CDC Corporation (NASDAQ: CHINA), a leading China-based
value-added operator of, and growth investor in, hybrid
(Cloud/On-Premise) enterprise software, IT Services, and New Media
assets, today announced financial results for the six months ended
June 30, 2011. For the first six months of 2011, Non-GAAP
revenue(a) was $159.3 million and Adjusted EBITDA(a) was $3.8
million, compared to Non-GAAP revenue of $159.0 million and
Adjusted EBITDA of $17.1 million in the first six months of
2010.
The decrease in Adjusted EBITDA largely reflects planned
increases in research and development and sales and marketing, as
well as litigation expenses at CDC Software and CDC Corporation.
The company expects that earnings will continue to be impacted
going forward by expenses related to ongoing litigation as well as
costs associated with the investigation being undertaken by the
special committee of the board of directors. As of June 30, 2011,
CDC Corporation reported Non-GAAP cash and cash equivalents(a) of
approximately $91.8 million.
Below is a summary of the financial results of CDC Corporation’s
core portfolio of assets.
CDC Software (NASDAQ:CDCS)
On a standalone basis, CDC Software had the following results
for the six months ended June 30, 2010 and 2011:
Six Monthsended June 30,
2010
Six Months
ended June 30, 2011
Non-GAAP revenue
$105.7 million
$109.1
million
Adjusted EBITDA
$21.4 million
$10.8 million
Adjusted EBITDA Margin(a)
12%
3%
Application sales, which is comprised of license revenue plus
Secured Total Contract Value (STCV) for Software-as-a-Service
(SaaS) sales secured, was $28.7 million during the first six months
of 2011, compared to $21.7 million in the six months ended June 30,
2010. STCV, or bookings, for Software-as-a-Service (SaaS) sales was
$13.6 million, compared STCV of $5.0 million in the six months
ended June 30, 2010. The results for the first six months of 2011
included record bookings in the second quarter of 2011, since the
company started its cloud business in the fourth quarter of
2009.
“We are pleased with our six months results, including the
growth in our cloud business, as well as our pipeline,” said Bruce
Cameron, president of CDC Software. “Notable sales wins in this
period, for example, included a seven digit renewal and add-on SaaS
deal of CDC TradeBeam for a leading clothing retailer, key new logo
customers for CDC Factory that included a leading cosmetic and
beauty company, as well as a chemical manufacturer, both new
markets for this business. We also continued to grow our business
in emerging markets like India, where we reported our largest
license deal in the first quarter.”
For more information regarding the financial performance of CDC
Software during the first half 2011 of 2010, please see CDC
Software's first and second quarter 2011 earnings press releases
located at CDC Software’s website: www.cdcsoftware.com.
CDC Global Services
On a standalone basis, CDC Global Services had the following
results for the six months ended June 30, 2010 and 2011:
Six
Months
ended June 30, 2010 Six Months
ended June
30, 2011 GAAP Revenue: $32.2 million $31.1 million
Adjusted EBITDA: $(964,000) $1.4 million Adjusted
EBITDA Margin: (3)% 4%
CDC Global Services’ utilization rate was approximately 90
percent in the second quarter of 2011, and 88 percent in the first
quarter of 2011.
Some highlights in the CDC Global Services business during the
first half of 2011 included:
- A leading medical device manufacturer
extended its current SAP EWM Consulting Services contract for an
additional 12 months. CDC Global Services is currently supporting
the rollout of Extended Warehouse Management (EWM) to more than 10
sites globally.
- A leading provider of automation
equipment and peripherals for the North American and Latin American
markets has engaged CDC Global Services to provide SAP Console
consulting and implementation services for their North American
distribution hub located near Chicago.
- CDC Global Services China was awarded a
service contract to design and implement an Enterprise Application
Integration framework for the Zhangzhou Development Zone of the
China Merchants Group. This framework is expected to improve the
interoperability of different application systems already
installed, as well as those being planned in the Zhangzhou. CDC
Software’s Event Management Framework is a core component of the
designed solution.
- CDC Global Services China was awarded a
three-year service contract for the hosting and support of a CRM
system used by a leading cosmetic manufacturer in their China
retail outlets. CDC Global Services has agreed to provide technical
support through call-centers, application system hosting in the
cloud computing center and on-site maintenance services in the
various cities where this manufacturer has retail outlets.
“We are pleased with the improvement in our Adjusted EBITDA at
CDC Global Services as a result of our focus on higher margin
business and better traction in our services businesses,” said CK
Wong, CEO of CDC Global Services. “We have been progressing well in
our China businesses, and have been securing some key engagements
with major companies in our SAP consulting business.”
