BEIJING, May 15 /Xinhua-PRNewswire/ -- KongZhong Corporation
(NASDAQ: KONG), a leading wireless value-added services (WVAS) and
wireless media company in China, today announced its unaudited
first quarter 2008 financial results. First Quarter 2008 Financial
Highlights: -- Total revenues increased 8% sequentially to $21.39
million, exceeding the Company's first-quarter revenue guidance of
$20 million to $21 million. -- Total mobile advertising revenues
were $212,000. -- US GAAP net income was $0.09 million. Basic
earnings per ADS were $0.00. Diluted earnings per ADS were $0.00.
-- Non-GAAP net income was $0.95 million. Non-GAAP diluted earnings
per ADS were $0.03. Non-GAAP Financial Measures are described and
reconciled to the corresponding GAAP measures in the section titled
"Non-GAAP Financial Measures". Commenting on the results,
KongZhong's Chairman and Chief Executive Officer, Yunfan Zhou,
said, "Our WVAS revenues increased in Q1 mainly as a result of
seasonal factors. However, seasonal factors also resulted in our
lower mobile advertising revenues. We expect our mobile advertising
revenues to increase rapidly in Q2. In 2008, we will continue
pursuing our wireless Internet strategic initiative." Financial
Results: (Note: Unless otherwise indicated, all financial statement
amounts used in this press release are based on US GAAP and
denominated in US dollars.) WVAS segment For the Three For the
Three For the Three Months Ended Months Ended Months Ended March
31, 2007 December 31, March 31, 2008 (US$ thousands) 2007 (US$
thousands) (US$ thousands) WVAS Revenues 2.5G: WAP $4,399 $2,154
$3,060 MMS 4,130 2,797 2,868 JAVA(TM) 693 664 781 9,222 5,615 6,709
2G: SMS 8,563 7,995 9,592 IVR 1,017 4,269 2,873 CRBT 1,197 1,591
1,971 10,777 13,855 14,436 Total WVAS revenues 19,999 19,470 21,145
WVAS Cost of revenues 9,204 10,054 11,587 WVAS Gross profit 10,795
9,416 9,558 WVAS Operating expenses Product development 2,275 1,965
2,189 Sales & marketing 2,937 3,223 3,579 General &
administrative 2,167 1,568 1,648 Subtotal 7,379 6,756 7,416 WVAS
Operating income 3,416 $2,660 $2,142 WVAS Gross margin 54 % 48 % 45
% WVAS Operating margin 17 % 14 % 10 % Total WVAS revenues for the
first quarter increased 9% sequentially to $21.15 million, mainly
because of an increase in the volume of our services during the
holiday season in the PRC. Revenues from 2.5G services accounted
for approximately 32% of total WVAS revenues and revenues from 2G
services represented the remaining 68%. Revenues from 2.5G
services, which include services delivered using wireless
application protocol (WAP), multimedia messaging service (MMS), and
JAVA(TM) technologies, increased 19% sequentially to $6.71 million.
WAP revenues in the first quarter of 2008 were $3.06 million, an
increase of 42% sequentially. MMS revenues in the first quarter of
2008 were $2.87 million, an increase of 3% sequentially. JAVA(TM)
revenues in the first quarter of 2008 were $0.78 million, an
increase of 18% sequentially. Revenues from 2G services, including
short messaging service (SMS), interactive voice response (IVR),
and color ring back tone (CRBT), increased 4% sequentially to
$14.44 million in the first quarter of 2008. SMS revenues in the
first quarter of 2008 increased 20% sequentially to $9.59 million.
IVR revenues in the first quarter of 2008 decreased 33%
sequentially to $2.87 million. CRBT increased 24% sequentially to
$1.97 million the first quarter of 2008. The aggregate revenues
from China Unicom, China Telecom and China Netcom accounted for
approximately 24% of the total first quarter WVAS revenues, while
revenues from China Mobile accounted for the remaining 76%. WVAS
Cost and Expenses The WVAS cost of revenues in the first quarter of
2008 totaled $11.59 million, an increase of 15% sequentially. WVAS
gross margin in the first quarter of 2008 decreased to 45% compared
to 48% in the fourth quarter of 2007, mainly as a result of higher
revenue sharing with mobile handset manufacturers. Total WVAS
operating expenses in the first quarter of 2008 were $7.42 million,
an increase of 10% sequentially, mainly because of an increase in
compensation to our employees. Product development expenses
increased by 11% sequentially and represented 10% of revenues.
Sales and marketing expenses increased by 11% sequentially and
represented 17% of revenues. General and administrative expenses
increased by 5% sequentially and represented 8% of revenues.
