BEIJING, Aug. 10 /PRNewswire-Asia/ -- KongZhong Corporation
(NASDAQ:KONG), a leading mobile Internet company in China, today
announced its unaudited second quarter 2009 financial results.
Second Quarter 2009 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
exceeded guidance - Total revenues for the Second Quarter of 2009
("2Q09") increased 37% year-over-year and increased 9%
quarter-over-quarter to $32.3 million ("mn"), exceeding the
Company's 2Q09 revenue guidance of $30.5 mn to $31.5 mn. -- Gross
margin increased - Total gross margin improved to 51% in the 2Q09
from 49% in the 1Q09. -- Net income increased - Net income in 2Q09
was $3.55 mn, a 41% increase compared with 1Q09 net income of $2.52
mn. Basic net income per ADS was $0.10 based on 34.71 mn ADS while
diluted net income per ADS was $0.09 based on 38.53 mn ADS
outstanding as of June 30, 2009. -- Non-GAAP net income increased -
Non-GAAP net income was $4.71 mn and Non-GAAP diluted net income
per ADS was $0.12 (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 June 30, 2009, the Company had $132 mn in cash and cash
equivalents. Commenting on the results, the Company's Chairman and
Chief Executive Officer, Leilei Wang, said, "I'm pleased to report
that in the second quarter of 2009, KongZhong continued to grow
overall profits driven by strong growth in our mobile games
business, while at the same time, we were still able to maintain
our long-term investment in Kong.net. "In 2Q09, KongZhong
maintained our leading position in the Chinese mobile game market
and further strengthened our internal R&D game development
capabilities through the acquisition of Simlife. We believe that
Simlife's strong development capabilities, combined with our
existing Tianjin Mammoth game development team, will extend our
leadership in the Chinese mobile games market. "We continued to
make long-term investments in Kong.net, as we evolved Kong.net into
a next-generation 3G mobile portal and social networking service.
Although we believe we are still in the early development phase of
the 3G market in China, during the quarter we attracted over
500,000 registered users to our first self-developed mobile social
game, 'Nong Chang Da Heng" and have plans to launch additional
social gaming and other community services over the next year.
"Once again, I'm very pleased with our results for 2Q09. More
importantly, I believe KongZhong remains well positioned in the
Chinese 3G market for future growth opportunities." Financial
Results: For the Three For the Three For the Three Months Ended
Months Ended Months Ended June 30, March 31, June 30, 2008 2009
2009 (US$ thousands) (US$ thousands) (US$ thousands) Revenues
$23,518 $29,586 $32,287 WVAS 21,675 23,658 23,925 Mobile Games
1,453 4,944 6,802 Wireless Internet Service 390 984 1,560 Cost of
Revenue $12,812 $15,010 $15,733 WVAS 11,934 12,470 12,173 Mobile
Games 600 2,045 2,791 Wireless Internet Service 278 495 769 Gross
profit $10,706 $14,576 $16,554 WVAS 9,741 11,188 11,752 Mobile
Games 853 2,899 4,011 Wireless Internet Service 112 489 791 Gross
profit ratio 46% 49% 51% WVAS 45% 47% 49% Mobile Games 59% 59% 59%
Wireless Internet Service 29% 50% 51% Revenues WVAS revenues in
2Q09 increased 10% from 2Q08 and increased 1% from 1Q09 to $23.93
mn. Revenues from 2.5G services accounted for approximately 21% of
total WVAS revenues and revenues from 2G services represented the
remaining 79% in 2Q09. Total mobile game revenues in 2Q09 were $6.8
mn, a 368% increase from the same period last year and a 38%
increase from 1Q09. Revenues from downloadable games were $5.04 mn,
an increase of 335% from the same period last year and a 19%
sequential increase. Revenues from downloadable games continued to
perform well due to the overall growth of the mobile game market in
China. In addition, as we continued to leverage our relationships
with existing distribution partners and develop mobile games
tailored for the local market, we were able to maintain our
leadership in the Chinese market. Revenues from our mobile
multi-player online games ("MMO") were $1.76 mn, an increase of
497% from the same period last year and a 144% sequential increase.
