Cdc Corp. (MM) (NASDAQ:CHINA)
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CDC Corporation (NASDAQ: CHINA), a leading global enterprise software
and new media company, today announced its financial results for the
second quarter of 2008. Total revenue from continuing operations for the
period ended June 30, 2008 was (U.S.)$111.0 million, higher than the
company’s previously announced range of
(U.S.)$107.3 to (U.S.)$108.5 million and an increase of 10 percent from
(U.S.)$100.7 million in the second quarter of 2007. Adjusted net income
from continuing operations(3) totaled
(U.S.)$4.5 million compared to a loss of (U.S.)$0.75 million for the
first quarter of 2008 and adjusted EBITDA(2)
totaled (U.S.)$6.1 million in Q2 2008.
Adjusted net income per share was (U.S.)$0.04, exceeding the consensus
Wall Street of (U.S.)$0.01 per share. Non-GAAP cash and cash equivalents(1)
totaled (U.S.)$233.4 million as of June 30, 2008.
The company generated positive operating cash flow in both Q1 2008 and
Q2 2008. Operating cash flow was (U.S.)$5.3 million and (U.S.)$5.6
million for Q1 2008 and Q2 2008, respectively. Combined, for the first
half of 2008, the company generated positive cash flow of (U.S.)$10.9
million.
“We are very proud that we have exceeded
analyst expectations for the second quarter in a row and that we have
generated significant positive cash flow for the first half of 2008,
especially in light of this difficult operating environment," said Peter
Yip, CEO, CDC Corporation. “We are delighted
that all three of our business units, CDC Software, CDC Games and
China.com, have delivered double digit sequential growth in Q2 2008. A
significant portion of CDC Corporation’s total
revenue is now derived from recurring sources and over the next several
quarters we expect to demonstrate improving profitability.
“The quarter’s
strong results were led by excellent results at CDC Software, with solid
performance from our higher growth solutions, including CDC Supply
Chain, CDC Factory and CDC Respond. These solutions have demonstrated
that they can perform well in a challenging economic environment. We
believe our target markets increasingly see the value of our solutions
and we anticipate a continuation of these positive trends. In light of
rising transportation, fuel and commodity costs, CDC Factory and CDC
Supply Chain are strategically positioned to provide both new and
existing customers with the critical operating tools they need to help
better manage their internal costs. In addition, CDC Respond is
delivering a high return on investment to many of its users by enabling
them to help better retain their customers through complaint and
feedback management.
“We also are continuing to carefully manage
our cost structure. Toward the end of the second quarter, we eliminated
approximately (U.S.)$15 million in additional annual overhead costs by
reducing facilities and related administration expenses, eliminating
redundant and non-essential positions, accelerating integration of past
acquisitions and reducing other general and administrative costs,
bringing the total costs eliminated to approximately (U.S.)$31 million
annually over the last 12 months,” added Yip. “We
plan to continue to improve our profit margins throughout the year by
managing costs while still maintaining a healthy research and
development budget within CDC Software.
“In the second quarter, we also saw robust
growth in our China-based businesses, with CDC Games’
China operations and China.com both delivering a double-digit increase
in revenue from Q1 2008 to Q2 2008. Looking forward, CDC Games has an
exciting roll-out schedule of new game launches planned for the second
half of the year, including Digimon, which was recently ranked number
one on the Baidu search engine user survey chart.
"I have also been very pleased with our current management team, which
has been responsible for shortening quarterly reporting schedules,
accelerating the integration of past acquisitions, including
standardizing our entities on a common IT system, reorganizing our
Global Business Services Group and identifying and implementing our
recent cost-cutting moves,” continued Yip. “Overall,
we believe that we have taken the steps necessary to manage our cost
base in anticipation of an on-going difficult operating environment and
intend to improve operating metrics and profitability going forward."
Second Quarter Highlights:
Total revenue for CDC Software for Q2 2008 was an all-time record for
the CDC Software division, with revenue of (U.S.)$96.1 million, an
increase of 9 percent from (U.S.)$88.4 million in Q2 2007. Organic
growth at CDC Software was up approximately 3 percent compared to the
same quarter last year. Recurring maintenance revenue was (U.S.)$26.8
million, up 29 percent compared to Q2 2007. License revenue was
(U.S.)$14.8 million, an increase of 21 percent from Q1 2008, or
(U.S.)$12.3 million.
Total revenue for CDC Games for Q2 2008 was (U.S.)$10.8 million. We
record revenue net of local sales tax, which were $0.6 million in Q2
of 2008. Including sales tax, gross revenue would have been
(U.S.)$11.4 million. This compares to net revenue of (U.S.) $8.7
million, net of $0.5 million of sales tax, or gross revenue of
(U.S.)$9.1 million in Q1 2008. This represents a sequential increase
of 24 percent for Q2 2008.
