2007'03.05.Mon
KongZhong Corporation Reports Unaudited Fourth Quarter and Fiscal Year 2006 Financial Results
March 02, 2007
BEIJING, March 2 /Xinhua-PRNewswire/ -- KongZhong
Corporation (Nasdaq: KONG), a leading provider of wireless
value-added services and the operator of a leading wireless
Internet portal in China, today announced its unaudited
fourth quarter and fiscal year 2006 financial results.
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Fourth Quarter 2006 Financial Highlights:
-- Total revenues grew 7% year-over-year to $23.71
million, exceeding the
Company's fourth quarter revenue guidance of $20.5
million to $21.5
million.
-- Total mobile advertising revenues increased from
$59,000 in the third
quarter of 2006 to $104,000 in the fourth quarter of
2006.
-- US GAAP net income was $ 3.66 million. Diluted
earnings per ADS in
the fourth quarter were $0.10.
-- Non-GAAP net income in the fourth quarter of 2006
was $4.20 million.
Non-GAAP diluted earnings per ADS were $0.12.
Non-GAAP Financial
Measures are described and reconciled to the
corresponding GAAP
measures in the section titled "Non-GAAP
Financial Measures".
Fiscal Year 2006 Financial Highlights:
-- Total revenues in 2006 increased 37% from 2005 to
reach a new record of
$106.77 million, exceeding 2006 guidance of revenue
between $97 million
and $105 million.
-- Total mobile advertising revenues in 2006 were $
0.21 million.
-- US GAAP Net income in 2006 increased 11% to $24.69
million from $22.17
million in 2005. Diluted earnings per ADS for 2006
were $0.69 compared
to $0.62 for 2005.
-- Non-GAAP net income in 2006 was $25.84 million.
Non-GAAP diluted
earnings per ADS for 2006 were $0.72.
Commenting on the results, Yunfan Zhou, Chairman and
Chief Executive Officer, said, "We are pleased that
both of our fourth quarter revenues and fiscal year 2006
revenues exceeded the guidance, despite of the regulatory
changes in 2006. In addition, we have seen continuous and
steady growth of mobile advertising revenues which were
mainly generated from our wireless Internet portal
Kong.net. Our founders and management team's strong
experiences in the wireless value-added services and
Internet portal and community are very helpful to develop
our wireless Internet portal business. We are confident
about the future of our wireless Internet portal business
and will increase our efforts to develop Kong.net in
2007."
Financial Results:
(Note: Unless otherwise stated, all financial statement
amounts used in this press release are based on US GAAP and
denominated in US dollars.)
Revenues
Total revenues for the fourth quarter increased 7% from
the same quarter of 2005 to $23.71 million but decreased 5%
from the third quarter of 2006. Revenues from 2.5G
services accounted for approximately 39% of total revenues
and revenues from 2G services represented the remaining
61%.
Revenues from 2.5G services, which include services
delivered using wireless application protocol (WAP),
multimedia messaging service (MMS), and Java technologies,
decreased 38% from the same period in 2005 and decreased
16% from the third quarter of 2006 to $9.17 million. The
sequential revenues decrease was primarily due to the
continuing effect of the regulatory changes introduced by
China Mobile during the third quarter 2006 that, among
other things, imposed a one-month free trial period for new
subscription users, required that new users confirm
subscriptions twice and mandated the termination of WAP
subscriptions that have not been active for more than four
months. WAP revenues in the fourth quarter of 2006 were
$4.85 million, a decrease of 44% from the same quarter of
2005 and a decrease of 16% from the third quarter of 2006.
MMS revenues in the fourth quarter of 2006 were $3.97
million, a decrease of 20% from the same period of 2005,
and a decrease of 17% from the third quarter of 2006. Java
revenues in the fourth quarter were $0.35 million, a 70%
decrease from the fourth quarter of 2005 and a 19% decrease
sequentially.
Revenues from 2G services, including short messaging
service (SMS), interactive voice response (IVR), and color
ring back tone (CRBT), grew 96% year-over-year and
increased 2% quarter-over-quarter to $14.39 million in the
fourth quarter of 2006. Year-over-year growth in 2G
revenues was primarily driven by the acquisition of Sharp
Edge, which was completed in the first quarter of 2006.
SMS revenues in the fourth quarter of 2006 were $11.66
million, which were 109% higher than the same period of
2005 and 7% higher than the previous quarter. IVR revenues
in the fourth quarter of 2006 were $1.36 million, a 3%
increase year-over-year but a 21% decrease sequentially.
CRBT revenues grew by 210% year-over-year, but decreased 5%
sequentially to $1.37 million in the fourth quarter of 2006.
