Kongzhong (NASDAQ:KONG)

Fourth Quarter 2012 Financial Highlights:

• Revenues -- Total revenues for the fourth quarter of 2012 were US$ 42.63 mn, slightly below the prior guidance range of US$ 43 mn to US$ 44 mn.
• Gross profit -- Total gross profit was US$ 18.0 mn in 4Q12 in line with the guidance range of US$ 17 mn to US$ 18 mn. 4Q12 cost of sales included US$ 1.12 mn in non-cash amortization expenses related to warrants issued to Wargaming.net for World of Tanks in perpetuity in May 2012.
• Net income -- Net income in 4Q12 was US$ 4.77 mn, above the guidance range of US$ 3 mn to US$ 4 mn. Basic net income per American Depositary Shares ("ADS") was US$ 0.11.
• Non-GAAP net income -- Non-GAAP net income was US$ 7.74 mn, above the guidance range of US$ 6 mn to US$ 7 mn. Non-GAAP diluted net income per ADS was US$ 0.18 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures").

The Company's Chairman and Chief Executive Officer, Leilei Wang said, "As we enter 2013, I'm pleased with the ongoing progress the Company has made in 2012 to diversify from our WVAS business to strong growth in our Internet and smartphone game businesses. While the WVAS business remains difficult, we will continue to operate our WVAS business as a positive cash flow contributor to the Company to provide support to our strong Internet game pipeline which includes the upcoming launch of Guild Wars 2 in China. Moreover, we continue to believe in the coming transition away from traditional MMORPGs in the mainland China market to esports type games which allow for shorter duration but more intense game play and believe we are well positioned in the our partnership with Wargaming, our other licensed games and our self-developed game portfolio for this transition. Lastly, we have successfully migrated our internal Internet and feature phone mobile game teams onto the Noumena smartphone game engine and believe we have strong advantages in the mid-core to hardcore smartphone game segment for both the China and global mobile game markets. Expect us to release a significant amount of new smartphone game content in the 1^st half of 2013."

Business Outlook (For the 3-month period ending March 31, 2013):

The Company expects total revenues for 1Q13 to be within the range of US$ 45 mn to US$ 46 mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of US$ 15.5 mn, mobile game revenues of US$ 4 mn and Net Game revenues of US$ 26 mn.

The Company expects total gross profit to be within the range of US$ 17 mn to US$ 18 mn, total operating profit to be US$ 3 mn to US$ 4 mn, net profit to be US$ 3 mn to US$ 4 mn, and Non-GAAP net profit is expected to be US$ 5.5 mn to US$ 6.5 mn.

Third Quarter 2012 Financial Highlights:

• Revenues - Total revenues for the third quarter of 2012 were US$ 49.91 mn compared to guidance of US$ 50 mn to US$ 51 mn.
• Gross profit - Total gross profit was US$ 19.07 mn in 3Q12 compared to guidance of US$ 21.5 mn to US$ 22.5 mn. However, 3Q12 cost of sales included US$ 1.36 mn in non-cash amortization expenses related to warrants issued to Wargaming.net for World of Tanks and other Wargaming games in perpetuity in May 2012.
  
• Net income - Net income in 3Q12 was US$ 6.22 mn, compared to US$ 17.26 mn net loss in the same period last year but a 21.2% decrease compared to net income of US$ 7.89 mn in 2Q12. Basic net income per American Depositary Shares ("ADS") was US$ 0.15.
  
• Non-GAAP net income - Non-GAAP net income was US$ 9.42 mn, while Non-GAAP diluted net income per ADS was US$ 0.21 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures.") compared to Non-GAAP net income of US$ 4.72 mn in the same period last year and guidance of US$ 10.0 mn to US$ 11.0 mn.

The Company's Chairman and Chief Executive Officer, Leilei Wang said, "KONG is poised to become a disruptive force in the China online game market as we believe we have partnered with the next-generation leaders of the global online game movement which combines overseas console quality gameplay with free-to-play business models. Our focus over the next year will be work closely with our online game partners to optimize their games for the China market and commercially launch these games, all of which are highly anticipated by Chinese gamers."