Total revenue for China.com was (U.S.)$4.1 million for Q2 2008, an
increase of 39 percent over (U.S.)$3.0 million in Q2 2007.
Total revenue for CDC Corporation was (U.S.)$111.0 million compared to
(U.S.)$100.7 million in Q2 2007. Net loss from continuing operations
in Q2 2008 for CDC Corporation was (U.S.)$10.1 million, compared to a
loss of (U.S.)$2.7 million in Q2 2007.
Adjusted net income from continuing operations(1)
was (U.S.)$4.5 million for Q2 2008 compared to a loss of (U.S.)$0.75
million in the previous quarter. Adjusted EBITDA from continuing
operations(2) was (U.S.)6.1 million for Q2
2008 compared to a loss of (U.S.)$0.9 million in the previous quarter.
Operating cash flow was (U.S.)$5.6 million in Q2 2008. In the first
quarter of 2008, operating cash flow was (U.S.)$5.3 million.
Subsidiary Revenue and Operating Metrics Summary
Highlights for Q2 2008:
CDC Software
Total revenue for CDC Software for Q2 2008 was (U.S.)$96.1 million, an
increase of 9 percent from (U.S.)$88.4 million in Q2 2007. The total
revenue amount for CDC Software for Q2 2008 was comprised of software
license revenue of (U.S.)$14.8 million, maintenance revenue of
(U.S.)$26.8 million, software consulting and services revenue of
(U.S.)$25.4 million, global services revenue of (U.S.)$27.0 million, and
hardware revenue of (U.S.)$2.2 million.
Gross margin for CDC Software, excluding Global Services, during Q2 2008
and Q2 2007 was 57 percent and 59 percent, respectively. Gross margin
for Global Services was 26 percent in Q2 2008 compared to 24 percent in
Q2 2007.
Q2 2008 revenue for CDC Software was geographically distributed with the
Americas contributing 59 percent of the total, and the rest of world
contributing 41 percent. Days sales outstanding (DSOs) in the quarter
were 77 days compared to 79 days for the Q1 2008.
During Q2 2008, CDC Software added a total of 225 new customers and
signed upgrade and expansion agreements with 572 enterprise software
customers.
New customers accounted for 39 percent of total software license revenue
during the quarter and included: a global leading specialty coffee
roaster and retailer, Red Gold, Toyota France, Poclain Hydraulics,
Elizabeth Arden, Staples, BASF Coatings, Hager, Coral Chemical, Hanna
Candles, Cerro Wire and Cable, Certified Diabetic Services,
Bristol-Myers, and SRAM. Repeat business with existing customers
accounted for 61 percent of total software license revenue for the
quarter. Customers with expanded and repeat business during the quarter
included: Jefferies Group, ABN-Amro Bank, Nike, The Nielsen Co., Estee
Lauder, Celanese, Molex Changdu, Web-EX, Sonoco Products Company, R&D
Systems, AlloSource, Schneider Electric, Smith & Nephew, ACCOR, MERIAL,
ELIOR, AFII (Agence Française pour les
Investissements Internationaux).
During Q2 2008, CDC Software also announced new key customer wins
including:
One of the world's leading specialty coffee roasters and retailers
with the implementation of CDC Factory.
A major sports-entity company based in Australia to implement CDC
Software’s CDC MarketFirst campaign and
marketing management solution, as well as c360’s
CRM solution.
A consumer-based organization located in Estonia, which operates
retail, as well as three hyper-markets in the region to implement CDC
Software’s CDC Supply Chain software
services as well as hardware.
CDC Software and its customers won several prestigious market awards in
Q2 2008, including:
Using CDC Software's CDC Factory, Bay Valley Foods was named one of
the top 50 companies who achieved operational excellence in Managing
Automation's Progressive Manufacturing 50 Awards Program.
CDC Software’s Pivotal 6.0 CRM software
suite was named by ISM Inc., a premier CRM consulting firm, as one of
the "Top 15" CRM software packages in the enterprise category for
2008, its 12th consecutive appearance in this
prestigious listing.
CDC Software’s leadership as a solution and
service provider offering customers the "next wave" of supply chain
innovations allowed CDC Software to stand out among its peers and be
named one of the 2008 Supply & Demand Chain Executive 100.
Other CDC Software highlights included:
CDC Software completed its acquisition of Dynamic Business Consultants
(DBC), an award-winning software systems integrator based in
Melbourne, Australia. DBC is expected to market and sell CDC
Software's Process Manufacturing solutions that include CDC Factory
and Ross Enterprise. This acquisition is intended to expand CDC
Software's market presence in Australia and the solutions and services
footprint for CDC Software's Australia-based Praxa services business
in the region.
