omniture

KongZhong Corporation Reports Second Quarter 2016 Unaudited Financial Results

2016-08-30 06:00 1587

BEIJING, August 30, 2016 /PRNewswire/ -- KongZhong Corporation (NASDAQ: KZ), a leading online game publisher and developer in the PRC, today announced its unaudited financial results for the second quarter of 2016.

Second Quarter 2016 Financial Highlights

  • Total revenues for the second quarter of 2016 were US$ 46.35 mn, a 9.90% decrease from the first quarter of 2016 and a 2.52% decrease from the same period last year.
  • Total gross profit was US$ 22.67 mn, a 2.60% increase from the first quarter of 2016.
  • Net income was US$3.39 mn, with diluted net income per American Depositary Shares ("ADS") was US$ 0.07.
  • Non-GAAP net income was US$ 8.21 mn, a 22.11% increase from the first quarter of 2016 and a 46.16% increase from the same period last year, with Non-GAAP diluted net income per ADS of US$ 0.17(Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures).
  • As of June 30th 2016, the Company had US$ 158.82 mn in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash or US$ 3.37 per ADS in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash, net of a US$ 65.04 mn short-term bank loan. The mark to fair value of the Company's investments in Ourgame and Forgame were priced at HK$ 3.47 and HK$ 10.10 per ordinary share, respectively (or US$ 9.27mn and US$ 15.70mn, respectively) as of June 30th 2016, compared to the mark to fair value of the Company's investments in Ourgame and Forgame which 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 31st 2016.

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


June 30,


March 31,


June 30,


2015


2016


2016


US$ in thousands


US$ in thousands


US$ in thousands







Revenues

47,547


51,442


46,348

Internet Games

24,461


37,014


32,929

Mobile Games

9,429


4,499


5,430

WVAS

13,657


9,929


7,989

Cost of Revenues before
impairment loss on
intangible assets

27,623


29,344


23,445

Internet Games

12,640


17,813


13,823

Mobile Games

4,946


4,089


3,133

WVAS

10,037


7,442


6,489

Impairment loss on
intangible assets

35,210


-


230

Gross Profit (Loss)

(15,286)


22,098


22,673

Gross Margin

(32%)


43%


49%

Non-GAAP Gross Profit

19,924


22,098


22,903

Internet Games

11,821


19,201


19,106

Mobile Games

4,483


410


2,297

WVAS

3,620


2,487


1,500







Non-GAAP Gross Margin

42%


43%


49%

Internet Games

48%


52%


58%

Mobile Games

48%


9%


42%

WVAS

27%


25%


19%

Revenues

Total revenues for the second quarter of 2016 were US$ 46.35 mn, a 9.90% decrease from the first quarter of 2016 and a 2.52% decrease from the same period last year.

Internet Games Revenues

Internet Game ("Net Game") revenues were US$ 32.93 mn in the second quarter of 2016, an 11.04% decrease from the first quarter of 2016 but a 34.62% increase from the same period last year.

For the second quarter of 2016, mainland China online game operations achieved average monthly active users ("MAUs") of 2.41 mn and aggregated monthly paying accounts ("APAs") of 389k with monthly average revenue per user ("ARPU") of RMB 181.


Three Months Ended

June 30,

2015

March 31,

2016

June 30,

2016

MAU

1, 832k

2,743k

2,410k

APA

327k

455k

389k

ARPU

152

170

181

Internet game revenues made up 71.1% of total revenues in the second quarter of 2016.

Mobile Games Revenues

Total mobile game revenues were US$ 5.43 mn, a 20.69% increase from the first quarter of 2016 but a 42.41% decrease from the same period last year. The increase in mobile game revenues was due to the newly launched mobile games in the Chinese domestic market and overseas.

Total mobile game revenues made up 11.7% of total revenues in the second quarter of 2016.

WVAS Revenues

WVAS revenues were US$ 7.99mn, a 19.54% decrease from the first quarter of 2016 and a 41.50% decrease from the same period of last year.

WVAS made up 17.2% of total revenues in the second quarter of 2016.

