BEIJING and SANTA CLARA, Calif., Oct. 28, 2009 (PRNewswire-Asia-FirstCall) -- AsiaInfo Holdings, Inc. (Nasdaq: ASIA) ("AsiaInfo" or the "Company"), a leading provider of telecom software solutions and IT security products and services in China, today announced financial results for the third quarter of 2009.

"This past quarter marks another period of strong growth in which we met net revenue and exceeded EPS guidance," said Steve Zhang, AsiaInfo's president and chief executive officer. "This is especially notable as it comes on top of nearly 45% net revenue growth in the third quarter of 2008. During the quarter, we also took our first step into Southeast Asia by establishing a joint venture in Singapore, which will contribute sales and marketing expertise and help us cultivate strong partnerships in the region. In addition, in early October, we announced our acquisition of SmartCall, which provides us with the resources and expertise to fully execute end-to-end, targeted marketing campaigns. Building off of our leading base of business intelligence installations and consulting services, our SmartCall business has strong potential to quickly expand from solely operating in Sichuan province to a number of provinces in China.

Mr. Zhang concluded, "Looking forward, we are confident we will finish 2009 on a strong note and see abundant opportunities across all three of China's telecom operators in the coming year. In addition, our focus on delivering robust organic growth while remaining disciplined in our overseas expansion strategy will help us to deliver long-term sustainable growth."

Third Quarter 2009 Financial Results

Total revenues for the third quarter of 2009 were US$63.5 million, an increase of 41.8% year-over-year and 8.5% sequentially. Meeting guidance, net revenue (non-GAAP) for the third quarter of 2009 was US$60.9 million, an increase of 42.4% year-over-year and 14.1% sequentially. The year-over-year and sequential increases were primarily driven by strong performance among all three major customers in the telecom business.

During the quarter, AsiaInfo announced contracts with four China Mobile subsidiaries to upgrade BOSS Systems to NG-BOSS, six China Mobile subsidiaries to upgrade China Mobile Business Intelligence Systems to NG-BASS and a tender win to build P2P SMS Settlement System for China Mobile headquarters. The Company also signed a contract with China Unicom to build out a Device Management System that will allow China Unicom to remotely diagnose and manage mobile devices and contracts to integrate mobile and fixed-line Business Support Systems ("BSS") for China Telecom in Heilongjiang and Henan provinces. During the quarter, AsiaInfo also established a JV with Singapore-based Alpha Growth International and at the beginning of October, acquired a majority stake in an outbound calling services company called SmartCall Holdings, Ltd.

Gross margin for the quarter was 54.6%, compared to 51.8% in the year-ago period and 49.1% in the previous quarter. The year-over-year and sequential increases in gross margin were primarily due to a strong contribution from higher-margin software solutions and services. Gross profit as a percentage of net revenue (non-GAAP) was 57.0% in the third quarter of 2009, compared to 54.2% in the year-ago period and 53.9% in the previous quarter. The Company noted that gross profit as a percentage of net revenue (non-GAAP) has remained relatively stable, near 55% for the last several quarters.

In the third quarter of 2009, the AsiaInfo Technologies business unit, which focuses on telecommunications software and services, contributed 82.7% and 84.5% to total revenue and net revenue (non-GAAP), respectively. Total revenue for the AsiaInfo Technologies business unit increased 44.8% year-over-year and slightly decreased 0.3% sequentially to US$52.6 million. Net revenue (non-GAAP) for the AsiaInfo Technologies business unit increased 47.0% year-over-year and 7.3% sequentially to US$51.4 million. The increases in net revenue (non-GAAP) mainly reflect an increase in demand for the Company's software and service solutions among the three major telecom customers in a highly competitive market and an increasing number of contracts to upgrade and maintain existing installations.

In the third quarter of 2009, the Lenovo-AsiaInfo business unit, which focuses on IT security products and services, contributed 17.3% to total revenue and 15.5% to net revenue (non-GAAP). Total revenue for the Lenovo-AsiaInfo business unit increased 29.0% year-over-year and 87.0% sequentially to US$11.0 million. Net revenue (non-GAAP) for the Lenovo-AsiaInfo business unit increased 21.7% year-over-year and 73.3% sequentially to US$9.4 million. The year-over-year increase was mainly due to several major high-margin contracts signed with government agencies and the sequential increase was partially due to seasonality, as sales in the Lenovo-AsiaInfo business unit are typically weakest in the first half of each year. Please refer to the end of this press release for condensed segmented financial results for AsiaInfo's two business units.