CDC Software also added two Latin American franchise partners: Ross
Enterprise SA (Chile) and CDC Software de Brazil. CDC Software’s
Franchise Partner Program (FPP) now totals seven partners. Through the
FPP, CDC Software establishes strategic relationships with channel
partners in selected geographies through majority and minority
investments. CDC Software’s Franchise
Partners are located in high growth geographies that include Latin
America, India, China, the Middle East and Eastern Europe.
CDC Software believes that its recent results indicate that it has
several product lines, such as CDC Factory, CDC Supply Chain and CDC
Respond, that perform relatively well in slowing economies. Each of
these product lines has exhibited stronger growth than the software
division’s overall revenue rate during the
last two quarters. Based upon projected and actual sales pipelines, CDC
Software anticipates a continuation of this performance.
CDC Games
Total revenue for CDC Games during Q2 2008 was (U.S.)$10.8 million. This
represents an increase of 24 percent from Q1 2008, and was the second
consecutive quarter of sequential-quarter growth for CDC Games. The
increase was primarily driven by higher revenue contributions from
Yulgang, as the company recently launched a new version of the game and
renewed the licensing agreement with its developer. CDC Games also
generated positive EBITDA in Q2 2008. The majority of the revenue from
CDC Games has been driven by its China operations, as the company’s
U.S. and Japan operations have generated nominal revenue to date. CDC
Games believes the opportunity for online free-to-play games in the U.S.
and Japan markets is still in its early stages, relative to the more
mature China market.
CDC Games also believes that it has developed a relatively stable,
recurring and repeatable revenue base. In addition, the company believes
that benefits of its diversification strategy are becoming clear. CDC
Games’ revenue is now derived from its
portfolio of five online games and has a planned release schedule for
new games in the second half of 2008.
Q2 2008 highlights for CDC Games included:
In April 2008, CDC Games commercially launched Yulgang 2.0, a major
new content update for Yulgang, its widely popular online game, in
China, which provides gamers with approximately 30 percent more
content and has led to increased revenue for the game.
CDC games opened a new game zone in the company’s
online game, Shaiya. The company has expanded the number of server
groups for the game, which it believes will result in a higher degree
of community interaction.
CDC Games has launched 18 web-based casual games, and expects to
increase that amount substantially by the end of 2008. Among all
web-based casual games operators in China, CDC is one of the largest.
Revenue from these web-based casual games has been nominal to date.
In addition, CDC Games has two games it intends to launch in Q3 2008:
Digimon. Digimon is an online game based on the animated
Japanese series, where players can collect virtual pets and battle
each other. In addition, Digimon has secured the No. 1 ranking for the
last several weeks in the user survey chart on Baidu, the top search
engine in China; and
Street Gears. Street Gears is a casual skating game where
players can race each other or compete in trick contests.
The company believes that these games will help to add diversity to its
portfolio and expand its casual games offerings. In addition, over the
next six months, CDC Games intends to launch Life Online, a next
generation, 3D massive free-to-play multiplayer online game developed by
SONOV, the development arm of Sonokong, a leading Korean toy and game
entertainment company.
As a result of the above, the company believes it has made progress in
diversifying the pipeline and style of new games planned for the second
half of 2008. The pipeline, which includes Lunia, Life Online, Digimon
and Come on Baby, caters to a more casual and expanded target audience.
In addition, the company 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.
China.com
Total revenue for the China.com portal and media services businesses
during Q2 2008 was (U.S.)$4.1 million, an increase of 39 percent from
(U.S.)$3.0 million in Q2 2007. Gross margin for the China.com portal
business during Q2 2008 was 52 percent. The company saw an increase in
portal advertisement in its key vertical channels, automobile and
webgame channels. The company believes that China.com benefits from
strong brand recognition in China, the growth of online advertising, and
strategic partnerships with Internet industry leaders. China.com is
particularly focused on its industry-leading automobile and defense
content channels and has increased its advertising focus in these areas.
Stock Buy Back
In the second quarter of 2008, through its share repurchase program, the
company repurchased 262,457 shares of its common stock at an average
cost basis of (U.S.)$2.90. Since the end of the second quarter, the
company has repurchased an additional 209,517 shares of its common stock
through its share repurchase program at an average cost basis of
(U.S.)$2.39. Since the inception of the company's stock buy back program
in April 2006, it has repurchased a total of 9.5 million shares of its
common stock at an average cost basis of (U.S.)$5.53. In addition, Peter
Yip, the company’s CEO, has purchased a net
additional amount of 268,000 shares of CDC Corporation common stock at
an average cost basis of (U.S.)$3.55 (includes commissions) since
January 3, 2008.
“We are confident in our ability to improve
our operating metrics for the remainder of 2008,”
added Yip. “Our cost structure is now
better-aligned with modest expectations. Furthermore, our cash balance
remains very strong with non-GAAP cash and cash equivalents equal to
(U.S.)$233 million, and we have continued to generate cash from
operations. We believe that our stock is undervalued as indicated by our
continued commitment to the company’s stock
buyback program, as well as my personal purchases.”