Business Outlook (For the 3-month period ending December 31, 2012):

The Company expects total revenues for 4Q12 to be within the range of US$ 43 mn to US$ 44 mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues ofUS$ 16.5 mn, mobile game revenues of US$ 5 mn and Net Game revenues of US$ 22 mn.

The Company expects total gross profit to be within the range of US$17 mn to US$ 18 mn, total operating profit to be US$ 3mn to US$ 4 mn, net profit to be US$ 3 mn to US$ 4 mn, and Non-GAAP net profit is expected to be US$ 6 mn to US$ 7 mn.

Our outlook for 4Q12 Non-GAAP net profit, includes an additional US$ 1.0 mn in quarterly operating expenses associated with the headcount and infrastructure for our newly licensed games, including Guild Wars 2, World of Warplanes, Offensive Combat and Hawken. 4Q12 non-GAAP net profit outlook also includes another roughly US$ 150k in expenses associated with Imputed interest on long-term payables. Combined, our 4Q12 non-GAAP net profit outlook assumes roughly US$ 1.15 mn in additional expenses associated with the early buildout of our newly licensed games.

Second-Quarter 2012 Highlights:

• Revenues were $17.9 million, a decrease of 26.6% as compared to $24.3 million in the year-ago quarter
• Gross profit was $6.6 million, as compared to $10.6 million in the year-ago quarter
• Net loss was $1.3 million, or $0.09 per diluted share; non-GAAP net loss was $1.2 million, or $0.08 per diluted share
• A related company received an initial RMB 2.5 million (U.S. $0.4 million) investment from Zhongguancun Development Group (the "Group") for the research, development and commercialization of Telestone Intelligent Premise System (TIPS) technology. This investment is part of a RMB 15 million (U.S. $2.4 million) total commitment awarded in May, which the Group is expected to fulfill over the next three to five years

"Although we reported a loss in the second quarter, which was in line with our expectations, this was largely due to the current weak capital-spending environment and an allowance for doubtful accounts. This year, we have deliberately moderated our top-line growth in order to improve collections so that we can position Telestone for a return to growth and focus on developing our U-DAS (WFDS) and TIPS technologies," commented Mr. Daqing Han, Chairman and CEO of Telestone.

Business Outlook

For the full-year 2012, Telestone continues to expect revenues to increase to approximately $117 million.

"We believe that the current drought of spending is temporary and that the start of the carriers' large-scale 4G network construction, in addition to the development and growth of our U-DAS and TIPS technology-based products, will help Telestone hit its revenue target this year and create a bright future for the company, its employees, and shareholders," concluded Mr. Han.

First Quarter 2012 Financial Highlights:

• Revenues exceeds guidance - Total revenues for the first quarter of 2012 increased 12% from the fourth quarter of 2011 to US$ 43.84 mn, exceeding the Company's 1Q12 revenue guidance range of US$ 41.5 mn to US$ 42.5 mn.
• Gross profit exceeds guidance - Total gross profit was US$ 18.75 mn for 1Q12, exceeding the Company's 1Q12 guidance range of US$ 17 mn to US$ 18 mn.
• Net income exceeds guidance - Net income in 1Q12 was US$ 6.86 mn, exceeding the Company's guidance range of US$ 4.5 mn to US$ 5.5 mn, a 21% increase compared to net income of US$ 5.67 mn in 4Q11. Basic net income per American Depositary Shares ("ADS") was US$ 0.17.
• Non-GAAP net income exceeds guidance - Non-GAAP net income was US$ 8.66 mn, exceeding the Company's guidance range of US$ 6.5 mn to US$ 7.5 mn, while Non-GAAP diluted net income per ADS wasUS$ 0.21 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures.")
• Cash and cash equivalents - As of March 31, 2012, the Company had US$ 178.19 mn in cash and cash equivalents, held-to-maturity securities and trading securities or US$ 4.34 per ADS in cash and cash equivalents, held-to-maturity securities and trading securities, compared to US$ 154.57 mn at the end of 4Q11.

