth, a mobile games developer. To further expand our mobile games development capabilities, we acquired Noumena in 2012 in order to develop smartphone mobile games on smartphone mobile operating systems, such as iOS and Android. We commenced our Internet games business in 2010 through our acquisition of Dacheng, a developer and operator of Internet games in the PRC. In addition to developing and operating our self-developed Internet games, such as Loong, Demon Code and Kung Fu Hero, we are the exclusive operator of the popular World of Tanks game for the PRC Internet games market.
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.
SOURCE KongZhong Corporation