Conference Call
The company’s senior management will host a
conference call for financial analysts and investors, today, August 7,
2008 at 5:00 pm EDT.
USA-based Toll Free Number: +1-888-603-6873
International: +1 973 582 2706
Pass code: 55369711
Call Leader: Monish Bahl
This call is being webcast by CCBN and can be accessed at CDC Corporation’s
corporate web site at www.cdccorporation.net.
The webcast is also being distributed over CCBN's Investor Distribution
Network to both institutional and individual investors. Individual
investors can listen to the call through CCBN's individual investor
center at www.fulldisclosure.com
or by visiting any of the investor sites in CCBN's Individual Investor
Network. Institutional investors can access the call via CCBN's
password-protected event management site, StreetEvents (www.streetevents.com).
Instant Replay
For those unable to call in, a digital instant replay will be available
after the call until August 15, 2008. U.S. based Toll Free Number: +1
800 642 1687 U.S.-based Toll Number: +1 706 645 9291 Passcode or PIN
#:55369711
Adjusted Financial Measures
This press release includes adjusted net income, adjusted EBITDA and
non-GAAP cash and cash equivalents, which are not prepared in accordance
with GAAP (collectively, the “Non-GAAP
Financial Measures”). Non-GAAP Financial
Measures are not alternatives for measures such as net income, earnings
per share and cash and cash equivalents prepared under generally
accepted accounting principles in the United States (“GAAP”).
These Non-GAAP Financial measures may also be different from non-GAAP
measures used by other companies. Non-GAAP Financial Measures should not
be used as a substitute for, or considered superior to, measures of
financial performance prepared in accordance with GAAP.
Investors should be aware that these Non-GAAP Financial Measures have
inherent limitations, including their variance from certain of the
financial measurement principals underlying GAAP, should not be
considered as a replacement for GAAP performance measures, and should be
read in conjunction with our consolidated financial statements prepared
in accordance with GAAP. These supplemental Non-GAAP Financial Measures
should not be construed as an inference that the Company’s
future results will be unaffected by similar adjustments to net earnings
determined in accordance with GAAP. Reconciliations of Non-GAAP
Financial Measures to GAAP are provided herein immediately following the
financial statements included in this press release.
The financial statements and estimates presented in this press release
are preliminary and unaudited. Adjustments to the estimates set forth in
this press release may be identified as a result of, among other things,
the company’s audit process for the year
ending December 31, 2008.
About CDC Corporation
The CDC family of companies includes CDC Software focused on enterprise
software applications and services, CDC Games focused on online games,
and China.com focused on portals for the greater China markets. For more
information about CDC Corporation (NASDAQ: CHINA), please visit www.cdccorporation.net.
About CDC Software
CDC Software, The Customer-Driven Company™,
is a provider of enterprise software applications designed to help
organizations deliver a superior customer experience while increasing
efficiencies and profitability. CDC Software’s
product suite includes: CDC Factory (manufacturing operations
management), Ross ERP (enterprise resource planning) and SCM (supply
chain management), e-M-Power (discrete manufacturing), CDC Supply Chain
(supply chain management, warehouse management and order management),
Pivotal CRM and Saratoga CRM (customer relationship management), CDC
MarketFirst (marketing automation and lead management), Respond
(customer complaint and feedback management), c360 CRM add-on products,
industry solutions and development tools for the Microsoft Dynamics CRM
platform, Platinum HRM (human resources) and business analytics
solutions.
These industry-specific solutions are used by more than 6,000 customers
worldwide within the manufacturing, financial services, health care,
home building, real estate, and wholesale and retail distribution
industries. The company completes its offerings with a continuum of
services that span the life cycle of technology and software
applications, including implementation, project consulting, outsourced
business services, application management and offshore development. CDC
Software is the enterprise software unit of CDC Corporation (NASDAQ:
CHINA) and is ranked number 12 on the MBT 2007 Global 100 List of
Enterprise and Supply Chain Management Application vendors. For more
information, please visit www.cdcsoftware.com.
About China.com Inc.
China.com is a leading operator of Internet portals, serving a broad
range of audiences in China. In 2006, it was chosen as the first company
to host Google's Video Adsense which serves video ads targeted at
China's English-speaking audience. China.com also was appointed by the
Jilin government as the exclusive web sponsor of the 2007 Asian Winter
Games. China.com was listed on the GEM of the Stock Exchange of Hong
Kong Limited on March 9, 2000. In December 2000, China.com Inc. was
admitted as a constituent stock of the Hang Seng IT and IT Portfolio
Indices.
