omniture

KongZhong Corporation Reports First Quarter 2016 Unaudited Financial Results

2016-06-16 06:00 1471

BEIJING, June 16, 2016 /PRNewswire/ -- KongZhong Corporation (NASDAQ: KZ), a leading online game publisher and developer in the PRC, today announced its unaudited financial results for the first quarter of 2016.

First Quarter 2016 Financial Highlights

  • Total revenues for the first quarter of 2016 were US$ 51.44 mn, a 21.11% increase from the fourth quarter of 2015 and a 1.84% increase from the same period last year.
  • Total gross profit was US$ 22.10 mn, a 16.18% increase from the fourth quarter of 2015 and a 15.62% increase from the same period last year.
  • Net income was US$ 25.60 mn, a 319.72% increase from the fourth quarter of 2015 and a 510.03% increase from the same period last year, which included the realized gain of US$ 19.78 mn on a partial disposal of the shares in investment of Ourgame. Diluted net income per American Depositary Shares ("ADS") was US$ 0.54.
  • Non-GAAP net income was US$ 6.73 mn, a 3.71% decrease from the fourth quarter of 2015 but a 30.07% increase from the same period last year, with Non-GAAP diluted net income per ADS of US$ 0.14 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures").
  • As of March 31st 2016, the Company had US$ 163.49 mn in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash or US$ 3.47 per ADS in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash, net of a US$ 65.44 mn short-term bank loan. The mark to fair value of the Company's investments in Ourgame and Forgame were priced at HK$ 4.35 and HK$ 11.44 per ordinary share, respectively (or US$ 11.63mn and US$ 17.78 mn, respectively) as of March 31st 2016, compared to the mark to fair value of the Company's investments in Ourgame and Forgame which were priced at HK$ 5.75 and HK$ 13.04 per ordinary share, respectively (or US$ 44.47 mn and US$ 20.29 mn, respectively) as of December 31st 2015.

Business Highlights

  • The Company will continue to concentrate its efforts in Internet Games and Mobile games around its War Saga game platform, China's leading military genre online game platform. The Company plans to test and release additional mobile and PC games around the War Saga theme in 2016,

Three Months Ended


March 31,


December 31,


March 31,


2015


2015


2016


US$ in thousands


US$ in thousands


US$ in thousands







Revenues

50,512


42,475


51,442

Internet Games

26,364


30,476


37,014

Mobile Games

10,555


1,983


4,499

WVAS

13,593


10,016


9,929







Cost of Revenues

31,400


23,454


29,344

Internet Games

14,325


14,366


17,813

Mobile Games

6,667


1,556


4,089

WVAS

10,408


7,532


7,442







Gross Profit

19,112


19,021


22,098

Internet Games

12,039


16,110


19,201

Mobile Games

3,888


427


410

WVAS

3,185


2,484


2,487







Gross Margin

38%


45%


43%

Internet Games

46%


53%


52%

Mobile Games

37%


22%


9%

WVAS

23%


25%


25%

Revenues

Total revenues for the first quarter of 2016 were US$ 51.44 mn, a 21.11% increase from the fourth quarter of 2015 and a 1.84% increase from the same period last year.

Internet Games Revenues

Internet Game ("Net Game") revenues were US$ 37.01 mn in the first quarter of 2016, an increase of 21.45% from the fourth quarter of 2015 due to the release of World of Warships on November 27th 2015 and the release of the first expansion pack for Guild Wars 2: Heart of Thorns, to the mainland China market on November 20th 2015.

For the first quarter of 2016, mainland China online game operations achieved average monthly active users ("MAUs") of 2.74 mn and aggregated monthly paying accounts ("APAs") of 455k with monthly average revenue per user ("ARPU") of RMB 170.


Three Months Ended

March 31,

2015

December 31,

2015

March 31,

2016

MAU

1,909k

2,690k

2,743k

APA

333k

448k

455k

ARPU

163

144

170

Internet game revenues made up 72.0% of total revenues in the first quarter of 2016.

Mobile Games Revenues

Total mobile game revenues were US$ 4.50 mn, a 126.88% increase from the fourth quarter of 2015 but a 57.38% decrease from the same period last year. The increase in mobile game revenues was due to the newly launched mobile game, Rush Three Kingdoms in Japan on March 10th 2016, and the release of Rush Three Kingdoms in Southeast Asia on March 17th 2016. In the Chinese domestic market, we released the Battle of Warship on March 16th 2016 and Battleship Girl on April 20th 2016 on the IOS and Android smartphone platforms.

Total mobile game revenues made up 8.7% of total revenues in the first quarter of 2016.

WVAS Revenues

WVAS revenues were US$ 9.93mn, a 0.87% decrease from the fourth quarter of 2015 and a 26.96% decrease from the same period of last year.