Commenting on the results, the Company's Chairman and Chief Executive Officer, Leilei Wangsaid, "The Company achieved record revenues and non-GAAP Net Profit After Tax ("NPAT") in the first quarter of 2012 and more importantly, we continue to build a strong foundation for future growth in our Internet and mobile game businesses."

Business Outlook (For the 3-month period ending June 30, 2012):

The Company expects total revenues for 2Q12 to be within the range of US$ 49 mn to US$ 50 mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of US$ 20.5 mn, mobile game revenues of US$ 6.0 mn and Net Game revenues of US$ 23 mn.

The Company expects total gross profit to be within the range of US$ 21.5 mn to US$ 22.5 mn, total operating profit to be US$ 6.5 mn to US$ 7.5 mn, net profit to be US$ 6.5 mn to US$ 7.5 mn, and Non-GAAP net profit is expected to be US$ 9 mn to US$ 10 mn.

BEIJING, May 14, 2012 /PRNewswire-Asia/ -- KongZhong Corporation (NASDAQ: KONG), a leading provider of digital entertainment services for consumers in the PRC, today announced that it has entered into a series of agreements with Wargaming.net to create a strategic partnership for all of Wargaming.net's existing and future games in the mainland China market, including but not limited to World of Tanks, World of Warplanes and World of Battleships.

As part of this partnership, KONG's board of directors has approved the grant of warrants for the issuance of issue up to 5.0 million American Depositary Shares ("ADSs') representing ordinary shares of KONG to Wargaming.net with an exercise price of US$ 5.94 per ADS. The warrants have a duration ranging from 1 to 6 years, and the exercise of the warrant is subject to various conditions, including the commercial launch of Wargaming.net's future games in the mainland China market.

Moreover, as part of this strategic partnership, Wargaming.net has granted to KONG (i) exclusive and long-term operating rights for World of Tanks, World of Warplanes, World of Battleships in mainland China and (ii) the right of first offer over the operating rights of any future Wargaming.net game (including mobile games) in mainland China.

The Company's Chief Financial Officer and Board Member, Jay Chang said, "We are excited to have Wargaming.net as a strategic partner of KONG. Through this partnership, we have fully aligned our long-term interests to maximize the success of all of Wargaming.net's games in the China market for many years to come."

Victor Kislyi, CEO of Wargaming.net said, "After a year of close cooperation and success with World of Tanks in China, we believe KONG is the ideal partner to support the growth and development of all of Wargaming.net's existing and future games for the China market and we are proud to be a strategic partner with KONG."

• Revenues inline with guidance - Total revenues for the fourth quarter of 2011 increased 9% from the fourth quarter of 2010 to US$ 39.28 mn, inline with the Company's 4Q11 revenue guidance range of US$ 39 mn to US$ 40 mn.
• Gross profit exceeds guidance - Total gross profit was US$ 16.67 mn for 4Q11, exceeding the Company's 4Q11 guidance range of US$ 15 mn to US$ 16 mn.
• Net income exceeds guidance - Net income in 4Q11 was US$ 5.67 mn, exceeding the Company's guidance range of US$ 3 mn to US$ 4 mn, a 13% increase compared to net income of US$ 5.01 mn in 4Q10. Basic net income per American Depositary Shares ("ADS") was US$ 0.14.
• Non-GAAP net income exceeds guidance - Non-GAAP net income was US$ 7.47 mn, exceeding the Company's guidance range of US$ 5.0 mn to US$ 6.0 mn, while Non-GAAP diluted net income per ADS wasUS$ 0.18 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures.")
• Cash and cash equivalents - As of December 31, 2011, the Company had US$ 154.6 mn in cash and cash equivalents, short term investments and trading securities or US$ 3.76 per ADS in cash and cash equivalents, short term investments and trading securities, compared to US$ 143.7 mn at the end of 3Q11. Cash and cash equivalents exclude US$ 22.19 mn loans to a third party.

