BEIJING, March 5 /Xinhua-PRNewswire/ -- KongZhong Corporation
(NASDAQ: KONG), a leading wireless value-added services ("WVAS")
and wireless media company in China, today announced its unaudited
fourth quarter and fiscal year 2007 financial results. Fourth
Quarter 2007 Financial Highlights: -- Total revenues increased 16%
sequentially to $19.81 million, exceeding the Company's
fourth-quarter revenue guidance of $18.5 million to $19.5 million.
-- Total mobile advertising revenues increased 12% sequentially to
$298,000. -- US GAAP net income increased 26% sequentially to $0.69
million. Diluted earnings per ADS were $0.02. -- Non-GAAP net
income increased 15% sequentially to $1.57 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". Fiscal Year 2007
Financial Highlights: -- Total revenues were $74.02 million. Total
WVAS revenues were $73.01 million and total mobile advertising
revenues were $903,000. -- US GAAP net income was $2.83 million.
Diluted earnings per ADS were $0.08. -- Non-GAAP net income was
$6.01 million. Non-GAAP diluted earnings per ADS were $0.17.
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, KongZhong's
Chairman and Chief Executive Officer, Yunfan Zhou, said, "We are
happy that our WVAS business has regained growth momentum in Q4
2007. We expect the Company to have a better WVAS business in 2008.
In regards to our wireless Internet business, we are glad that we
have achieved continual growth in our mobile advertising revenues.
We are confident about the future of our wireless Internet business
and will continue our efforts to develop Kong.net in 2008."
Business Highlights: -- In March 2008, the Company signed a
strategic alliance agreement with Focus Wireless Media Technology
Co., Ltd. ("Focus Wireless"), a subsidiary of Focus Media Holding
Ltd., to jointly expand their respective mobile advertising
business by leveraging on the strong advertising sales force of
Focus Wireless and KongZhong's reputable wireless Internet portal
Kong.net. The Company expects the strategic alliance to help
generate a significant portion of its mobile advertising revenues
over the next two years and bring the mobile advertising business
to the next level. -- In January 2008, the Company signed a
strategic alliance agreement with China Sports Industry Group Co.,
Ltd ("CSIG") to jointly explore business opportunities for
developing sports-related content for mobile phones, including
wireless value-added services and wireless Internet sites. -- In
January 2008 and February 2008, the Company signed cooperation
agreements with Infront to operate the official mobile websites for
the Men's Professional League of the Chinese Basketball
Association, China's National Basketball Teams and China's National
Football Teams. -- In January 2008, the Company signed an agreement
with HiU! Media, a company providing residential community direct
marketing advertising network and residential community marketing
solutions in China, to purchase 9.87% of the total equity interest
in HiU! Media for $1.5 million. The investment was completed in
January 2008. Nick Yang, KongZhong's President, was an early
investor in HiU! Media. Through its investment in HiU! Media,
Kongzhong expects to strengthen the Kong.net brand by launching
advertisement campaigns on HiU! Media's advertising network. -- The
Company signed cooperation agreements with Xinhua PR Newswire, Dow
Jones & Company and Finet Group Limited to provide, on the
finance channel of Kong.net, stock quotes and news updates about
companies listed on the Shanghai Stock Exchange, the Shenzhen Stock
Exchange, the Hong Kong Stock Exchange and the stock exchanges in
the United States. Financial Results: (Note: Unless otherwise
indicated, all financial statement amounts used in this press
release are based on US GAAP and denominated in US dollars.) WVAS
segment For the Three Months For the Three Months Ended Ended
September 30, 2007 December 31, 2007 (US$ thousands) (US$
thousands) WVAS Revenues 2.5G: WAP $1,938 $2,154 MMS 2,744 2,797
JAVA(TM) 849 664 2G: SMS 7,564 7,995 IVR 2,603 4,269 CRBT 1,123
1,591 Total WVAS revenues 16,821 19,470 WVAS Cost of revenues 8,006
10,054 WVAS Gross profit 8,815 9,416 WVAS Operating expenses
Product development 2,111 1,965 Sales & marketing 2,990 3,223
General & administrative 1,474 1,568 Subtotal 6,575 6,756 WVAS
Operating income $2,240 $2,660 WVAS Gross margin 52% 48% WVAS
Operating margin 13% 14% Total WVAS revenues for the fourth quarter
increased 16% sequentially to $19.47 million. Revenues from 2.5G
services accounted for approximately 29% of total WVAS revenues and
revenues from 2G services represented the remaining 71%. Revenues
from 2.5G services, which include services delivered using wireless
application protocol ("WAP"), multimedia messaging service ("MMS"),
and JAVA(TM) technologies, increased 2% sequentially to $5.62
million. WAP revenues in the fourth quarter of 2007 were $2.15
million, an increase of 11% sequentially. MMS revenues in the
fourth quarter of 2007 were $2.80 million, an increase of 2%
sequentially. JAVA(TM) revenues in the fourth quarter were $0.66
million, a decrease of 22% sequentially. Revenues from 2G services,
including short messaging service ("SMS"), interactive voice
response ("IVR"), and color ring back tone ("CRBT"), increased 23%
sequentially to $13.86 million in the fourth quarter of 2007, as we
enhanced our 2G sales and promotion efforts. SMS revenues in the
fourth quarter of 2007 increased 6% sequentially to $8.00 million.