Gross Profit

Total gross profit for the second quarter of 2016 was US$22.67 mn, but if excluding the effect of an US$0.23mn impairment loss on intangible assets, Non-GAAP gross profit was US$22.90 mn, a 3.64% increase from gross profit in the first quarter of 2016 and a 14.95% increase from Non-GAAP gross profit in the same period last year.

Total Non-GAAP gross margin was 49.4% in the second quarter of 2016 compared to Non-GAAP gross margins of 43.0% in the first quarter of 2016.

Internet Game Gross Profit

Internet game gross profit was US$ 18.88 mn, other than the effect of impairment loss on intangible assets, internet game Non-GAAP gross profit was US$ 19.11 mn, a 0.49% decrease from gross profits in the first quarter of 2016 but a 61.63% increase from Non-GAAP gross profit in the same period last year. Internet game gross margin, other than the effect of impairment loss on intangible assets, was 58.0% compared to 51.9% in the first quarter of 2016.

Mobile Game Gross Profit

Mobile games gross profit was US$ 2.30 mn, a 460.24% increase from the first quarter of 2016 but a 48.76% decrease from the same period last year. 2Q16 gross profit returned to normal operating levels compared to 1Q16 due to recognition of prepaid license fees for offline mobile games in 1Q16. Mobile games gross margin was 42.3% compared to 9.1% in the first quarter of 2016.

WVAS Gross Profit

WVAS gross profit was US$1.50 mn, a 39.69% decrease from the first quarter of 2016 and a 58.56% decrease from the same period last year. WVAS gross margin was 18.8% compared to 25.0% in the first quarter of 2016.

Operating Expenses

Total operating expenses in the second quarter of 2016 were US$18.68 mn compared to US$17.48 mn in the first quarter of 2016. The operating expenses in the second quarter of 2016 included the impairment amount of US$1.72 mn related to prepaid license fees for games that will not be launched.

Product development expenses in the second quarter of 2016 were US$ 5.61 mn compared to US$ 6.16 mn in the first quarter of 2016.

Sales and marketing expenses in the second quarter of 2016 were US$ 9.12 mn compared to US$9.07 mn in the first quarter of 2016.

General and administrative expenses in the second quarter of 2016 were US$2.23 mn compared to US$2.25 mn in the first quarter of 2016.

The Company's total headcount in the second quarter of 2016 was 822 staff compared to 789 staff at the end of the first quarter of 2016.

Earnings

US GAAP net income and diluted income per ADS were US$ 3.39 mn and US$ 0.07, respectively. Non-GAAP net income and diluted income per ADS were US$ 8.21 mn and US$ 0.17, respectively.

Total ADS on a diluted basis outstanding during the second quarter of 2016 were 47.32mn, compared to 47.50mn outstanding during the first quarter of 2016.

For the purpose of earnings
per share calculation

Number during three
months ended

March 31, 2016

Number during three
months ended

June 30, 2016

ADS (in mns)

47.10

47.10

Add: Dilution impact from
options and nonvested shares

0.23

0.18

Warrants issued to business
partners

0.17

0.04

ADS on diluted basis

47.50

47.32

Balance Sheet

As of June 30th 2016, the Company had US$ 158.82 mn in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash or US$ 3.37 per ADS in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities and restricted cash, net of a US$ 65.04 mn short-term bank loan. The mark to fair value of the Company's investments in Ourgame and Forgame were priced at HK$ 3.47 and HK$ 10.10 per ordinary share, respectively (or US$ 9.27mn and US$ 15.70mn, respectively) as of June 30th 2016, compared to the mark to fair value of the Company's investments in Ourgame and Forgame which 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 31st 2016.

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.

On August 25, 2016, the Company announced the Board received a revised non-binding proposal letter, dated August 25, 2016, from Mr. Leilei Wang, chairman and chief executive officer of the Company, and IDG-Accel China Growth Fund II L.P., who, together with certain other parties, formed a buyer group (the "Buyer Group") to acquire all of the outstanding ordinary shares of the Company not owned by them or their affiliates (the "Transaction") for US$7.18 in cash per American depositary share ("ADS", each representing forty ordinary shares), or approximately US$0.1795 per ordinary share.

