- Q2 Net Revenue: $73.6 million Generally Accepted Accounting Principles ('GAAP') (a year-on-year increase of 7.9%)
- Q2 Net Income attributable to Cogo Group, Inc.: $2.5 million GAAP and $5.7 million Non-GAAP
- Q2 EPS Diluted attributable to Cogo Group, Inc.: $0.07 GAAP and $0.15 Non-GAAP (a year-on-year decrease of 28.6% Non-GAAP)
- Company provides Q3 guidance of $79-80 million in revenue and Non-GAAP EPS attributable to Cogo Group, Inc. of $0.16-$0.17
SHENZHEN, China, Aug. 6 /PRNewswire-FirstCall/ -- Cogo Group, Inc. (Nasdaq: COGO), a leading provider of customized design solutions for the technology manufacturing sector in China, today announced unaudited financial results for its second quarter of 2009. The Company reports quarterly revenue of $73.6 million, up 7.9% year-over-year, compared to $68.2 million reported in the second quarter of 2008.
Net income attributable to Cogo Group, Inc. for the second quarter of 2009 was $2.5 million, down 60.8% from $6.5 million in the same period last year, with Non-GAAP net income attributable to Cogo Group, Inc. of $5.7 million, down 32.1% over the same period last year. Earnings per share ("EPS") Diluted attributable to Cogo Group, Inc. on a U.S. GAAP basis was $0.07. Non-GAAP EPS Diluted attributable to Cogo Group, Inc. (which excludes share-based compensation expense and acquisition related costs including amortization of intangible assets and related deferred taxation) was $0.15, down 28.6% from the second quarter of 2008.
Key Financial Indicators
(all numbers in USD thousands, except Earnings per share data)
Q2 2009(1) Q2 2008(1) Percent Change
Net Revenue $73,589 $68,218 7.87%
Cost of Sales $63,102 $55,946 12.79%
Gross Profit $10,487 $12,272 (14.55%)
Net Operating Expenses $8,178 $6,423 27.32%
Income from Operations $2,309 $5,849 (60.52%)
Net Income Attributable to Cogo
Group, Inc.(2) $2,532 $6,466 (60.84%)
EPS Diluted Attributable to Cogo
Group, Inc. $0.07 $0.16 (56.25%)
Non-GAAP EPS Diluted attributable
to Cogo Group, Inc. $0.15 $0.21 (28.57%)
- The US dollar amounts are calculated based on the conversion rate of US $1 to RMB 6.8302 as of June 30, 2009, US $1 to RMB 6.8591 as of June 30, 2008.
- Included in the Q2 2009 net income attributable to Cogo Group, Inc. was an amount of $2.2 million in respect of share-based compensation expense in accordance with Statement of Financial Accounting Standards of No. 123 (revised 2004), Share-Based Payment ("SFAS 123R") and $1.0 million acquisition related costs including amortization of intangible assets and related deferred taxation. Non-GAAP net income attributable to Cogo Group, Inc., excluding the effects of share-based compensation expense and acquisition related costs, was $5.7 million or $0.15 Non-GAAP EPS Diluted attributable to Cogo Group, Inc. Included in the Q2 2008 net income was an amount of $1.3 million for share-based compensation expense in accordance with SFAS 123R and $0.6 million acquisition related costs including amortization of intangible assets and related deferred taxation.
Recent Developments
On May 30, 2009, the Company closed the acquisition of Mega Smart, one of the pioneers in China's developing industrial applications market in the electric grid and "smart meter" businesses.
Jeffrey Kang, Chairman & Chief Executive Officer, Cogo Group, Inc. said, "We are excited about the prospects of quickly integrating the sales and engineering talent to the overall Cogo platform. We believe that this transaction will provide a cost efficient way to quickly broaden our exposure to several rapidly growing industrial verticals. While we have seen an encouraging amount of contract activity already, we note that sales cycles can often be lengthy and forecasting the timing of generating revenue is difficult. With China's broad-based government infrastructure stimulus plan, we are excited about the growth prospects of the industrial applications market going into 2010."