IVR revenues in the fourth quarter of 2007 were $4.27 million, a
64% increase sequentially. CRBT increased 42% sequentially to $1.59
million in the fourth quarter of 2007. The aggregate revenues from
China Unicom, China Telecom and China Netcom accounted for
approximately 23% of the total fourth quarter WVAS revenues, while
revenues from China Mobile accounted for the remaining 77%. WVAS
Expenses The WVAS cost of revenues in the fourth quarter of 2007
totaled $10.05 million, an increase of 26% sequentially. WVAS gross
margin in the fourth quarter of 2007 decreased to 48% compared to
52% in the third quarter of 2007. The lower gross margin was
primarily due to the higher percentage of IVR revenues, which
generally were derived at a higher cost compared to other revenues.
Total WVAS operating expenses in the fourth quarter of 2007 were
$6.76 million, an increase of 3% sequentially. Product development
expenses decreased by 7% sequentially and represented 10% of
revenues. Sales and marketing expenses increased by 8% sequentially
and represented 17% of revenues, mainly due to increased sales and
promotion activities. General and administrative expenses increased
by 6% sequentially and represented 8% of revenues. Wireless
Internet segment For the Three Months For the Three Months Ended
Ended September 30, 2007 December 31, 2007 (US$ thousands) (US$
thousands) Mobile advertising revenues $265 $298 Other revenues 35
42 Total Revenues 300 340 Cost of revenues 174 166 Gross profit 126
174 Operating expenses 2,597 3,223 Operating loss $(2,471) $(3,049)
Total mobile advertising revenues, which were mainly generated from
KongZhong's wireless Internet sites, increased 12% sequentially to
$298,000 in the fourth quarter of 2007. Operating expenses related
to the Company's wireless Internet sites were $3.22 million, which
included $2.14 million in marketing and advertising expenses. The
Company's total headcount increased from 791 as of September 30,
2007 to 804 as of December 31, 2007. Earnings US GAAP net income
totaled $0.69 million in the fourth quarter of 2007, a 26% increase
sequentially. Diluted US GAAP earnings per ADS were $0.02 for the
fourth quarter. Non-GAAP net income in the fourth quarter of 2007
was $1.57 million, a 15% increase sequentially. Diluted Non-GAAP
earnings per ADS were $0.04 for the fourth quarter. Balance Sheet
and Cash Flow As of December 31, 2007, the Company had $122.34
million in cash and cash equivalents. Cash in flows from operating
activities totaled $0.94 million in the fourth quarter of 2007.
Based upon an analysis of the value of the Company's assets during
2007, the Company was classified as a passive foreign investment
company ("PFIC") during 2007 for US Federal income tax purposes.
Further details about the PFIC rules are available in the Company's
annual report on Form 20-F for the fiscal year ended December 31,
2006. US investors are advised to consult their own tax advisors
regarding the application of the PFIC rules to their particular
circumstances. Business Outlook: Based on information available on
March 5, 2008, the Company expects total revenues for the first
quarter of 2008 to be between $20 million and $21 million. In 2008,
the Company will continue to focus on expanding its wireless
Internet business. Consistent with the Company's operational
practice adopted in 2007, a major portion of the operating income
generated from the WVAS segment will be invested into the
development of the wireless Internet business, which the Company
believes will be one of the major drivers of the Company's growth
in the future. Conference Call: The Company's management team will
conduct a conference call at 8:30 am Beijing time on March 5 (7:30
pm Eastern time and 4:30 pm Pacific time on March 4, 2008). A
webcast of this conference call will be accessible on the Company's
web site at http://ir.kongzhong.com/ . KongZhong Corporation
Condensed Consolidated Statements of Income (US$ 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 December 31, September 30, December 31, 2006 2007 2007
Revenues $23,712 $17,121 $19,810 Cost of revenues 11,579 8,180
10,220 Gross profit 12,133 8,941 9,590 Operating expense Product
development 2,629 3,216 3,047 Sales & marketing 4,151 4,481
5,363 General & administrative 1,927 1,475 1,569 Subtotal 8,707
9,172 9,979 Operating income (loss) 3,426 (231) (389) Non-operating
income (expenses) Interest income 1,031 945 889 Other expense (11)