Total operating expenses increased 36.9% year-over-year and 9.5% sequentially to US$24.5 million. Sales and marketing expenses increased 17.4% year-over-year and 13.0% sequentially to US$11.2 million. The year-over-year and sequential increases were mainly due to higher sales commission expenses incurred upon signing new contracts. General and administrative expenses increased 81.0% year-over-year and 3.3% sequentially to US$3.8 million. The year-over-year increase was largely the result of increases in share-based compensation related to the performance stock unit awards granted to key employees on March 16, 2009. Research and development expenses increased 73.4% year-over-year and 23.3% sequentially to US$10.8 million. The Company noted that the increase in R&D expenses is in line with its strategy of investing in the research and development of world-class products.

Income from operations for the third quarter of 2009 was US$10.2 million, an increase of 92.7% year-over-year and 59.1% sequentially. Operating margin of total revenue(2) was 16.0% for the third quarter of 2009, compared to 11.8% in the year-ago period and 10.9% in the previous quarter. Operating margin of net revenue (non-GAAP)(3) was 16.8% for the third quarter of 2009, compared to 12.4% in the year-ago period and 12.0% in the previous quarter. The year-over-year margin improvement was mainly the result of improving economies of scale and the Company's continued efforts to improve operational efficiency.

Other income for the third quarter of 2009 was US$527 thousand, a decrease of 77.0% from US$2.3 million in the year-ago period and a decrease of 70.0% from US$1.8 million in the previous quarter. The year-over-year decrease was largely the result of lower investment gains as well as lower interest rates in the third quarter of 2009, which resulted in lower interest income. The sequential decrease was the result of the sale of certain short-term investments during the second quarter of 2009, which realized a gain on investments of US$1.2 million.

In the third quarter of 2009, AsiaInfo recorded net income attributable to AsiaInfo Holdings, Inc. of US$9.1 million, or US$0.20 per basic share, compared to US$6.1 million, or US$0.13 per basic share, in the year-ago period and US$7.2 million, or US$0.16 per basic share, in the previous quarter.

Net income attributable to AsiaInfo Holdings, Inc. (non-GAAP)(4) was US$13.0 million in the third quarter of 2009 or US$0.29 per basic share. Net income attributable to AsiaInfo Holdings, Inc. (non-GAAP) in the year-ago period was US$7.6 million or US$0.16 per basic share. Net income attributable to AsiaInfo Holdings, Inc. (non-GAAP) in the previous quarter was US$11.4 million or US$0.26 per basic share. Net income attributable to AsiaInfo Holdings, Inc. (non-GAAP) increased 71.6% year-over-year and 14.0% sequentially.

As of September 30, 2009, AsiaInfo had cash and cash equivalents and restricted cash totaling US$195.8 million and short-term investments totaling US$40.0 million. Operating cash flow in the third quarter of 2009 was a net inflow of US$9.5 million.

Fourth Quarter 2009 Guidance

AsiaInfo expects fourth quarter 2009 net income from continuing operations per basic share to be in the range of US$0.28 to US$0.29, an increase of 460% to 480% year-over-year. Please note that in the fourth quarter of 2008, there was a US$0.15 per basic share of impairment loss on investment. The Company expects net revenue (non-GAAP) to be in the range of US$70 million to US$72 million, an increase of 37% to 40% year-over-year.

    (1) Net revenue (non-GAAP), a non-GAAP measure, represents total revenue
net of third-party hardware costs. A reconciliation of net revenue
(non-GAAP) to GAAP revenue is provided at the end of this press
release.
(2) Operating margin of total revenue is operating income divided by total
revenue.
(3) Operating margin of net revenue (non-GAAP) is operating income divided
by net revenue (non-GAAP).
(4) Net income attributable to AsiaInfo Holdings, Inc. (non-GAAP) and net
income attributable to AsiaInfo Holdings, Inc. (non-GAAP) per share
measures exclude share-based compensation expenses, amortization of
acquired intangible assets, impairment loss on investment, after-tax
dividend income and gain on discontinued operations.