The bulk of these revenues were from "Tian Jie", one of the most
popular mobile MMOs in the China market. The year-over-year and
sequential strong performance in mobile MMO was driven by the
increased marketing activities and optimized game operations which
led to an increase in Tian Jie users and a higher percentage of
users purchasing in-game virtual items, compared to previous
periods. Our new game, Feng Shen online did not contribute any
significant revenues during 2Q09. However, due to a large portion
of our mobile MMO users being students, we do not expect similar
sequential performance in 3Q09 for our mobile MMO business as we
enter the summer holiday season. In 2Q09, revenues from mobile MMO
made up 26% of total mobile game revenues compared to 15% in 1Q09.
Wireless Internet service revenues were $1.56 mn in 2Q09,
representing an increase of 300% from the same period last year and
an increase of 58% from 1Q09. In 2Q09, 41% of WIS revenues were
from wireless advertising with the remaining 59% from premium
services on the Kong.net wireless Internet site, including virtual
item sales and cross-selling of our mobile game and WVAS services.
Previously, wireless Internet services revenues were mainly from
wireless advertising. Gross Profit Total gross profit was $16.55 mn
in 2Q09, a 14% increase compared to 1Q09 and a 55% increase
compared to the same period last year. Gross margin increased
slightly in 2Q09 to 51% compared with 49% in 1Q09, and with 46% in
the same period last year. WVAS gross profit increased slightly in
2Q09 to $11.75 mn compared to $11.19 mn in 1Q09, a 21% increase
compared to the same period last year or $9.74 mn. WVAS gross
margin increased slightly in 2Q09 to 49% compared with 47% in 1Q09
and 45% in the same quarter last year. Mobile games gross profit
for 2Q09 was $4.01 mn compared to $2.90 mn in 1Q09 and $0.85 mn in
the same period last year, or an increase of 38% and 370%
respectively. Mobile games gross margin was 59%, or roughly the
same level as in 1Q09. Wireless Internet gross profit for 2Q09 was
$0.79 mn compared to $0.49 mn in 1Q09 and $0.11 mn in the same
period last year. Wireless Internet gross margins increased to 51%
in 2Q09 compared to 50% in 1Q09. Operating Expenses For the Three
For the Three For the Three Months Ended Months Ended Months Ended
June 30, March 31, June 30, 2008 2009 2009 Product development
$3,363 $4,848 $4,373 Sales and marketing 5,083 4,077 4,453 General
and administrative 2,851 3,018 3,127 Total Operating Expenses
$11,297 $11,943 $11,953 Product development expenses in 2Q09 were
$4.37 mn compared to $4.85 mn in 1Q09 or a 10% sequential decrease.
While our overall headcount in product development increased in the
quarter, as the mobile game division did not experience the same
strong sequential growth in 2Q09 as compared to 1Q09, there was a
slightly lower level of performance bonuses accrued. However, we
would expect product development expenses to increase going forward
as we continue expand and invest in our R&D team. Sales and
marketing expenses in 2Q09 were $4.45 mn compared to $4.08 mn in
1Q09 and $5.08 mn in the same period last year, representing an
increase of 9% compared to 1Q09 but a decrease of 12% from the same
period last year. General and administrative expenses in 2Q09 were
$3.13 mn compared to $3.02 mn in 1Q09, or an increase of 4%
quarter-over-quarter. The Company's total headcount increased from
801 as of March 31, 2009 to 841 as of June 30, 2009 with the
majority of our headcount increase related to product development
team increases. Earnings Net income and Non-GAAP net income in 2Q09
were $3.55 mn and $4.71 mn, respectively. Diluted earnings per ADS
and diluted Non-GAAP earnings per ADS were $0.09 and $0.12 for
2Q09, respectively. Total diluted ADS outstanding as of June 30,
2009 was 38.53 mn, compared to 36.74 mn as of March 31, 2009. The
increase reflects changes of the dilutive effect resulted from