The table below sets forth the revenues breakdown by
technology platforms.
Q405 1Q06 2Q06
3Q06 4Q06
2.5G: 67% 64% 46%
44% 39%
WAP 40% 32% 22%
23% 21%
MMS 22% 28% 22%
19% 17%
Java 5% 4% 2%
2% 1%
2G: 33% 36% 54%
56% 61%
SMS 25% 29% 42%
43% 49%
IVR 6% 4% 7%
7% 6%
CRBT and others 2% 3% 5%
6% 6%
Total 100% 100% 100%
100% 100%
Total revenues from China Unicom, China Telecom, and
China Netcom accounted for approximately 41% of the total
fourth quarter revenues, compared to 25% in the third
quarter of 2006. The increase in the relative proportion
of revenues coming from operators other than China Mobile
is mainly the result of a decline in revenues derived
through China Mobile due to the regulatory changes
discussed above and better revenue confirmation results
from other operators at year end. This was also a
reflection of the Company's continuously increasing efforts
to develop business with operators other than China Mobile
after the regulatory changes discussed above.
Total mobile advertising revenues, which were mainly
generated from KongZhong's wireless Internet portal
Kong.net, increased from $59,000 in the third quarter of
2006 to $104,000 in the fourth quarter of 2006.
Expenses
The cost of revenues in the fourth quarter of 2006
totaled $11.58 million, an increase of 13% from the fourth
quarter of 2005 and an increase of 2% from the third
quarter of 2006. Gross margin in the fourth quarter of
2006 was 51% compared to 55% in the previous quarter. The
lower gross margin was primarily due to the higher
percentage of revenues derived from telecommunications
operators other than China Mobile, which generally were
derived at a higher cost compared to revenues derived from
China Mobile.
Total operating expenses in the fourth quarter of 2006
were $8.71 million, an increase of 40% year-over-year but a
decrease of 11% quarter-over-quarter. Product development
expenses decreased by 18% quarter-over-quarter and
represented 11% of revenue. General and administrative
expenses decreased by 6% from the third quarter of 2006 and
represented 8% of revenues. Sales and marketing expenses
decreased by 8% quarter-over-quarter and represented 18% of
revenues. The decrease in operating expenses was primarily
due to the headcount reduction during Q3 and other cost
savings realized within the Company.
Total cost associated with the Company's wireless
Internet portal Kong.net business in the fourth quarter of
2006 was approximately $2.2 million, slightly lower than in
the previous quarter. It included $0.7 million in marketing
expenses.
The Company recorded $0.30 million in non-cash
share-based compensation expenses in the fourth quarter,
compared to $0.52 million in the third quarter of 2006.
The Company's total headcount declined from 816 as of Sep
30, 2006 to 798 as of December 31, 2006.
Earnings
US GAAP net income totaled $3.66 million in the fourth
quarter of 2006, a decrease of 42% from the same period of
last year and a 24% decrease from the third quarter of
2006. Diluted US GAAP earnings per ADS were $0.10 for the
fourth quarter.
Non-GAAP income in the fourth quarter of 2006 was $4.20
million, a 34% decrease from the same period in 2005 and a
24% decrease from the previous quarter. Diluted Non-GAAP
earnings per ADS were $0.12.
Balance Sheet and Cash Flow
As of December 31, 2006, the Company had $131.40
million in cash and cash equivalents. Cash flow from
operating activities totaled 11.46 million in the fourth
quarter of 2006.
Business Outlook:
China Unicom informed all its wireless value-added
service providers in January 2007 that effective April 1
2007, it will increase the service fees it charges service
providers from the current 20% of gross revenues derived
from China Unicom customers to 30%. The Company expects
this to have an adverse impact on gross margins beginning
in the second quarter of 2007.
As a result of the continuing impact of regulatory
changes introduced by telecommunication operators and the
Ministry of Information Industry, and based on information
available on March 2, 2007, the Company expects total
revenues for the first quarter of 2007 to be between $20
million and $21 million.
Conference Call:
The Company's management team will conduct a conference
call at 8:30 am Beijing time on March 2, (7:30 pm Eastern
time and 4:30 pm Pacific time on March 1, 2007). A webcast
of this conference call will be accessible on the Company's
web site at http://ir.kongzhong.com .