WVAS made up 19.3% of total revenues in the first quarter of 2016.

Gross Profit

Total gross profit for the first quarter of 2016 was US$22.10 mn, a 16.18% increase from gross profit in the fourth quarter of 2015 and a 15.62% increase from the same period last year.

Total gross margin was 43.0% in the first quarter of 2016 compared to gross margins of 44.8% in the fourth quarter of 2015.

Internet Game Gross Profit

Internet game gross profit was US$ 19.20 mn, a 19.19% increase from gross profits in the fourth quarter of 2015 and a 59.49% increase from the same period last year. Internet game gross margin was 51.9% compared to 52.9% in the fourth quarter of 2015.

Mobile Game Gross Profit

Mobile games gross profit was US$ 0.41 mn, a 3.98% decrease from the fourth quarter of 2015 and an 89.45% decrease from the same period last year. The decrease in gross profit was due to recognition of prior prepaid license fees for offline mobile games that will not launched in future yet. Mobile games gross margin was 9.1% compared to 21.5% in the fourth quarter of 2015.

WVAS Gross Profit

WVAS gross profit was US$2.49 mn, a 0.12% increase from the fourth quarter of 2015 but a 21.92% decrease from the same period last year. WVAS gross margin was 25.0% compared to 24.8% in the fourth quarter of 2015.

Operating Expenses

Total operating expenses in the first quarter of 2016 were US$17.48 mn compared to US$16.80 mn in the fourth quarter of 2015.

Product development expenses in the first quarter of 2016 were US$ 6.16 mn compared to US$ 6.18 mn in the fourth quarter of 2015.

Sales and marketing expenses in the first quarter of 2016 were US$ 9.07 mn compared to US$6.35 mn in the fourth quarter of 2015. Sales and marketing expenses increased primarily due to the increased promotion activities of some of our Internet games and the newly launched smartphone games in 1Q 2016.

General and administrative expenses in the first quarter of 2016 were US$2.25 mn compared to US$4.27 mn in the fourth quarter of 2015. General and administrative expenses moderated primarily due to the decreased consulting and travel related expenses relating to our corporate investment activities, and bad debt provision relating to our WVAS business in 1Q16 compared to 4Q 2015.

The Company's total headcount in the first quarter of 2016 was 789 staff compared to 793 staff at the end of the fourth quarter of 2015.

Earnings

US GAAP net income and diluted income per ADS were US$ 25.60 mn and US$ 0.54, respectively. Non-GAAP net income and diluted income per ADS were US$ 6.73 mn and US$ 0.14, respectively.

Total ADS on a diluted basis outstanding during the first quarter of 2016 were 47.50 mn, compared to 47.30 mn outstanding during the fourth quarter of 2015.

For the purpose of earnings
per share calculation

Number during three
months ended

December 31,2015

Number during three
months ended

March 31, 2016

ADS (in mns)

46.87

47.10

Add: Dilution impact from
options and nonvested shares

0.27

0.23

Warrants issued to business
partners

0.16

0.17

ADS on diluted basis

47.30

47.50

Balance Sheet

As of March 31, 2016, the Company had US$ 163.49mn in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash or US$ 3.47 per ADS in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash, net of a US$ 65.44mn short-term bank loan. The mark to fair value of the Company's investments in Ourgame and Forgame were priced at HK$ 4.35 and HK$ 11.44 per ordinary share, respectively (or US$ 11.63mn and US$ 17.78mn, respectively) as of March 31,2016, compared to the mark to fair value of the Company's investments in Ourgame and Forgame which were priced at HK$ 5.75 and HK$ 13.04 per ordinary share, respectively (or US$ 44.47mn and US$ 20.29mn, respectively) as of December 31, 2015.

Investment in Ourgame

In November 2015, the Company entered into an agreement to partially dispose of its investment in Ourgame to Glassy Mind Holdings Limited, a third party, at a price of HK$6.1062 per share, for a total consideration of approximately HK$239.4 million (equivalent to approximately US$30.9 mn), with approximately 80% of the total consideration to be paid in cash immediately upon the completion of the sale and the remaining consideration to be paid in cash on September 30, 2016. The sale was completed in February 2016 and the Company received US$25.1 million in February 2016. The Company held a 2.63% interest in Ourgame thereafter. In the first quarter of 2016, the Company recognized a realized gain of US$19.78mn on the partial disposal of the shares in Ourgame in the statements of comprehensive income (loss). The cost of securities sold is determined based on specific identification method.

Recent Developments

On June 29, 2015, the Company announced that its board of directors (the "Board") had received a preliminary non-binding proposal letter from Leilei Wang, chairman and chief executive officer of the Company, and IDG-Accel China Growth Fund II L.P. to acquire all of the outstanding ordinary shares of the Company not owned by them or their affiliates for US$8.56 in cash per American depositary share (the "ADS", each representing forty ordinary shares) (the "Going Private Proposal").