warrants issued to Nokia Growth Partners II, L.P., and nonvested
shares and stock options issued to employees under the equity
incentive plan of the Company. (In weighted average, mn) Basic ADS
Diluted ADS Balance as of March 31, 2009 35.40 36.74 Less: Share
repurchase (Note) 0.77 0.77 Add: Vested shares and exercised
options 0.08 0.08 Warrant -- 0.72 Outstanding options and nonvested
shares -- 1.76 Balance as of June 30, 2009 34.71 38.53 (Note: The
number represents the weighted average of repurchase of 1.3 mn ADS
in May, 2009 as part of our Share Repurchase Plan.) Balance Sheet
As of June 30, 2009, the Company had $132 mn in cash and cash
equivalents. The decrease of our cash balance in 2Q09 was mainly
due to the $9.55 mn in cash used to repurchase shares as part of
the Company Share Repurchase Plan during the second quarter. Stock
Repurchase Program: As of June 30, 2009, a total of 1,868,994 ADS
of the Company (representing 74,759,760 ordinary shares), were
repurchased at an average price of $6.3501 per ADS as part of the
Company's share repurchase program, which began on November 18,
2008. This aggregate figure includes the 568,994 ADS repurchased
before March 31, 2009 (representing 22,759,760 ordinary shares).
Business Outlook (For the 3-month period ending September 30,
2009): Based on information available on August 11, 2009, the
Company expects total revenues for the third quarter of 2009 to be
between $34 mn and $35 mn. Conference Call: The Company's
management team will conduct a conference call at 8:30 am Beijing
time on August 11 (8:30 pm Eastern time and 5:30 pm Pacific time on
August 10, 2009). A webcast of this conference call will be
accessible on the Company's web site at http://ir.kongzhong.com/ .
KongZhong Corporation Condensed Consolidated Statements of Income
(US$ thousands, except per share data, and share count) (Unaudited)
For the Three For the Three For the Three Months Ended Months Ended
Months Ended June 30, March 31, June 30, 2008 2009 2009 Revenues
$23,518 $29,586 $32,287 Cost of revenues 12,812 15,010 15,733 Gross
profit 10,706 14,576 16,554 Operating expenses Product development
3,363 4,848 4,373 Sales & marketing 5,083 4,077 4,453 General
& administrative 2,851 3,018 3,127 Total operating expenses
11,297 11,943 11,953 Operating profit (loss) (591) 2,633 4,601
Interest income 1,388 1,032 765 Interest expense on convertible
notes -- 34 223 Income before tax expense 797 3,631 5,143 Income
tax expense 497 1,110 1,594 Net income $300 $2,521 $3,549 Basic
earnings per ADS $0.01 $0.07 $0.10 Diluted earnings per ADS $0.01
$0.07 $0.09 Weighted average ADS outstanding (mn) 35.62 35.40 34.71
Weighted average ADS used in diluted EPS calculation (mn) 35.93
36.74 38.53 KongZhong Corporation Condensed Consolidated Statements
of Cash Flows (US$ thousands) (Unaudited) For the Six For the Six
Months Ended Months Ended June 30, 2008 June 30, 2009 Cash Flows
From Operating Activities Net Income $388 $6,070 Adjustments to
reconcile net income to net cash provided by operating activities
Share-based compensation 1,258 1,735 Depreciation and amortization
1,475 1,303 Disposal of property and equipment -- (4) Amortization
of the debt discount -- 102 Changes in operating assets and
liabilities 1,525 (3,898) Net Cash Provided by Operating Activities
4,646 5,308 Cash Flows From Investing Activities Purchases of
subsidiaries, net of cash US$330 acquired -- (4,433) Purchase of
property and equipment (1,205) (855) Proceeds from disposal of
property -- 4 Purchase of long-term investment (1,500) -- Net Cash
Used in Investing Activities (2,705) (5,284) Cash Flows From
Financing Activities Proceeds from issuance of Convertible Note --
6,775 Proceeds from exercise of share options -- 221 Stock
Repurchase -- (11,107) Net Cash Used in Financing Activities --
(4,111) Effect of foreign exchange rate changes 6,344 37 Net