KongZhong Corporation
Condensed Consolidated Statements of Income
(US$ thousands, except percentages, per share data, and
share count)
(Unaudited)
For the Three For the
Three For the Three
Months Ended Months
Ended Months Ended
Dec. 31, 2005 Sep. 30,
2006 Dec. 31, 2006
(Note 1) (Note
2) (Note 3)
Revenues $22,141
$25,082 $23,712
Cost of revenues 10,222
11,394 11,579
Gross profit 11,919
13,688 12,133
Operating expenses
Product development 2,594
3,186 2,629
Sales & marketing 1,842
4,531 4,151
General & administrative 1,794
2,053 1,927
Subtotal 6,230
9,770 8,707
Operating income 5,689
3,918 3,426
Non-operating expenses (income)
Interest expenses (income) (853)
(1,036) (1,031)
Other expenses (income) (9)
4 11
Subtotal (862)
(1,032) (1,020)
Income before tax expense 6,551
4,950 4,446
Income tax expense 287
131 782
Net income 6,264
4,819 3,664
Basic earnings per ADS $0.18
$0.14 $0.10
Diluted earnings per ADS $0.17
$0.14 $0.10
Margin Analysis:
Gross margin 54%
55% 51%
Operating margin 26%
16% 14%
Net margin 28%
19% 15%
Additional Data:
2.5G revenue $14,749
$10,974 $9,167
2G revenue 7,330
14,043 14,387
ADS outstanding (million) 34.57
35.15 35.28
ADS used in diluted EPS
calculation (million) 35.85
35.66 35.71
Note 1: The conversion of Renminbi (RMB) into US
dollar (USD) for the
fourth quarter of 2005 is based on the
weighted average rate of
USD 1.00=RMB 8.0829 (the exchange rate quoted
by the People's
Bank of China).
Note 2: The conversion of Renminbi (RMB) into US
dollar (USD) for the
third quarter of 2006 is based on the weighted
average rate of
USD 1.00=RMB7.9678 (the exchange rate quoted
by the People's
Bank of China).
Note 3: The conversion of Renminbi (RMB) into US
dollar (USD) for the
fourth quarter of 2006 is based on the
weighted average rate of
USD 1.00=RMB 7.8641 (the exchange rate quoted
by the People's
Bank of China).
KongZhong Corporation
Condensed Consolidated Statements of Income
(US$ thousands, except percentages, per share data, and
share count)
(Unaudited)
For the 12
For the 12
Months Ended
Months Ended
Dec. 31, 2005
Dec. 31, 2006
(Note 1)
(Note 2)
Revenues $77,753
$106,769
Cost of revenues 31,323
47,665
Gross profit 46,430
59,104
Operating expenses
Product development 8,531
12,026
Sales & marketing
5,390 16,755
General & administrative
7,607 9,105
Class action lawsuit settlement and
legal expenses related to the issues
raised in the class-action litigation
commenced in August 2004 4,843
--
Subtotal 26,371
37,886
Operating income 20,059
21,218
Non-operating expenses (income)
Interest expenses (income) (2,640)
(3,867)
Investment gain(loss) --
(1,241)
Other expenses (income) (6)
50
Subtotal (2,646)
(5,058)
Income before tax expense 22,705
26,276
Income tax expense 530
1,584
Net income 22,175
24,692
Basic earnings per ADS $0.64
$0.71
Diluted earnings per ADS $0.62
$0.69
Margin Analysis:
Gross margin 60%
55%
Operating margin 26%
20%
Net margin 29%
23%
Additional Data:
2.5G revenue $56,318
$51,795
2G revenue 21,258
54,685
ADS outstanding (million) 34.43
34.99
ADS used in diluted EPS calculation
(million) 35.62
35.67
Note 1: The conversion of Renminbi (RMB) into US
dollar (USD) for 2005 is
based on the weighted average rate of USD
1.00=RMB8.1938 (the
exchange rate quoted by the People's Bank of
China).
Note 2: The conversion of Renminbi (RMB) into US
dollar (USD) for 2006 is
based on the weighted average rate of USD
1.00=RMB7.974 (the
exchange rate quoted by the People's Bank of
China).
KongZhong Corporation
Condensed Consolidated Statements of Cash Flows
(US$ thousands)
(Unaudited)
For the
Year For the Year
Ended
Ended
Dec.31
2005 Dec.31, 2006
(Note 1)
(Note 2)
Cash Flows From Operating Activities
Net Income $22,174
$24,692
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization of deferred share-based
compensation 348
1,638
Depreciation and amortization 1,825
3,030
Loss (gain) on disposal of property
and equipment
(2) 17
Gain on sales of investment --
(1,241)
Changes in operating assets and
liabilities 5,224
(126)
Net Cash Provided by Operating
Activities 29,569
28,010
Cash Flows From Investing Activities
Proceeds from sales of investment --
1,741
Purchase of property and equipment
(2,148) (2,518)
Proceeds from disposal of property and
equipment 1
--
Purchases of long-term investments
(500) --
Purchases of subsidiaries, net of cash
acquired
(1,435) (17,139)
Net Cash Used in Investing Activities
(4,082) (17,916)
Cash Flows From Financing Activities
Proceeds from exercise of employee and
non-employee share options 303
2,214
Decrease(increase) in minority interest
(97) (24)
Net Cash Provided by Financing
Activities 206
2,190
Effect of foreign exchange rate changes 735
1,976
Net increase in Cash and Cash
Equivalents 26,428
14,260
Cash and Cash Equivalents, Beginning of
Year 90,714
117,142
Cash and Cash Equivalents, End of Year 117,142
131,402
Note 1: The conversion of Renminbi (RMB) into US
dollar (USD) for fiscal
year 2005 is based on the weighted average
rate of USD 1.00=RMB
8.1938 (the exchange rate quoted by the
People's Bank of China).