Commenting on the results, the Company's Chairman and Chief Executive Officer, Leilei Wang said, "In 4Q11, the Company achieved record GAAP and Non-GAAP net profit since we arrived at KONG in late 2008 with our strong performance being driven by our diversification into Internet games. "During the quarter, World of Tanks ("WoT") continued to drive our Internet games business and we expect WoT's strong momentum to carry into 2012 as one of the top team-based massively multiplayer online games in the mainland China market. "We plan to release our self-developed flagship 3D MMORPG game,Kung Fu Hero, to open beta in March and expect Kung Fu Heroto be a significant contributor to our Internet games business in the 2nd quarter of 2012 and beyond. "To further diversify KONG's business, we recently announced the acquisition of Noumena and its Handymo smartphone mobile game engine platform to accelerate the development of KONG's mobile game business in both the China and global smartphone mobile game markets. "I'm pleased with our 4Q11 performance and believe KONG has strong momentum which will carry our strong 4Q11 performance into 2012."

Third Quarter 2011 Results

We believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our anticipated cash needs, including for working capital purposes, capital expenditures and various contractual obligations, for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

We intend to meet the majority of our future funding needs through cash flow generated from operating activities and our current cash and cash equivalents.

First Quarter 2011 Financial Highlights:

(Note: Unless otherwise indicated, all financial statement amounts used in this press release are based on United States Generally Accepted Accounting Principles (GAAP) and denominated in US dollars)

• Revenues exceeds guidance – Total revenues for the first quarter of 2011 ("1Q11") increased 11% quarter-over-quarter ("QoQ") to US$ 40.1 million ("mn"), exceeding the Company's 1Q11 revenue guidance range of US$ 38.5 mn to US$ 39.5 mn.
• Gross profit inline with guidance – Total gross profit was US$ 16.5 mn for 1Q11, inline with the Company's 1Q11 guidance range of US$ 15.5 mn to US$ 16.5 mn.
• Net income – Net loss in 1Q11 was US$ 0.46 mn, including a change in the fair value of the Dacheng contingent consideration of US$ 3.73 mn. Excluding this change, net income in 1Q11 was US$ 3.27 mn, a 3% increase compared to US$ 3.17 mn in 1Q10. Basic net loss per ADS was US$ 0.01 based on 37.58 mn ADS outstanding as of March 31, 2011.
• Non-GAAP net income inline with guidance – Non-GAAP net income was US$ 6.9 mn, inline with the Company's guidance range of US$ 6.0 mn to US$ 7.0 mn.
• Non-GAAP diluted net income per ADS was US$ 0.17 vs. $0.15 (Non-GAAP Financial Measures are described and reconciled to the corresponding GAAP measures in the section titled "Non-GAAP Financial Measures.")
• Cash and cash equivalents – As of March 31, 2011, the Company had US$ 118.3 mn in cash and cash equivalents or US$ 3.1 per basic ADS in cash and cash equivalents.  This includes a US$ 9.3 mn payment for the early extinguishment of convertible note issued to Nokia Growth Partners, a US$ 14.6 mn payment for the cash portion related to the final payment for Dacheng and a US$ 21.2 mn investment in RMB denominated short-term loan to a third party.

Commenting on the results, the Company's Chairman and Chief Executive Officer, Leilei Wang, said, "Against a stabilized WVAS environment, the Company continued to generate stable Non-GAAP net profit while building up future growth opportunities within our Internet game business.  On March 15th, we successfully launched World of Tanks ("WoT") to the market and based on the first few months of operation, continue to believe that WoT has potential to one of the top team-based shooters in the mainland China.  Moreover, development of our self-developed 3D MMORPGs, Kung Fu Hero and Emofaze 3 (the second in the EMFZ series), continues on track with a 3Q 2011 open beta targeted for Kung Fu Hero and a late 2011 or early 2012 open beta target for EMFZ3.  Lastly, to further diversify our online game portfolio, we recently announced our partnership with Gamepot, to exclusively operate one of the most popular online first person shooters in Japan, Paperman."