On July 8, 2015, the Company announced that the Board has formed a special committee (the "Special Committee") consisting of two independent directors, Hope Ni and Xiaolong Li, and delegated to the Special Committee the exclusive power and authority of the Board to, among other things, evaluate and respond to the Going Private Proposal. Ms. Ni is serving as the chair of the Special Committee.

On November 3, 2015, the Company announced that the Special Committee has retained Duff & Phelps, LLC and Duff & Phelps Securities LLC as its financial advisors and Skadden, Arps, Slate, Meagher & Flom as its legal counsel in connection with its review and evaluation of the Going Private Proposal.

The Board cautions the Company's shareholders and others considering trading in the Company's securities that no decisions have been made by the Special Committee or the Company with respect to the Company's response to the Going Private Proposal. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other proposed transaction involving the Company, its securities and/or its assets will be approved or consummated. The Company does not undertake any obligation to provide any updates with respect to this or any other proposed transaction, except as required under applicable law.

Conference Call

KongZhong's management will hold a conference call and live webcast to discuss the results at 7:30 PM Eastern Standard Time (EST) on Wednesday, June 15, 2016 (7:30 AM Beijing/Hong Kong time, Thursday, June 16, 2016)

The Company welcomes all interested parties to participate in the live conference call. An Operator will greet you and ask for the Conference ID shown as following.

Conference ID: 23951963

U.S. Toll Free Dial-in Number

+1 866 519 4004

U.S. Dial-in Number

+1 845 675 0437

Hong Kong Toll Free Dial-in Number

800 906 601

Hong Kong Dial-in Number

+852 3018 6771

Mainland China Dial-in Number

800 819 0121, 400 620 8038

International Dial-in Number

+65 6713 5090

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. The archive replay will be available on the website shortly after the call.

A dial-in replay of the conference call will be available until June 23, 2016 (EST):

U.S. Toll Free Dial-in Number

+1 855 452 5696

U.S. Dial-in Number

+1 646 254 3697

Hong Kong Toll Free Dial-in Number

800 963 117

Hong Kong Dial-in Number

+852 3051 2780

Mainland China Toll Free Dial-in Number

800 870 0206, 400 602 2065

International Dial-in Number

+61 2 8199 0299

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. KongZhong has the exclusive publishing rights for World of Tanks, World of Warplanes, World of Warships, Guild Wars 2, 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 Corporation


Condensed Consolidated Statements of Comprehensive Income


(Unaudited, US$ in thousands, except per share and share data)




Three Months Ended




March 31,


December 31,


March 31,





2015


2015


2016












Revenues


50,512


42,475


51,442



Cost of revenues


31,400


23,454


29,344












Gross profit


19,112


19,021


22,098












Operating expenses









Product development


6,118


6,176


6,158



Sales and marketing


6,232


6,353


9,075



General and administrative


3,838


4,267


2,250



Total operating expenses


16,188


16,796


17,483












Government subsidy


214


769


71












Income from operations


3,138


2,994


4,686












Interest income


1,640


3,879


2,245



Interest expense


(183)


(88)


(207)



Imputed interest on long-term liabilities


(140)


-


-



Exchange loss


(73)


(141)


(147)



Gain on sale of available-for-sale securities


-


-


19,781



Income before income tax expense, loss on equity method investments


4,382


6,644


26,358



Income tax expense


(160)


(321)


(208)



Loss on equity method investments


(25)


(223)


(547)



Net income


4,197


6,100


25,603












Earnings per ADS, basic


0.09


0.13


0.54



Earnings per ADS, diluted


0.09


0.13


0.54



Weighted average ADS outstanding (million)


46.61


46.87


47.10



Weighted average ADS used in diluted EPS calculation (million)


46.85


47.30


47.50



Net income


4,197


6,100


25,603



Other comprehensive income


8,000


4,759


(23,202)



Total comprehensive income


12,197


10,859


2,401













KongZhong Corporation

Condensed Consolidated Balance Sheets

(Unaudited, US$ in thousands)











As of
March 31,


As of
December 31,


As of
March 31,


2015


2015

2016


Assets








Current assets








Cash and cash equivalents


85,168


38,304


66,751


Term deposits


16,088


25,121


124


Available-for-sale securities


46,062


64,756


29,414


Held-to-maturity securities


20,667


26,747


47,361


Accounts receivable (net)


29,235


24,485


29,146


Restricted cash


61,286


58,467


67,015


Other current assets


36,990


72,717


84,511


Total current assets


295,496


310,597


324,322










Non-current assets








Rental deposits


1,440


1,397


1,464


Intangible assets (net)