The special committee of the Board (the "Special Committee"), formed to consider the original proposal by the Buyer Group, is evaluating this revised proposal with the assistance of its financial and legal advisors. The Special Committee cautions the Company's shareholders and others considering trading in the Company's securities that no decision has been made by the Special Committee or the Board with respect to the revised proposal. There can be no assurance that any definitive offer will be made, any agreement will be executed or that this or any other transaction will be approved or consummated.

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 Monday, August 29, 2016 (7:30 AM Beijing/Hong Kong time, Tuesday, August 30, 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: 67090787

The dial-in details are as below:

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 athttp://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 September 6, 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 0205, 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



June 30,


March 31,


June 30



2015


2016


2016








Revenues


47,547


51,442


46,348

Cost of revenues







Cost of revenues before impairment loss on
intangible assets


27,623


29,344


23,445

Impairment loss on intangible assets


35,210


-


230

Total cost of revenues


62,833


29,344


23,675

Gross profit(loss)


(15,286)


22,098


22,673








Operating expenses







Product development


6,123


6,158


5,605

Sales and marketing


8,106


9,075


9,121

General and administrative


3,178


2,250


2,230

Recognition of prepaid license fees of
games


-


-


1,716

Total operating expenses


17,407


17,483


18,672








Government subsidy


326


71


121








Income(Loss) from operations


(32,367)


4,686


4,122








Interest income


1,298


2,245


2,337

Interest expense


(192)


(207)


(397)

Impairment loss on long-term investments


-


-


(1,972)

Exchange loss


(32)


(147)


(81)

Gain on sale of available-for-sale securities


1,164


19,781


-

Income(loss) before income tax expense,
l
oss on equity method investments


(30,129)


26,358


4,009

Income tax expense


(174)


(208)


(201)

Loss on equity method investments, net of
income tax


(121)


(547)


(414)

Net income(loss)


(30,424)


25,603


3,394








Earnings per ADS, basic


(0.65)


0.54


0.07

Earnings per ADS, diluted


(0.65)


0.54


0.07

Weighted average ADS outstanding (million)


46.65


47.10


47.10

Weighted average ADS used in diluted EPS
calculation (million)


46.65


47.50


47.32

Net income(loss)


(30,424)


25,603


3,394

Other comprehensive income (loss)


32,402


(23,202)


(10,614)

Total comprehensive income (loss)


1,978


2,401


(7,220)

Less: Comprehensive loss attributable to
non-controlling interest


-


-


(21)

Total comprehensive income (loss)

attributable to KongZhong Corporation


1,978


2,401


(7,199)

KongZhong Corporation

Condensed Consolidated Balance Sheets

(Unaudited, US$ in thousands)










As of June 30,


As of March 31,


As of June 30,

2015


2016

2016

Assets







Current assets







Cash and cash equivalents


61,618


66,751


64,972

Term deposits


26,094


124


124

Available-for-sale securities


84,792


29,414


24,970

Held-to-maturity securities


15,023


47,361


50,706

Accounts receivable (net)


30,898


29,146


27,357

Restricted cash


62,510


67,015


65,297

Other current assets


43,950


84,511


76,169

Total current assets


324,885


324,322


309,595








Non-current assets







Rental deposits


1,447


1,464


1,430

Intangible assets (net)


14,263


11,499


10,310

Property and equipment (net)


6,018


4,130


3,651

Long-term investments


2,042


5,940


4,611

Goodwill


90,099


85,200


82,991

Restricted cash


-


18,263


17,795

Total non-current assets


113,869


126,496


120,788

Total assets


438,754


450,818


430,383








Liabilities and Shareholders' Equity







Liabilities







Accounts payable
(including accounts payable of the
consolidated variable interest entities
("VIE") without recourse to KongZhong
Corporation of $29,153, $31,099 and
$21,659 as of June 30, 2015, March 31,
2016 and June 30, 2016, respectively)


29,202


31,611


21,677

Short-term bank loan

(including short-term bank loan of the
consolidated VIE without recourse to
KongZhong Corporation of $nil, $15,474
and $15,078 as of June 30, 2015, March 31,
2016 and June 30, 2016, respectively)