Business Outlook (For the 3-month period ending June 30, 2011):

The Company expects

• total revenues for 2Q11 to be within the range of US$ 41.5 mn to US$ 42.5 mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of US$ 20 mn, mobile game revenues of US$ 12 mn and Online Game revenues of US$ 10 mn.  
• total gross profit to be within the range of US$ 16 mn to US$ 17 mn
• total operating profit to be US$ 4 mn to US$ 5 mn
• net profit to be US$ 4 mn to US$ 5 mn
• Non-GAAP net profit is expected to be between US$ 6 mn to US$7 mn.

Fourth Quarter Highlights:

• Revenues inline with guidance – Total revenues for the Fourth Quarter of 2010 ("4Q10") increased 5% year-over-year ("YoY") to US$ 36.0 million ("mn"), inline with the Company's 4Q10 revenue guidance range of US$ 35.5 mn to US$ 36.5 mn.
• Gross profit inline with guidance – Total gross profit was US$ 15.96 mn for 4Q10, inline with the Company's 4Q10 guidance range of US$ 15.5 mn to US$ 16.5mn.
• Net income grew quarter-over-quarter ("QoQ") and YoY – Net income in 4Q10 was US$ 5.01 mn a 330% increase compared to US$ 1.17 mn in 3Q10 and a 149% increase compared to US$ 2.0 mn in 4Q09.
• Basic net income per ADS was US$ 0.13 based on 37.31 mn ADS while diluted net income per ADS was US$ 0.13 based on 39.08 mn ADS outstanding as of December 31, 2010.
• Non-GAAP net income exceeds guidance – Non-GAAP net income was US$ 7.27 mn, exceeding the Company's guidance range of US$ 5.5 mn to US$ 6.5 mn, while Non-GAAP diluted net income per ADS was US$ 0.18

Commenting on the results, the Company's Chairman and Chief Executive Officer, Leilei Wang, said, "KONG achieved our highest quarterly net profit and non-GAAP net profit since I joined the Company, driven by our diversification into Internet games, cost efficiencies and a stabilizing WVAS market. With the strong performance from Internet games helping to balance the challenges in WVAS, I believe our diversification into Internet games has been a success."

The Company expects total revenues for 1Q11 to be within the range of US$ 38.5 mn to US$ 39.5 mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of US$ 20.3 mn, mobile game revenues of US$ 13.5 mn and Online Game revenues of US$ 5.2 mn.  

The Company expects total gross profit to be within the range of US$ 15.5 mn to US$ 16.5 mn, total operating profit to be US$ 4 mn to US$ 5 mn, net profit to be US$ 2 mn to US$ 3 mn (which includes an estimated US$ 1.6 mn non-cash expense related to the early extinguishment of the portion of NGP convertible notes prepaid), while Non-GAAP net profit is expected to be between US$ 6 mn to US$ 7 mn.

Third Quarter 2010 Financial Highlights:

• Revenues above guidance – Total revenues for the Third Quarter of 2010 ("3Q10") increased 7% year-over-year to US$ 37.67 million ("mn"), above the Company's 3Q10 revenue guidance range of US$ 35 mn to US$ 36 mn.

• Gross profit above prior guidance – Total gross profit was US$ 15.6 mn for 3Q10, exceeding the Company's 3Q10 guidance range of US$ 14.5 mn to US$ 15.5 mn.

• Net income in line with guidance – Net income in 3Q10 was US$ 1.17 mn, in line with the Company's 3Q10 guidance range of US$1.0 mn to US$ 1.5 mn.  