increase in Cash and Cash Equivalents $8,285 ($4,050) Cash and Cash
Equivalents, Beginning of Period $122,343 $136,054 Cash and Cash
Equivalents, End of Period $130,628 $132,004 KongZhong Corporation
Condensed Consolidated Balance Sheets (US$ thousands) (Unaudited)
June 30, March 31, June 30, 2008 2009 2009 Cash and cash
equivalents $130,628 $141,665 $132,004 Accounts receivable (net)
18,368 19,216 21,386 Other current assets 3,535 3,700 6,121 Total
current assets 152,531 164,581 159,511 Rental deposits 522 529 568
Intangible assets (net) 982 652 2,165 Property and equipment (net)
3,760 3,159 3,307 Long-term investments 1,500 2,963 2,964 Goodwill
37,167 16,564 21,244 Total assets $196,462 $188,448 $189,759
Accounts payable $8,543 $9,329 $11,622 Other current liabilities
6,689 9,556 11,753 Total current liabilities 15,232 18,885 23,375
Convertible notes -- 2,464 2,687 Non-current deferred tax liability
131 44 451 Total liabilities $15,363 $21,393 $26,513 Shareholders'
equity 181,099 167,055 163,246 Total liabilities &
shareholders' equity $196,462 $188,448 $189,759 Non-GAAP Financial
Measures To supplement the unaudited condensed statements of income
presented in accordance with US GAAP, the Company uses non-GAAP
financial measures (Non-GAAP Financial Measures) of net income and
net income per diluted ADS, which are adjusted from results based
on GAAP to exclude certain infrequent or unusual or non-cash based
expenses, gains and losses. The Non-GAAP Financial Measures are
provided as additional information to help both management and
investors compare business trends among different reporting periods
on a consistent and more meaningful basis and enhance investors'
overall understanding of the Company's current financial
performance and prospects for the future. The Non-GAAP Financial
Measures should be considered in addition to results prepared in
accordance with GAAP, but should not be considered a substitute for
or superior to GAAP results. In addition, our calculation of the
Non-GAAP Financial Measures may be different from the calculation
used by other companies, and therefore comparability may be
limited. For the periods presented, the Company's non-GAAP net
income and non-GAAP net income per diluted ADS exclude, as
applicable, the amortization of intangibles, share-based
compensation expense and interest expense on convertible notes.
Reconciliation of the Company's Non-GAAP financial measures to the
GAAP financial measures is set forth below. For the Three For the
Three For the Three Months Ended Months Ended Months Ended June 30,
March 31, June 30, 2008 2009 2009 (US$ thousands)(US$
thousands)(US$ thousands) GAAP Net Income $300 $2,521 $3,549
Share-based compensation 587 1,014 721 Financial expense on
convertible notes -- 34 223 Amortization of intangibles 169 159 215
Non-GAAP Net Income $1,056 $3,728 $4,708 Non-GAAP diluted net
income per ADS (Note 1) $0.03 $0.10 $0.12 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 employee share based
compensation. About KongZhong: KongZhong Corporation is a leading
mobile Internet company in China. The Company delivers wireless
value-added services to consumers in China through multiple
technology platforms including WAP, multimedia messaging service
(MMS), JAVA(TM), short messaging service (SMS), interactive voice
response (IVR), and color ring-back tone (CRBT). The Company
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. The Company
also designs and operates mobile games, including mobile online
games, JAVA games and WAP 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
press release. DATASOURCE: KongZhong Corporation CONTACT:
Investors, Jay Chang, Chief Financial Officer, +86-10-8857-6000,
Fax +86-10-8857-5891, ; or Media, Xiaohu Wang, Manager,
+86-10-8857-6000, Fax +86-10-8857-5900, , both of KongZhong
Corporation Web site: http://ir.kongzhong.com/
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