Note 2: The conversion of Renminbi (RMB) into US
dollar (USD) for fiscal
year of 2006 is based on the weighted average
rate of USD
1.00=RMB 7.974 (the exchange rate quoted by
the People's Bank of
China).
KongZhong Corporation
Condensed Consolidated Balance Sheets
(US$ thousands)
(Unaudited)
Dec.31, 2005 Sep.
30, 2006 Dec.31,2006
(Note 1)
(Note 2) (Note 3)
Cash and cash equivalents $117,142
$118,607 $131,402
Accounts receivable (net) 10,834
17,471 11,569
Other current assets 1,657
2,110 2,375
Total current assets 129,633
138,188 145,346
Rental deposits 404
565 461
Intangible assets 261
2,078 1,997
Property and equipment (net) 3,116
3,426 3,101
Long-term investment 500
-- --
Goodwill 1,169
15,751 15,836
Total assets $135,083
$160,008 $166,741
Accounts payable $3,995
$5,625 $6,013
Other current liabilities 7,290
4,712 4,951
Minority interest 24
24 --
Total liabilities 11,309
10,361 10,964
Shareholders' equity 123,774
149,647 155,777
Total liabilities & shareholders'
equity $135,083
$160,008 $166,741
Note 1: The conversion of Renminbi (RMB) into US
dollar (USD) is based on
the exchange rate of Dec 31, 2005 USD1.00=RMB
8.0702 (the
exchange rate quoted by the People's Bank of
China).
Note 2: The conversion of Renminbi (RMB) into US
dollar (USD) is based on
the exchange rate of Sep 30, 2006 USD1.00=RMB
7.9087 (the
exchange rate quoted by the People's Bank of
China).
Note 3: The conversion of Renminbi (RMB) into US
dollar (USD) is based on
the exchange rate of Dec 31 , 2006 USD1.00=RMB
7.8087 (the
exchange rate quoted by the People's Bank of
China).
Non-GAAP Financial Measures
To supplement the unaudited condensed statements of
income presented in accordance with United States Generally
Accepted Accounting Principles ("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, our 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 net
income and non-GAAP net income per diluted ADS exclude, as
applicable, the amortization or write-off of intangibles,
and non-cash share-based compensation expense.
Reconciliation of the Company's Non-GAAP Financial
Measures to the GAAP financial measures is set forth below.
For the Three For the
Three For the Three
Months Ended Months
Ended Months Ended
Dec. 31, 2005 Sep. 30,
2006 Dec. 31, 2006
GAAP Net Income $6,264
$4,819 $3,664
Non-cash share-based
compensation 77
521 301
Amortization or write-off of
intangibles 27
192 230
Non-GAAP Net Income $6,368
$5,532 $4,195
Non-GAAP diluted net income per
ADS 0.18
0.16 0.12
About KongZhong
KongZhong Corporation is a leading provider of wireless
value-added services and also operates one of the leading
wireless Internet portals in China. The Company delivers
wireless value-added services to consumers in China through
multiple technology platforms including wireless application
protocol (WAP), multimedia messaging service (MMS), JAVA,
short messaging service (SMS), interactive voice response
(IVR), and color ring back tone (CRBT). The Company also
operates a wireless Internet portal, Kong.net, which
enables users to access media and entertainment content
directly from their mobile phones.
Safe Harbor Statement
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. Such forward-looking statements
include, without limitation, statements regarding trends in
the wireless value-added services market 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 market and the effect of such pressure
on prices; unpredictable changes in technology, consumer
demand and usage preferences in this market; the state of
and any change in our relationship with China's
telecommunications operators; our dependence on the billing
systems of telecommunication operators for our performance;
changes in the regulations or policies of the Ministry of
Information Industry and other relevant government
authorities; 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 market. 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.
SOURCE KongZhong Corporation
PR
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