-- -- Subtotal 1,020 945 889 Income before tax expense 4,446 714
500 Income tax expense 782 170 (187) Net income $3,664 $544 $687
Basic earnings per ADS $0.10 $0.02 $0.02 Diluted earnings per ADS
$0.10 $0.02 $0.02 ADS outstanding (million) 35.28 35.58 35.58 ADS
used in diluted EPS calculation (million) 35.71 35.75 35.81
KongZhong Corporation Condensed Consolidated Statements of Income
(US$ thousands, except percentages, per share data, and share
count) (Unaudited) For the Twelve For the Twelve Months Ended
Months Ended December 31, December 31, 2006 2007 Revenues $106,769
$74,017 Cost of revenues 47,665 36,496 Gross profit 59,104 37,521
Operating expense Product development 12,026 12,535 Sales &
marketing 16,755 18,094 General & administrative 9,105 7,221
Subtotal 37,886 37,850 Operating income (loss) 21,218 (329)
Non-operating income (expenses) Interest income 3,867 3,810
Investment gain 1,241 208 Other expense (50) -- Subtotal 5,058
4,018 Income before tax expense 26,276 3,689 Income tax expense
1,584 857 Net income $24,692 $2,832 Basic earnings per ADS $0.71
$0.08 Diluted earnings per ADS $0.69 $0.08 ADS outstanding
(million) 34.99 35.58 ADS used in diluted EPS calculation (million)
35.67 35.77 KongZhong Corporation Condensed Consolidated Statements
of Cash Flows (US$ thousands) (Unaudited) For the Year For the Year
Ended Ended December 31, December 31, 2006 2007 Cash Flows From
Operating Activities Net Income $24,692 $2,832 Adjustments to
reconcile net income to net cash provided by operating activities
Share-based compensation 1,638 2,550 Depreciation and amortization
3,030 2,771 Loss on disposal of property and equipment 17 11 Gain
on sales of investment (1,241) (208) Changes in operating assets
and liabilities (126) (4,640) Net Cash Provided by Operating
Activities 28,010 3,316 Cash Flows From Investing Activities
Proceeds from sales of investment 1,741 208 Purchase of property
and equipment (2,518) (1,928) Acquisition of subsidiaries (17,139)
(17,000) Net Cash Used in Investing Activities (17,916) (18,720)
Cash Flows From Financing Activities Proceeds from exercise of
share options 2,214 152 (Increase) in minority interest (24) -- Net
Cash Provided by Financing Activities 2,190 152 Effect of foreign
exchange rate changes 1,976 6,193 Net increase (decrease) in Cash
and Cash $14,260 $(9,059) Equivalents Cash and Cash Equivalents,
Beginning of Period $117,142 $131,402 Cash and Cash Equivalents,
End of Period $131,402 $122,343 KongZhong Corporation Condensed
Consolidated Balance Sheets (US$ thousands) (Unaudited) December
31, September 30, December 31, 2006 2007 2007 Cash and cash
equivalents $131,402 $119,525 $122,343 Accounts receivable (net)
11,569 13,764 14,993 Other current assets 2,375 3,680 4,498 Total
current assets 145,346 136,969 141,834 Rental deposits 461 434 447
Intangible assets 1,997 1,438 1,266 Property and equipment (net)
3,101 3,279 3,427 Goodwill 15,836 33,964 34,919 Total assets
$166,741 $176,084 $181,893 Accounts payable $6,013 $5,604 $5,597
Other current liabilities 4,809 5,054 5,697 Total current
liabilities 10,822 10,658 11,294 Non-current deferred tax liability
142 103 123 Total liabilities $10,964 $10,761 $11,417 Shareholders'
equity 155,777 165,323 170,476 Total liabilities &
shareholders' equity $166,741 $176,084 $181,893 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 share-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 December
31, September 30, December 31, 2006 2007 2007 GAAP Net Income
$3,664 $544 $687 Non-cash share-based compensation 301 618 672
Amortization or write-off of intangibles 230 211 215 Non-GAAP Net
Income $4,195 $1,373 $1,574 Non-GAAP adjusted diluted net income
per ADS (note 1) $0.12 $0.04 $0.04 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
wireless value-added services and wireless media company in China.
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; the outcome of
our investment of operating income generated from the WVAS segment
into the development of our wireless Internet segment; 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: Media Contact: Xiaohu
Wang Manager Tel: +86-10-8857-6000 Fax: +86-10-8857-5900 Email:
DATASOURCE: KongZhong Corporation CONTACT: Investor Contact, Sam
Sun, Chief Financial Officer, +86-10- 8857-6000, or fax,
+86-10-8857-5891, or , or Media Contact, Xiaohu Wang, Manager,
+86-10-8857-6000, or fax, +86-10-8857-5900, or , both of KongZhong
Web Site: http://ir.kongzhong.com/
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