• Basic net income per ADS was US$ 0.03 based on 37.05 mn ADS while diluted net income per ADS was US$ 0.03 based on 38.28 mn ADS outstanding as of September 30, 2010.

• Non-GAAP net income in line with guidance – Non-GAAP net income wasUS$ 4.13 mn, in line with the Company's guidance range ofUS$ 3.5 mn to US$ 4.5 mn, while Non-GAAP diluted net income per ADS was US$ 0.10

• Cash and cash equivalents – As of September 30, 2010, the Company had US$ 138.54 mn in cash and cash equivalents or US$ 3.74 per basic ADS in cash and cash equivalents.

Commenting on the results, the Company's Chairman and Chief Executive Officer, Leilei Wang, said, "Against a more stable WVAS environment, KongZhong continued to make long-term investments to become a diversified digital entertainment player in the mainland China market. In 3Q, we streamlined our WIS and WVAS business to more efficiently address the coming consolidation we foresee in the China WVAS market, we continued to lead the mobile game market and we made significant progress in our Internet game strategy to develop a robust and differentiated online game pipeline for 2011."

Business Outlook (For the 3-month period ending December 31, 2010):

The Company expects total revenues for 4Q10 to be within the range of US$ 35.5 mn to 36.5 mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of US$18.5 mn, mobile game revenues of US$ 13 mn and Online Game revenues of US$ 4.5mn.  

The Company expects

• total gross profit to be within the range of US$ 15.5 mn to 16.5mn
• total operating profit to be US$ 3 mn to 4 mn
• Non-GAAP net profit to be roughly US$ 5.5 mn to US$ 6.5 mn.

Business Outlook (For the 3-month period ending June 30, 2010):

The Company expects total revenues for 2Q10 to be within the range of US$ 34.5mn to 35.5mn, with business unit revenues at the mid-point expected to roughly consist of WVAS revenues of US$ 16.5 mn, mobile game revenues of US$ 13.0 mn, WIS revenues of US$ 1.0 mn and Online Game revenues of US$ 4.5mn.

The Company expects total gross profit to be within the range of US$ 16.5mn to 17.5 mn, total operating profit and net profit to be US$ 2.5mn to 3.0 mn, while Non-GAAP net profit to be roughly US$ 5.3 mn to US$ 5.8 mn.

Commenting on the results, the Company's Chairman and Chief Executive Officer, Leilei Wang, said, "I'm pleased to report that in the second quarter of 2009, KongZhong continued to grow overall profits driven by strong growth in our mobile games business, while at the same time, we were still able to maintain our long-term investment in Kong.net.

^a The above forecasts reflect the Company's current and preliminary view and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

Commenting on the first quarter results, the Company's Chairman and Chief Executive Officer, Leilei Wang, said, 'In my first full quarter as CEO of KongZhong, I'm pleased to report that we have returned the Company to a positive operating profit and positioned the Company for future growth opportunities.

'Overall, I'm very pleased with our results for the 1st quarter of 2009 and look forward to building upon these achievements as we seek to become the pre-eminent leader of the mobile Internet industry in China.'

^a The above forecasts reflect the Company's current and preliminary view and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

Guidance Report:

Commenting on the 2008 full year results the Company's Chairman and Chief Executive Officer, Leilei Wang, said, 'I'm very pleased with the performance of our team in the fourth quarter and in the full fiscal year 2008. Since I assumed the position of KongZhong's CEO a few months ago, I and my team have begun to implement various measures to improve the performance of our WVAS segment. More importantly, we have begun to invest more efficiently in our mobile games and KONG.net areas. The strong year-over-year growth in mobile games and KONG.net and improved gross margins across all of our business lines reflect some of the early results of these initiatives. I look forward to building upon these gains in 2009 and beyond as we seek to become the pre-eminent leader of the mobile Internet industry in China.'

Full Year Fiscal 2009 Guidance Ending March

Source: PR Newswire (February 18, 2009)