About CDC Games
CDC Games is one of the market leaders of online and mobile games in
China with more than 140 million registered users and approximately 11
million active users. The company pioneered the "free-to-play,
pay-for-merchandise" online games model in China with Yulgang and
launched the first free-to-play, pay for merchandise FPS (first person
shooter) game in China with Special Force. Currently, CDC Games offers
six popular MMO online games in China that include: Special Force,
Yulgang, Shaiya, Mir III, Shine and Eve Online. In March 2007, the
company announced the formation of CDC Games Studio to establish
strategic relationships with selected games development partners to
accelerate the development of new, original online games for China and
other targeted global geographies. Through its CDC Games International
(CGI) subsidiary, the company launched a long-term strategy to be a
global publisher of MMO games. As a part of this strategy, CDC Games has
partnered with MBC Group, a leading media company in the Middle East, to
launch the world's first online games web portal in the Middle East. For
more information on CDC Games, visit: www.cdcgames
Cautionary Note Regarding Forward-Looking Statements
This press release includes "forward-looking statements" within the
meaning of the United States Private Securities Litigation Reform Act of
1995. These forward-looking statements include statements
regarding our beliefs regarding future and continued improvement in our
profitability, our beliefs regarding the composition of our revenues and
the recurring or non-recurring nature thereof, our beliefs regarding the
ability of our products to perform well in challenging economic
conditions, our beliefs regarding the perceptions and beliefs of our
target markets and the continuation of any tends we may see or have
seen, our beliefs regarding the strategic position and utility of our
products as well as any returns on investment that may be recognized by
of our customers, our beliefs regarding the utility and benefits of
using our products, our plans to continue to improve profit margins,
successfully manage costs and maintain healthy research and
development budgets, our beliefs regarding the roll-out schedule of new
games launches for CDC Games, our beliefs regarding the sufficiency of
the steps we have taken to improve our financial performance and our
ability to continue any improvement in metrics and financial measures,
our expectations regarding DBC and the expansion of our presence in
Australia, our beliefs regarding our franchise partners, the franchise
partner program and the continued utility thereof, our beliefs regarding
the future and continued performance of our products, our belief
regarding the relative immaturity of the opportunity for online
free-to-play games in the U.S. and Japan as compared to China, our
beliefs regarding the development of a stable, repeatable and recurring
revenue base, our beliefs regarding any benefits of our games
diversification strategy, our belief that community interaction levels
will increase for Shaiya, our beliefs regarding our ability to launch
new games, add diversity to our games portfolio and our ability to
utilize a more cost effective process for effectively launching new
games, our beliefs regarding our growth at China.com, our beliefs
regarding China.com’s brand recognition in
China, the growth of online advertising in China, and strategic
partnerships in China, and the effects and benefits thereof, our beliefs
about the continued financial and business performance and position, our
beliefs regarding our sales pipelines, our beliefs regarding the
reliability of our business indicators and our revenue mix as well as
the stability, strength thereof and of our cash position, the use of the
foregoing to help us continue growing, our efforts regarding our
financial and business focus, including our efforts with respect to
continue cost-savings, our ability to streamline operations, our ability
to reduce costs and beliefs about the effects thereof, our beliefs and
expectations regarding our existing and new customers, our expectations
and intentions relating to cost-savings associated with our initiatives,
our beliefs regarding the efficacy and abilities, functions, and
features of our products and upgrades, our expectations regarding
Yulgang 2.0, our beliefs regarding our operational efficiency and
cross-promotion activities and plans, our beliefs regarding each of our
games contribution to revenue, our beliefs regarding our ability to
produce continued growth in subsequent quarters, our beliefs regarding
our marketing, financial, business and competitive position, our intent
to continue to execute on our strategies and our expectations with
respect to development activities, our expectations regarding sequential
improvements in revenue for CDC Games, CDC Software and China.com, our
intentions with respect to the Company’s
convertible debentures and other corporate initiatives, our estimates
regarding maintenance revenue retention and other financial measures and
other statements that are not historical fact, the achievement of which
involve risks, uncertainties and assumptions. These statements
are based on management’s current
expectations and are subject to risks and uncertainties and changes in
circumstances. There are important factors that could cause actual
results to differ materially from those anticipated in the forward
looking statements, including the following: (a) the ability to realize
strategic objectives by taking advantage of market opportunities in
targeted geographic markets; (b) the ability to make changes in business
strategy, development plans and product offerings to respond to the
needs of current, new and potential customers, suppliers and strategic
partners; (c) the effects of restructurings and rationalization of
operations in our companies; (d) the ability to address technological
changes and developments including the development and enhancement of
products; (e) the ability to develop and market successful products and
services; (f) the entry of new competitors and their technological
advances; (g) the need to develop, integrate and deploy enterprise
software applications to meet customer’s
requirements; (h) the possibility of development or deployment
difficulties or delays; (i) the dependence on customer satisfaction with
the company’s games, software products and
services; (j) continued commitment to the deployment of the products,
including enterprise software solutions; (k) risks involved in
developing software solutions and integrating them with third-party
software and services; (l) the continued ability of the company’s
products and services to address client-specific requirements; (m)
demand for and market acceptance of new and existing enterprise software
and services and the positioning of the company’s
solutions; (n) risks associated with our convertible debt; and (o) the
ability of staff to operate the enterprise software and extract and
utilize information from the company’s
products and services. If any such risks or uncertainties
materialize or if any of the assumptions proves incorrect, our results
could differ materially from the results expressed or implied by the
forward-looking statements we make. Also, the results and
benefits experienced by customers and users set forth in this press
release may differ from those of other users and customers. Further
information on risks or other factors that could cause results to differ
is detailed in filings or submissions with the United States Securities
and Exchange Commission made by CDC Corporation in its Annual Report for
the year ended December 31, 2007 on Form 20-F filed on June 30, 2008.
