(Source: Business Wire)
CDC Corporation (NASDAQ: CHINA), a leading global enterprise software, IT services and new media company, today announced financial results for the quarter ended June 30, 2009. For the second quarter of 2009, revenue and Adjusted EBITDA (a) from continuing operations (b) or Adjusted EBITDA* were (U.S.)$81.7 million and (U.S.)$12.5 million, respectively. This compares to revenue and Adjusted EBITDA of (U.S.)$111.0 million and (U.S.)$10.0 million, respectively, for the second quarter of 2008.
In the second quarter of 2009, CDC Corporation also recorded operating cash flows of (U.S.)$11.2 million a 100 percent increase compared to (U.S.)$5.6 million in operating cash flows in the second quarter of 2008, marking seven consecutive quarters of cash generated from operations. For the second quarter of 2009, net income was (U.S.)$3.2 million, or $0.03 per share, compared to a loss of (U.S.)$10.0 million for the same quarter last year.
For the six months ended June 30, 2009, CDC Corporation reported Adjusted EBITDA of (U.S.)$19.7 million compared to (U.S.)$12.6 million for the same period in 2008. Net income for the six months ended June 30, 2009, was (U.S.)$11.0 million, or $0.09 per share, compared to a loss of (U.S.)$23.1 million, or a loss per share of $0.22 for the same quarter last year.
According to Thomson Financial Second Call, Wall Street consensus estimates for CDC Corporation's Adjusted EBITDA for the second quarter of 2009 were expected to be (U.S.)$5.6 million. With Adjusted EBITDA of (U.S.)$12.5 million in the second quarter of 2009, this marks the seventh consecutive quarter where CDC Corporation has reported quarterly Adjusted EBITDA that has exceeded Wall Street consensus estimates.
"We have completed the first phase of unlocking the value of CDC Corporation through the IPO of CDC Software," said Peter Yip, CEO of CDC Corporation. "This was a critical first step for the company and we plan to continue unlocking shareholder value with our other operating business units."
"Furthermore, we are pleased to report a sequential improvement in our revenue from Q1 2009 to Q2 2009, and in addition, post a 25 percent increase in Adjusted EBITDA compared to the same quarter last year, despite a lower revenue base. We were once again able to exceed Wall Street's Adjusted EBITDA expectations for the quarter and have now exceeded Wall Street consensus for the last seven quarters primarily because of our focus and proactive strategies for right-sizing, improving operational efficiencies, and leveraging our offshore product engineering centers in India and China.
"We also saw a 4 percent improvement in second quarter revenue compared to the first quarter of this year due primarily to the launch of Yulgang 3.0, a solid increase in license bookings compared to the first quarter of 2009, and continued steady sales in our installed base at CDC Software."
According to Yip, "We were pleased with our Adjusted EBITDA growth as a result of proactive measures to strategically realign operations, which we started more than 12 months ago. We believe our seven consecutive quarters of Adjusted EBITDA growth and solid operating cash flow are indications that CDC Corporation is operating from a strong foundation. When global economic conditions improve, we feel confident that we are well-positioned to take advantage of market opportunities."
CDC Corporation Consolidated
Total revenue for CDC Corporation in the second quarter of 2009 was (U.S.)$81.7 million, a decrease of 26 percent from (U.S.)$111.0 million in the second quarter of 2008.
Adjusted EBITDA in the second quarter of 2009 was (U.S.)$12.5 million, an increase of 25 percent from (U.S.)$10.0 million in the second quarter of 2008.
Balance Sheet and Convertible Debentures Update
The company's balance sheet set forth below, which is dated as of June 30, 2009, remained solid, with Non-GAAP Cash and Cash Equivalents(a) of (U.S.)$142.4 million as of June 30, 2009. As of June 30, 2009, the company had come to terms with all 11 holders of its 3.75 percent senior exchangeable convertible notes due 2011, for the repurchase of approximately 75 percent of the original amount of $168.0 million notes outstanding, equivalent to $125.8 million in principal repurchased, at average prices below par and with no dilutive impact on shareholders. The remaining face value of notes outstanding and not negotiated held by non-affiliates is $42.2 million.