49,963


65,437


65,040

Deferred revenue
(including deferred revenue of the
consolidated VIE without recourse to
KongZhong Corporation of $3,233,
$17,188 and $12,181 as of June 30, 2015,
March 31, 2016 and June 30, 2016,
respectively)


3,262


17,218


12,210

Other current liabilities
(including other current liabilities of the
consolidated VIE without recourse to
KongZhong Corporation of $11,466,
$16,400 and $19,426 as of June 30, 2015,
March 31, 2016 and June 30, 2016,
respectively)


19,300


22,134


24,691








Total liabilities


101,727


136,400


123,618








Total KongZhong Corporation
shareholders' equity


337,027


314,418


306,597

Non-controlling interest


-


-


168

Shareholders' equity


337,027


314,418


306,765

Total liabilities and shareholders' equity


438,754


450,818


430,383


KongZhong Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, US$ in thousands)



Six Months Ended



June 30,


June 30,



2015


2016

Cash Flows From Operating Activities





Net income (loss)


(26,227)


28,997

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





Depreciation and amortization


7,539


3,062

Gain on sale of available-for-sale securities


-


(19,781)

Imputed interest on long-term liabilities


140


-

Loss on equity method investments


146


961

Share-based compensation


468


245

Impairment loss on intangible assets


35,210


230

Impairment loss on long-term investments


-


1,972

Changes in operating assets and liabilities


(15,032)


5,990

Net Cash Provided by Operating Activities


2,244


21,676






Cash Flows From Investing Activities





Purchase of term deposits


(9,989)


-

Proceeds from disposal of term deposits


815


24,881

Acquisition of equity method investment


(1,369)


-

Acquisition of cost method investment


-


(920)

Temporary advances


(3,264)


-

Purchase of held-to-maturity securities


(34,158)


(62,056)

Purchase of available-for-sale securities


(25,512)


(970)

Proceeds from disposal of available-for-sale securities


1,500


25,139

Proceeds from disposal of held-to-maturity securities


43,495


37,144

Purchase of property and equipment


(1,811)


(238)

Addition of restricted cash


(8,145)


(26,260)

Release of restricted cash


9,989


-

Loans to equity method investee


(13,500)


(15,537)

Loan repayment from third party


-


13,300

Loan repayment from equity method investee


-


6,434

Loan to related party


-


(475)

Net Cash Provided by (Used in) Investing Activities


(41,949)


442






Cash Flows From Financing Activities





Proceeds from exercise of employee stock options


433


21

Deferred payments for intangible assets


(10,396)


(10,158)

Proceeds from bank borrowing


7,534


15,324

Net Cash Provided by (Used in) Financing Activities


(2,429)


5,187






Effect of foreign exchange rate changes


(1,341)


(637)






Net increase (decrease) in Cash and Cash Equivalents


(43,475)


26,668

Cash and Cash Equivalents, Beginning of Period


105,093


38,304

Cash and Cash Equivalents, End of Period


61,618


64,972

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 gross profit, 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, gain on sale of available-for-sale securities, impairment of intangible assets, investment impairment loss, as well as recognition of prepaid license fees for games 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

June 30,


March 31,


June 30,


2015


2016


2016







GAAP gross profit (loss)

(15,286)


22,098


22,673

Impairment loss on intangible assets

35,210


-


230

Non-GAAP gross profit

19,924


22,098


22,903







GAAP net income

(30,424)


25,603


3,394

Share-based compensation

234


122


122

Gain on sale of available-for-sale securities

-


(19,781)


-

Amortization of intangibles

599


782


779

Impairment loss on intangible assets

35,210


-


230

Investment impairment loss

-


-


1,972

Recognition of prepaid license fees for games

-


-


1,716

Non-GAAP net income

5,619


6,726


8,213







Weighted average ADS used in diluted EPS calculation (million)

47.10


47.50


47.32

Non-GAAP diluted net income per ADS

0.12


0.14


0.17

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kongzhong-corporation-reports-second-quarter-2016-unaudited-financial-results-300319166.html

Source: KongZhong Corporation
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