All forward-looking statements included in this press release are based
upon information available to management as of the date of the press
release, and you are cautioned not to place undue reliance on any
forward looking statements which speak only as of the date of this press
release. The company assumes no obligation to update or alter the
forward looking statements whether as a result of new information,
future events or otherwise.
CDC Corporation
Unaudited Consolidated Balance Sheets
(Amounts in thousands of U.S. dollars except share and per share
data)
December 31,
June 30,
2007
2008
ASSETS
Current assets:
Cash and cash equivalents
$
142,218
$
183,389
Restricted cash
9,066
4,217
Accounts receivable (net of allowance of $8,688 and $8,146 at
December 31, 2007 and June 30, 2008, respectively)
87,612
81,832
Available-for-sale securities
78,498
12,651
Deferred tax assets
3,423
3,470
Prepayments and other current assets
22,930
16,995
Total current assets
343,747
302,554
Property and equipment, net
19,659
17,501
Goodwill
215,783
218,848
Intangible assets
132,605
126,193
Available-for-sale securities
28,526
33,107
Investments under cost method
12,315
12,421
Deferred tax assets
44,576
44,139
Other assets
6,390
6,860
Total assets
$
803,601
$
761,623
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
28,571
$
23,090
Purchase consideration payables
4,192
2,783
Income tax payable
2,145
1,463
Accrued liabilities
50,549
63,610
Restructuring accruals, current portion
2,807
4,406
Short-term bank loans
33,892
10,655
Deferred revenue
67,989
68,328
Deferred tax liabilities
942
742
Total current liabilities
191,087
175,077
Deferred tax liabilities
28,496
28,469
Convertible notes
174,905
181,409
Restructuring accruals, net of current portion
482
601
Other liabilities
12,396
12,404
Total liabilities
407,366
397,960
Minority interests
37,411
19,956
Contingencies and commitments
Shareholders’ equity:
Preferred shares, $0.001 par value; 5,000,000 shares authorized, no
shares issued
-
-
Class A common shares, $0.00025 par value; 800,000,000 shares
authorized; 117,416,475 and 117,819,273 shares issued as of December
31, 2007 and June 30, 2008, respectively; 106,930,800 and
107,071,141 shares outstanding as of December 31, 2007 and June 30,
2008, respectively
28
28
Additional paid-in capital
713,096
717,603
Common stock held in treasury; 10,485,675 and 10,748,132 shares at
December 31, 2007 and June 30, 2008, respectively
(54,646
)
(55,415
)
Accumulated deficit
(324,828
)
(346,873
)
Accumulated other comprehensive income
25,174
28,364
Total shareholders’ equity
358,824
343,707
Total liabilities and shareholders’ equity
$
803,601
$
761,623
CDC Corporation
Unaudited Consolidated Statement of Operations
(Amounts in thousands of U.S. dollars except per share data)
Three Months Ended June 30,
2007
2008
Revenue:
Software
$
59,391
$
65,822
Global Services
29,040
30,304
CDC Games
9,316
10,803
China.com
2,950
4,090
Total revenue
100,697
111,019
Cost of revenue:
Software
(24,136
)
(28,603
)
Global Services
(22,087
)
(22,356
)
CDC Games
(4,675
)
(6,094
)
China.com
(1,122
)
(1,944
)
Total cost of revenue
(52,020
)
(58,997
)
Gross profit
48,677
52,022
Gross margin %
48
%
47
%
Operating expenses:
Sales and marketing expenses
(18,254
)
(21,062
)
Research and development expenses
(5,919
)
(6,597
)
General and administrative expenses
(20,340
)
(24,903
)
Amortization expenses
(2,535
)
(3,128
)
Restructuring and other charges
(661
)
(2,838
)
Total operating expenses
(47,709
)
(58,528
)
Operating income (loss)
968
(6,506
)
Operating margin %
1
%
-6
%
Other income (loss), net
1,240
(2,379
)
Income (loss) before income taxes
2,208
(8,885
)
Income tax expense
(4,022
)
(675
)
Income (loss) before minority interests
(1,814
)
(9,560
)
Minority interests in income of consolidated subsidiaries
(915
)
(507
)
Loss from continuing operations
(2,729
)
(10,067
)
Discontinued operations:
Loss from operations of discontinued subsidiaries
(974
)
(93
)
Net loss
$
(3,703
)
$
(10,160
)
Basic and diluted loss per share from continuing operations
$
(0.02