On a pro forma basis, as of June 30, 2009, without taking into account any other changes in net tangible book value after June 30, 2009 other than to give affect to: (i) repurchases of convertible notes after June 30, 2009 and through to date; (ii) adjustment to fair market value of derivative balance related to redemptions of convertible notes; (iii) payment of dividend to minority interest holders at the China.com level; and (iv) the issuance and sale of 4.0 million and 0.8 million of American Depository Shares by CDC Software and CDC Software International Corporation, a wholly owned subsidiary of CDC Corporation, CDC Corporation's:
Pro-forma cash would have been (U.S.)$124.5 million instead of (U.S.)$111.9 million;
Working capital surplus would have been (U.S.)$30.0 million instead of working capital deficit of (U.S.)$27.4 million; and
Total debt would have been (U.S.)$64.4 million instead of (U.S.)$119.1 million.
Subsidiary Revenue and Operating Metrics Summary CDC Software On August 6, 2009, CDC Software, which recently began trading on the NASDAQ Global Market (CDCS), priced its initial public offering of 4,800,000 American depositary shares (the "ADSs"), each representing one share of its class A ordinary shares, at $12.00 per ADS. CDC Software Corporation offered 4,000,000 ADSs and the selling stockholder, CDC Software International Corporation, its parent corporation, and a wholly owned subsidiary of CDC Corporation, offered the remaining 800,000 ADSs in the offering. CDC Corporation now owns approximately 83 percent of CDC Software. CDC Software had the following results for the three months ended June 30, 2008 and 2009: Q2 2008 Q2 2009 Revenue: (U.S.)$66.8 million (U.S.)$50.6 million Adjusted EBITDA: (U.S.)$11.3 million (U.S.)$13.7million Adjusted EBITDA Margin: 17% 27% -------------------------------------------------------------------------------
Total revenue for CDC Software for the second quarter of 2009 was (U.S.)$50.6 million. License sales declined to (U.S.)$7.8 million from (U.S.)$13.7 million in the second quarter of 2008. However, licenses sales increased 10 percent in the second quarter compared to the first quarter of 2009.
CDC Software is now trading as a separately listed public company on the NASDAQ Global Market under the symbol: CDCS. For a more information regarding the financial performance of CDC Software during the second quarter and first six months of 2009, please see CDC Software's second quarter 2009 press release located at the company's website: www.cdcsoftware.com.
CDC Global Services
On a standalone basis, CDC Global Services had the following results for the three months ended June 30, 2008 and 2009:
Q2 2008 Q2 2009 Revenue: (U.S.)$29.5 million (U.S.)$ 18.5 million Adjusted EBITDA: (U.S.)$2.5 million (U.S.)$ - Adjusted EBITDA Margin: 9% 0% -------------------------------------------------------------------------------
Total revenue for CDC Global Services for the second quarter of 2009 was (U.S.)$18.5 million. Approximately 64 percent of this revenue was derived from the U.S. market while 36 percent was from international sources. Staff utilization for the quarter was 90 percent, which was up from 89 percent in Q1 2009. Furthermore, the company believes that CDC Global Services' staffing utilization rates are higher than industry averages. CDC Global Services' profit margins were negatively impacted by investments made in its business process outsourcing centers in India. In addition, CDC Global Services' revenue and profitability were also negatively impacted during the quarter due to the completion of several large deals.
CDC Global Services' offerings include platform-specific services for Microsoft and SAP, as well as project management, IT staffing, managed help desk solutions and a full range of outsourced service offerings. CDC Global Services also provides hardware for data collection and RFID through partnerships. Two key attributes of this business unit include an onshore/offshore delivery model for project work, which helps keep costs low for customers while helping to protect margins for the company, and long-term contracts for managed services, which help to provide CDC Global Services with a more predictable revenue stream.
Some of CDC Global Services' key wins and awards in the second quarter of 2009 included:
A three year, (U.S.)$2.0 million contract extension to manage desktop technology for a nationally known managed care operation.
A large energy delivery company servicing 1.9 million customers signed a (U.S.)$2.0 million contract extension to manage their desk top technology for another two years.
A nationally known beer company signed contract for CDC Global Services to implement SAP's Warehouse Management System at the first of three breweries.
CDC Global Services completed one of the few successful implementations in the world for SAP's Extended Warehouse Management system for an international beverage company.