Financial Results
Net revenue for the second quarter was $73.6 million, an increase of 7.9% compared to $68.2 million reported for the second quarter of last year. The net revenue breakdown is as follows: $23.6 million, or 32.0% of total revenue for mobile handsets, similar to the same period in 2008; $18.6 million, or 25.2% of total revenue for telecommunications equipment, representing a 6.9% decrease year-over-year; and $21.8 million, or 29.6% of total revenue for digital media products, similar to the same period in 2008. The Company also generated $8.6 million in revenue, or 11.7% of total revenue, representing a 241.6% year-over-year increase, from component sales relating to industrial business, which includes industrial solutions targeted at the electrical grid and railway sectors. The Company's service business contributed $1.1 million in net revenues for the second quarter and accounted for approximately 1.5% of total net revenue.
Cost of sales, which includes the aggregate purchase cost of components from suppliers and the direct cost of services, was $63.1 million, compared to $55.9 million in the same period last year, representing an increase of 12.8% year-over-year. Gross profit for the second quarter was $10.5 million, down 14.6% compared to the $12.3 million during the second quarter of last year. Gross margin for the second quarter decreased to 14.3%, compared to 18.0% reported during the second quarter of 2008, primarily attributable to intense market competition in the mobile handset and digital media end markets resulted in the reducing selling price strategy adopted by the Company since late 2008.
Selling, general and administrative expenses totaled $5.9 million, up 20.6%, compared to $4.9 million reported for the second quarter of last year. The increase was mainly attributable to an additional charge of doubtful account of $2.0 million for the three months ended June 30, 2009 as compared to $0.4 million for the same period of 2008. The additional charge of doubtful account was due to certain receivable balances being overdue in which the assessment of recoverability is remote. Research and development ("R&D") expenses increased by 49.5% to $2.4 million compared to $1.6 million in the second quarter of 2008. The increase was mainly attributable to share-based compensation awards granted to senior and management level R&D staff during the first quarter of 2009 which increased share-based compensation cost of $0.9 million as compared to the corresponding period in 2008.
Income from operations was $2.3 million, down 60.5% as compared to $5.8 million for the second quarter of 2008. Operating margin for the second quarter was 3.1% versus 8.6% for the second quarter of 2008. Excluding the effects of share-based compensation and acquisition-related costs including amortization of intangible assets, operating margin would have been 7.7% for the second quarter of 2009, compared to 11.9% for the same period in 2008. The effective tax rate for the second quarter of 2009 was 10.4%, compared to 4.7% for the same period in 2008. The increase in the effective tax rate was primarily due to the expiration of a tax holiday for certain subsidiaries in Shenzhen. Noncontrolling interests' share of income was $0.05 million as compared to $nil during the same period in 2008.
Net income attributable to Cogo Group, Inc. for the second quarter was $2.5 million or EPS Diluted attributable to Cogo Group, Inc. of $0.07 on a U.S. GAAP basis, compared to net income attributable to Cogo Group, Inc. of $6.5 million, or EPS Diluted attributable to Cogo Group, Inc. of $0.16 in the second quarter of 2008. Included in the second quarter 2009 net income attributable to Cogo Group, Inc. was $2.2 million for share-based compensation expense, $1.0 million for acquisition-related costs (including amortization of intangible assets) and related deferred taxation. Excluding the share-based compensation expense and acquisition-related costs (including amortization of intangible assets) and related deferred taxation, the Company would have reported net income attributable to Cogo Group, Inc. of $5.7 million, or $0.15 Non-GAAP EPS Diluted attributable to Cogo Group, Inc. for the second quarter, as compared to $0.21 for the second quarter of 2008. The weighted average number of shares used in the calculation of diluted EPS attributable to Cogo Group, Inc. was 37.7 million compared to 40.1 million in the second quarter of 2008.
For the six month period ended June 30, 2009, the Company reported revenue of $136.9 million, an increase of 5.5% compared to $129.7 million reported during the first half of 2008. Gross profit was $19.5 million, a decrease of 19.8% compared to $24.3 million reported during the first half of 2008. Gross margin was 14.2% of sales, compared to a gross margin of 18.7% for the same period last year. Net operating expenses were $15.8 million, an increase of 15.6% as compared to $13.6 million for the same period last year.