)
$
(0.10
)
Basic and diluted loss per share
$
(0.03
)
$
(0.10
)
Weighted average number of shares - basic
106,925
107,456
CDC Corporation
Unaudited Consolidated Statement of Operations
(Amounts in thousands of U.S. dollars except per share data)
Six Months EndedJune 30,
2007
2008
Revenue:
Software
$
110,667
$
125,619
Global Services
53,937
57,852
CDC Games
19,044
19,509
China.com
5,006
6,335
Total revenue
188,654
209,315
Cost of revenue:
Software
(45,463
)
(56,078
)
Global Services
(40,452
)
(43,955
)
CDC Games
(8,628
)
(11,749
)
China.com
(1,885
)
(3,070
)
Total cost of revenue
(96,428
)
(114,852
)
Gross profit
92,226
94,463
Gross margin %
49
%
45
%
Operating expenses:
Sales and marketing expenses
(33,073
)
(40,736
)
Research and development expenses
(10,733
)
(13,031
)
General and administrative expenses
(38,467
)
(47,610
)
Amortization expenses
(5,063
)
(6,392
)
Restructuring and other charges
(1,422
)
(3,124
)
Total operating expenses
(88,758
)
(110,893
)
Operating income (loss)
3,468
(16,430
)
Operating margin %
2
%
-8
%
Other income (loss), net
2,263
(3,291
)
Income (loss) before income taxes
5,731
(19,721
)
Income tax expense
(5,417
)
(1,126
)
Income (loss) before minority interests
314
(20,847
)
Minority interests in income of consolidated subsidiaries
(1,850
)
(852
)
Loss from continuing operations
(1,536
)
(21,699
)
Discontinued operations:
Loss from operations of discontinued subsidiaries
(974
)
(345
)
Net loss
$
(2,510
)
$
(22,044
)
Basic and diluted loss per share from continuing operations
$
(0.01
)
$
(0.21
)
Basic and diluted loss per share
$
(0.01
)
$
(0.21
)
Weighted average number of shares - basic
107,100
107,083
CDC Corporation
Unaudited Consolidated Statement of Cash Flows
(Amounts in thousands of U.S. dollars)
Six Months EndedJune 30,
2008
OPERATING ACTIVITIES:
Net loss
$
(22,044
)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority interests in income of consolidated subsidiaries
750
Loss on disposal/write-off of property and equipment
133
Gain on disposal of available-for-sale securities
(127
)
Loss on disposal of subsidiaries and cost investments
130
Bad debt expense
1,363
Amortization expense
6,392
Amortization expense included in cost of revenue
9,244
Depreciation
4,574
Impairment of cost investments and available-for-sale securities
(554
)
Stock compensation expenses
3,530
Deferred provision for income taxes
26
Discount amortization on convertible notes
631
Fair market value adjustment of derivative instruments
5,874
Changes in operating assets and liabilities:
Accounts receivable
6,746
Deposits, prepayments and other receivables
6,433
Other assets
340
Accounts payable
(6,342
)
Accrued liabilities
(3,148
)
Deferred revenue
(1,139
)
Income tax payable
(734
)
Other liabilities
(1,224
)
Net cash provided by operating activities
10,854
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired
(688
)
Purchases of property and equipment
(2,412
)
Acquisition of equity investees
(337
)
Capitalized software
(5,285
)
Purchases of intangible assets
(2,831
)
Proceeds from disposal of available-for-sale securities
59,221
Proceeds from disposal of subsidiaries
364
Decrease in restricted cash
4,850
Net cash provided by investing activities
52,882
FINANCING ACTIVITIES:
Issuance of share capital, net of offering costs
615
Proceeds from bank loans
7,348
Repayment of bank loans
(30,585
)
Purchases of treasury stock
(2,874
)
Net cash used in financing activities
(25,496
)
Effect of exchange differences on cash
2,931
Net increase in cash and cash equivalents
41,171
Cash and cash equivalents at beginning of year
142,218
Cash and cash equivalents at end of year
$
183,389
(3) Non GAAP Cash and Cash Equivalents Reconciliation
Q2 2008
Cash and cash equivalents
$
183,389
Add restricted cash
4,217
Add available for sale securities - current
12,651
Add available for sale securities - long-term
33,107
Non GAAP cash and cash equivalents
$
233,364
CDC Corporation
Unaudited Reconciliation From GAAP Results to Adjusted EBITDA
(Amounts in thousands of U.S. dollars)
Three Months EndedJune 30,
2007