Wireless Internet segment For the Three For the Three For the Three
Months Ended Months Ended Months Ended March 31, 2007 December 31,
March 31, 2008 (US$ thousands) 2007 (US$ thousands) (US$ thousands)
Mobile advertising revenues $116 $298 $212 Other revenues 12 42 29
Total Revenues 128 340 241 Cost of revenues 182 166 233 Gross
(loss) profit (54) 174 8 Operating expenses 2,447 3,223 3,249
Operating loss $(2,501) $(3,049) $(3,241) Total mobile advertising
revenues, which were mainly generated from KongZhong's wireless
Internet sites, were $212,000 in the first quarter of 2008 as the
advertising market is seasonally low in Q1. Operating expenses
related to the Company's wireless Internet sites were $3.25
million, which included $1.84 million in marketing and advertising
expenses. The Company's total headcount increased from 804 as of
December 31, 2007 to 817 as of March 31, 2008. Earnings US GAAP net
income totaled $0.09 million in the first quarter of 2008. Basic
earnings per ADS were $0.00. Diluted US GAAP earnings per ADS were
$0.00 for the first quarter. Non-GAAP net income in the first
quarter of 2008 was $0.95 million. Diluted Non-GAAP earnings per
ADS were $0.03 for the first quarter. Balance Sheet and Cash Flow
As of March 31, 2008, the Company had $126.81 million in cash and
cash equivalents. Cash in-flows from operating activities totaled
$2.32 million in the first quarter of 2008. Business Outlook: Based
on information available on May 16, 2008, the Company expects total
revenues for the second quarter of 2008 to be between $22 million
and $23 million. Conference Call: The Company's management team
will conduct a conference call at 8:30 am Beijing time on May 16
(8:30 pm Eastern time and 5:30 pm Pacific time on May 15, 2008). A
webcast of this conference call will be accessible on the Company's
web site at http://ir.kongzhong.com/ . KongZhong Corporation
Condensed Consolidated Statements of Income (US$ 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 March 31, December 31, March 31, 2007 2007 2008 Revenues
$20,127 $19,810 $21,386 Cost of revenues 9,386 10,220 11,820 Gross
profit 10,741 9,590 9,566 Operating expense Product development
3,204 3,047 3,576 Sales & marketing 4,401 5,363 5,422 General
& administrative 2,221 1,569 1,667 Subtotal 9,826 9,979 10,665
Operating income (loss) 915 (389) (1,099) Non-operating income
Interest income 1,024 889 1,273 Investment income 208 -- --
Subtotal 1,232 889 1,273 Income before tax expense 2,147 500 174
Income tax expense (benefit) 585 (187) 86 Net income $1,562 $687
$88 Basic earnings per ADS $0.04 $0.02 $0.00 Diluted earnings per
ADS $0.04 $0.02 $0.00 ADS outstanding (million) 35.58 35.58 35.58
ADS used in diluted EPS 35.77 35.81 35.93 calculation (million)
KongZhong Corporation Condensed Consolidated Statements of Cash
Flows (US$ thousands) (Unaudited) For the Three For the Three
Months Ended Months Ended March 31, 2007 March 31, 2008 Cash Flows
From Operating Activities Net Income $1,562 $88 Adjustments to
reconcile net income to net cash provided by operating activities
Share-based compensation 569 671 Depreciation and amortization 692
746 Gain on sales of investment (208) -- Changes in operating
assets and liabilities (2,466) 810 Net Cash Provided by Operating
Activities 149 2,315 Cash Flows From Investing Activities Proceeds
from sales of investment 208 -- Purchase of property and equipment
(381) (328) Acquisition of subsidiaries (17,000) (1,500) Net Cash
Used in Investing Activities (17,173) (1,828) Cash Flows From
Financing Activities Proceeds from exercise of share options 125 --
Net Cash Provided by Financing Activities 125 -- Effect of foreign
exchange rate changes 859 3,981 Net (decrease) increase in Cash and
Cash ($16,040) $4,468 Equivalents Cash and Cash Equivalents,
Beginning of Period $131,402 $122,343 Cash and Cash Equivalents,
End of Period $115,362 $126,811 KongZhong Corporation Condensed
Consolidated Balance Sheets (US$ thousands) (Unaudited) March 31,
December 31, March 31, 2007 2007 2008 Cash and cash equivalents
$115,362 $122,343 $126,811 Accounts receivable (net) 14,234 14,993
15,874 Other current assets 2,567 4,498 4,381 Total current assets
132,163 141,834 147,066 Rental deposits 449 447 465 Intangible
assets (net) 1,809 1,266 1,132 Property and equipment (net) 3,128
3,427 3,357 Long-term investment -- -- 1,500 Goodwill 32,987 34,919
36,361 Total assets $170,536 $181,893 $189,881 Accounts payable
$6,428 $5,597 $7,547 Other current liabilities 4,774 5,697 5,420
Total current liabilities 11,202 11,294 12,967 Non-current deferred
tax liability 129 123 147 Total liabilities $11,331 $11,417 $13,114
Shareholders' equity 159,205 170,476 176,767 Total liabilities
& shareholders' equity $170,536 $181,893 $189,881 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 on
sales of investment, and 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 March
31, December 31, March 31, 2007 2007 2008 GAAP Net Income $1,562
$687 $88 Gain on sales of investment (208) -- -- Share-based
compensation 569 672 671 Amortization or write-off of intangibles
206 215 189 Non-GAAP Net Income $2,129 $1,574 $948 Non-GAAP
adjusted diluted net $0.06 $0.04 $0.03 income per ADS note 1 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), JAVATM, 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 email, ; Media
Contact: Xiaohu Wang, Manager, +86-10-8857-6000, or fax,
+86-10-8857-5900, or email, Web site: http://www.kongzhong.com/
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