Praxa Limited, a business unit of CDC Global Services, was named to the 2009 Microsoft Dynamics President's Club and to Microsoft's 2009 Inner Circle for its dedicated commitment to customers and for its status as a top Microsoft Dynamics partner.
"CDC Global Services' strategy is heavily focused on returning to profitability through integrating various operations into one unit under a seasoned management team. In addition we want to grow our existing global services businesses by leveraging our customer base and expanding our services offerings through strategic acquisitions," said Peter Yip, CEO of CDC Corporation.
CDC Games
On a standalone basis, CDC Games had the following results for the three months ended June 30, 2008 and 2009:
Q2 2008 Q2 2009 Revenue: (U.S.)$10.7million (U.S.)$9.5million(b) Adjusted EBITDA: (U.S.)$2.6 million (U.S.)$3.3million Adjusted EBITDA Margin: 25% 35% -------------------------------------------------------------------------------
Total revenue from continuing operations(b) for CDC Games during the second quarter of 2009 was (U.S.)$9.5 million. This represents a decrease of approximately 11 percent from the second quarter of 2008, but represents an increase of over 50 percent from the first quarter of 2009.
During the second quarter of 2009, CDC Games launched Yulgang 3.0, a major new version of the company's most popular game, and the Bloody Sky expansion pack for Shaiya.
CDC Games currently has 160 million registered users and 8.4 million active users with a portfolio of six online games that features diverse styles and appeals to a variety of gaming demographics.
CDC Games plans to continue its diversification strategy with the anticipated late third quarter launch in China of the Lord of the Rings Online (LOTRO), a subscription-based MMORPG that is based on the literary works of J.R.R. Tolkien. Also, CDC Games expects to launch RU Online, a locally developed MMORPG based on the Monopoly game theme, which is planned for launch in November, in China.
CDC Games has just completed a successful stress test on its advanced gaming and billing platforms which exceeded expectations for LOTRO. During the current testing phases of LOTRO, the company has seen significant interest and positive feedback by gamers on the unique music system, detailed scenery, exciting player versus player features, and innovative and more narrative style quests that differ from most MMOs. LOTRO has been rising in the rankings for the most anticipated game in popular search engines and games portals. For instance, on Baidu, China's most popular search engine, LOTRO was recently ranked #9 as one of the most anticipated games in China.
Since CDC Games has continued its diversification and domestic online games strategy, the company believes that it can maintain a relatively stable, recurring and repeatable revenue base. In addition, the company has made significant improvement in managing operating expenses with the consolidation of the operations and facilities of 17Games and Optic Communications, two companies acquired by CDC Games in 2006 and 2007, respectively. Furthermore, CDC Games believes it has developed a more cost-effective process for effectively launching games, which includes cross promotion and leveraging a combined base of existing players.
"We have seen a significant revenue increase at CDC Games since the launch of Yulgang 3.0," Yip said. "We also launched the Bloody Sky expansion pack of Shaiya which helped improved metrics for this game. CDC Games is adding a healthy pipeline of domestic games over the next several quarters. Furthermore, we are looking forward to launching LOTRO by the end of the third quarter, which we believe is an ideal time based on the market opportunities currently for a game of this genre and the exciting features which we expect should be well received by gamers," Yip said.
China.com
Total revenue for China.com from continuing operations(b) during the second quarter of 2009 was (U.S.)$3.1 million, a decrease of approximately 25 percent from the second quarter of 2008.
The company saw increased demand from its customer base for its automobile and games channels. During the quarter, China.com launched two new channels, the "Baby" channel and "Fortune Telling" channel. In the second quarter, China.com entered into new advertising and promotion agreements with major clients including: Haier, Toyota Guangzhou, Intel China, Canon China, L'Oreal China, and Honda Guanghzou. China.com also won a contract from the Municipal government of Jiaxing city in Zhejiang Province to run the first incubation project in China that provides support to promote webgame industries in China including government financial and policy support. Notably, China.com was recently named: "Top Ten Internet Portal in China" and "The Best Content Covering Website for the Beijing Olympics Events," sponsored by Internet Society of China, China People's Daily and the State Council Information Office of PRC.
Concluding Remarks
Yip concluded, "Overall, we are pleased with the rebound in revenue and growth in Adjusted EBITDA in the second quarter despite challenging market conditions. The successful IPO of CDC Software was a critical milestone.