2008
(2) Reconciliation from GAAP results to Adjusted EBITDA
Operating income (loss)
$
968
$
(6,506
)
Add back restructuring and other charges
661
2,838
Add back depreciation expense
1,335
2,490
Add back amortization expense
2,535
3,128
Add back amortization expense included in cost of revenue
3,599
4,640
Add back stock compensation expenses
1,860
1,887
Subtract capitalized software
(2,028
)
(2,385
)
Adjusted EBITDA
$
8,930
$
6,092
CDC Corporation
Unaudited Reconciliation From GAAP Results to Adjusted EBITDA
(Amounts in thousands of U.S. dollars)
Six Months Ended June 30,
2007
2008
(2) Reconciliation from GAAP results to Adjusted EBITDA
Operating income (loss)
$
3,468
$
(16,430
)
Add back restructuring and other charges
1,422
3,124
Add back depreciation expense
2,541
4,574
Add back amortization expense
5,063
6,392
Add back amortization expense included in cost of revenue
6,099
9,244
Add back stock compensation expenses
4,139
3,530
Subtract capitalized software
(4,659
)
(5,285
)
Adjusted EBITDA
$
18,073
$
5,149
CDC Corporation
Unaudited Reconciliation From GAAP Results to Non-GAAP Results
(Amounts in thousands of U.S. dollars except per share data)
Three Months Ended June 30,
2007
2008
(1) Reconciliation from GAAP results to Non-GAAP results
Loss from continuing operations
$
(2,729
)
$
(10,067
)
Add back amortization expense of purchased technologies included in
cost of revenue
2,358
2,750
Add back amortization expense
2,535
3,128
Add back stock compensation expenses
1,860
1,887
Add back restructuring and other charges
661
2,838
Add back amortization of debt issuance costs
491
491
Add back loss on derivatives
790
3,555
Add back impairment of available-for-sale securities
-
(28
)
Subtract (gain) loss on disposal of investments
(622
)
55
Add back deferred tax impact
3,304
(125
)
Subtract minority interest
(244
)
(1
)
Income from continuing operations - Non-GAAP
$
8,404
$
4,483
Adjusted diluted earnings per share
$
0.06
$
0.04
Weighted average fully diluted shares outstanding
128,386
123,782
CDC Corporation
Unaudited Reconciliation From GAAP Results to Non-GAAP Results
(Amounts in thousands of U.S. dollars except per share data)
Six Months Ended June 30,
2007
2008
(1) Reconciliation from GAAP results to Non-GAAP results
Loss from continuing operations
$
(1,536
)
$
(21,699
)
Add back amortization expense of purchased technologies included in
cost of revenue
4,129
5,771
Add back amortization expense
5,063
6,392
Add back stock compensation expenses
4,139
3,530
Add back restructuring and other charges
1,422
3,124
Add back amortization of debt issuance costs
982
982
Add back loss on derivatives
790
5,874
Add back impairment of available-for-sale securities
-
23
Subtract (gain) loss on disposal of investments
(622
)
43
Add back deferred tax impact
4,003
(191
)
Subtract minority interest
(430
)
(117
)
Income from continuing operations - Non-GAAP
$
17,940
$
3,732
Adjusted diluted earnings per share
$
0.14
$
0.03
Weighted average fully diluted shares outstanding
126,603
123,476
CDC Corporation
Unaudited Revenue Details
(Amounts in thousands of U.S. dollars)
Three Months EndedJune 30,
2007
2008
Segment revenue from external customers:
Software:
Licenses
$
17,111
$
13,543
Maintenance
20,743
26,818
Consulting services
21,058
25,354
Hardware
479
107
Total Software
59,391
65,822
Global Services :
Licenses
1,042
1,272
Consulting services
26,827
26,977
Hardware
1,171
2,055
Total Global Services
29,040
30,304
CDC Games
9,316
10,803
China.com
2,950
4,090
Total consolidated revenue
$
100,697
$
111,019
CDC Corporation
Unaudited Revenue Details
(Amounts in thousands of U.S. dollars)
Six Months Ended June 30,
2007
2008
Segment revenue from external customers:
Software:
Licenses
$
30,252
$
24,558
Maintenance
37,756
52,368
Consulting services
42,086
48,362
Hardware
573
331
Total Software
110,667
125,619
Global Services :
Licenses
2,004
2,538
Consulting services
50,762
51,978
Hardware
1,171
3,336
Total Global Services
53,937
57,852
CDC Games
19,044
19,509
China.com
5,006
6,335
Total consolidated revenue
$
188,654
$
209,315