52,101


12,516


11,499


Property and equipment (net)


4,902


4,654


4,130


Long-term investments


1,076


4,773


5,940


Goodwill


89,675


84,770


85,200


Restricted cash


10,816


-


18,263


Total non-current assets


160,010


108,110


126,496


Total assets


455,506


418,707


450,818










Liabilities and Shareholders' Equity








Current Liabilities








Accounts payable
(including accounts payable of the
consolidated variable interest entities
("VIE") without recourse to KongZhong
Corporation of $33,403, $28,063 and
$31,099 as of March 31, 2015, December
31, 2015 and March 31, 2016,
respectively)


33,455


28,075


31,611


Short-term bank loan

(including short-term bank loan of the
consolidated VIE without recourse to
KongZhong Corporation of $nil, $nil and
$15,474 as of March 31, 2015, December
31, 2015 and March 31, 2016,
respectively)


49,963


49,963


65,437


Deferred revenue
(including deferred revenue of the
consolidated VIE without recourse to
KongZhong Corporation of $5,013, $7,888
and $17,188 as of March 31, 2015,
December 31, 2015 and March 31, 2016,
respectively)


5,042


7,917


17,218


Other current liabilities
(including other current liabilities of the
consolidated VIE without recourse to
KongZhong Corporation of $15,138,
$15,142 and $16,400 as of March 31,
2015, December 31, 2015 and March 31,
2016, respectively)


23,472


20,991


22,134


Total current liabilities


111,932


106,946


136,400










Non-current Liabilities








Other long-term liabilities
(including other long-term liabilities of the
consolidated VIE without recourse to
KongZhong Corporation of $10,000, $nil
and $nil as of March 31, 2015, December
31, 2015 and March 31, 2016, respectively)


10,000


-


-


Total liabilities


121,932


106,946


136,400


Shareholders' equity


333,574


311,761


314,418


Total liabilities and shareholders' equity


455,506


418,707


450,818












KongZhong Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, US$ in thousands)



Three Months Ended




March 31,


March 31,




2015


2016


Cash Flows From Operating Activities






Net income (loss)


4,197


25,603


Adjustments to reconcile net income to net cash
provided by operating activities






Depreciation and amortization


3,998


1,691


Gain on sale of available-for-sale securities


-


(19,781)


Imputed interest on long-term liabilities


140


-


Loss on equity method investments


25


547


Share-based compensation


234


122


Changes in operating assets and liabilities


(3,124)


9,604


Net Cash Provided by Operating Activities


5,470


17,786








Cash Flows From Investing Activities






Proceeds from disposal of term deposits


815


24,881


Acquisition of equity method investment


(285)


-


Acquisition of cost method investment


-


(920)


Temporary advances


(2,985)


-


Purchase of held-to-maturity securities


(17,699)


(40,313)


Purchase of available-for-sale securities


(16,876)


(255)


Proceeds from disposal of available-for-sale securities


-


25,139


Proceeds from disposal of held-to-maturity securities


21,300


20,032


Purchase of property and equipment


(55)


(96)


Addition of restricted cash


(8,145)


(26,260)


Loans to equity method investee


(7,618)


(6,964)


Net Cash Used in Investing Activities


(31,548)


(4,756)








Cash Flows From Financing Activities






Proceeds from exercise of employee stock options


-


21


Deferred payments for intangible assets


(407)


-


Proceeds from bank borrowing


7,534


15,324


Net Cash Used in Financing Activities


7,127


15,345








Effect of foreign exchange rate changes


(974)


72








Net decrease in Cash and Cash Equivalents


(19,925)


28,447


Cash and Cash Equivalents, Beginning of Period


105,093


38,304


Cash and Cash Equivalents, End of Period


85,168


66,751


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 gross profit excludes, as applicable, impairment loss on intangible assets. In addition, 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, imputed interest on long-term liabilities, as well as investment gain are adjusted for the dilution impact on ADS numbers from stock options, non-vested shares and warrants.


Reconciliation of the Company's Non-GAAP financial measures to the GAAP financial measures is set forth below.


(US$ in thousands, except per share and share data)














Three Months Ended



March 31,


December 31,


March 31,




2015


2015


2016











GAAP net income

4,197


6,100


25,603



Share-based compensation

234


344


122



Imputed interest on long-term liabilities

140


-


-



Gain on sale of available-for-sale securities

-


-


(19,781)



Amortization of intangibles

600


541


782



Non-GAAP net income

5,171


6,985


6,726











Weighted average ADS used in diluted EPS calculation (million)

46.85


47.30


47.50



Non-GAAP diluted net income per ADS

0.11


0.15


0.14


To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kongzhong-corporation-reports-first-quarter-2016-unaudited-financial-results-300284939.html

Source: KongZhong Corporation
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