New Media (includes CDC Games and China.com)
On a standalone basis, CDC Games had the following results for
the six months ended June 30, 2010 and 2011:
Six
Months
ended June 30, 2010 Six Months
ended June
30, 2011 GAAP Revenue: $15.1 million $11.0 million
Adjusted EBITDA: $1.7 million $1.8 million Adjusted
EBITDA Margin: 11% 16%
GAAP revenue for CDC Games during the first six months of 2011
was $11.0 million, compared to $15.1 million in the first six
months of 2010. The decrease in revenue for the first six months of
this year was largely attributed to a reduction in the number of
games offered and less promotional and marketing spending on
existing games, compared to the same period last year. Adjusted
EBITDA for the first six months of 2011 improved to $1.8 million,
compared to Adjusted EBITDA of $1.7 million in the first six months
of 2010. Adjusted EBITDA margin was 16 percent in the first six
months of 2011, compared to Adjusted EBITDA margin of 11 percent in
the first six months of 2010.
At the end of the first quarter of 2011, CDC Games introduced an
expansion pack, “Tyrannis” for EVE Online in China. On June 30,
2011, CDC Games launched Yulgang 6.0, known as “Blood War,” a major
new version release of its popular massively multiplayer online
role-playing game (MMORPG). Since the launch of Yulgang 6.0, CDC
Games has reported an increase in peak concurrent users (PCU) of
more than 10 percent.
In September 2006, CDC Games licensed the exclusive rights to
distribute, in China, Lord of the Rings Online: Shadows of Angmar
(LOTRO), a MMORPG based upon the Lord of the Rings trilogy. For the
past several years, CDC Games has experienced significant delays in
the continued development and launch of this game. Since initially
licensing this game, CDC Games has invested approximately $10.0
million in licensing, development and other costs related to it,
including a $4.0 million initial non-refundable license fee.
CDC Games has received notification from the game’s developer
that the failure to launch LOTRO constituted an event of default
under our agreements with them. The developer has also asserted
that our license agreement for LOTRO has been terminated. CDC Games
is currently in settlement discussions regarding the license for
LOTRO, but does not currently believe that settlement discussions
will permit it to retain future licensing rights for LOTRO.
“We are pleased with the improvement in our profitability and
the solid metrics of Yulgang 6.0,” said Simon Wong, CEO of CDC
Games. “After six years of operating Yulgang, we are very pleased
to see this popular game maintaining a strong base of loyal users.
While we are disappointed that we do not expect to be launching
LOTRO, we believe this is the best financial decision for us in
terms of focus on our time and resources.”
On a standalone basis, China.com had the following results for
the six months ended June 30, 2010 and 2011:
Six Monthsended June 30,
2010
Six Months
ended June 30, 2011 GAAP Revenue:
$6.0 million $8.0 million Adjusted EBITDA: $(558,000)
$(47,000)
Adjusted EBITDA Margin:
(9)%
(1)%
During the first half of 2011, China.com’s automobile and web
games channels continued to expand. Its social network, for
example, launched the following new games during the first quarter:
“Wind of War,” “City Battle” and “Beautiful City.” In the second
quarter, the automobile channel participated in the 2011 Shanghai
International Auto Show.
In April 2011, China.com’s webgame channel organized the 2011
National Webgames Summit in the City of Jiaxing, Zhejiang Province,
the fourth time hosting this event. This Summit received wide
attention in the webgame community in China, with more than 300
webgame developers and operators participating with more than 100
media representatives reporting on the event.
Management News:
As previously announced, the company’s chief executive officer,
Peter Yip is on administrative leave and John Clough, chairman of
CDC Corporation, is serving as interim CEO for the company.
Concluding Remarks:
“Our operating business units have been performing reasonably
well,” said John Clough, interim CEO of CDC Corporation. “CDC
Software has continued to report solid results in its business
while CDC Games, CDC Global Services and China.com have been making
strong progress in improving profitability. We are weighing our
options regarding the various litigation matters in which we and
our subsidiaries are involved, and are considering financing
options, potentially selling non-core assets, as well as other
strategic alternatives.”
Share Buyback:
Since January 2009, CDC Corporation has purchased an aggregate
of 918,637 of its shares at an average price of $3.85 per
share.
Revised 2010 Information:
Results provided herein for 2010 have been revised from those
previously reported in CDC Corporation’s press releases due to
certain year-end adjustments required to be made in connection with
the audit of its financial statements for the year ended December
31, 2010.
The revisions recorded by CDC Corporation included a $133.4
million goodwill impairment charge, $113.1 million of which related
to CDC Software’s on-premise business, $10.8 million of which
related to CDC Software’s Cloud business and $9.5 million of which
is related to CDC Global Services. The company also recorded a $1.3
million impairment charge for identifiable intangible assets in CDC
Software’s on-premise business, $7.5 million of tax related
purchase accounting adjustments relating to CDC Software’s
TradeBeam acquisition, and a $4.0 million write-off in CDC Games
for pre-paid license fees relating to The Lord of the Rings Online.
Furthermore, in accordance with U.S. GAAP, management has accrued
an expected loss contingency of $10.0 million related to the
ongoing litigation between the company’s subsidiary, Ross Systems,
Inc., and Sunshine Mills, Inc. as of December 31, 2010, which
is subject to further revision. Additional adjustments relate to
changes in estimates which impacted the reserves for litigation
settlements, purchase consideration payables, and valuation of
deferred tax assets and deferred tax liabilities.
Footnotes:
All dollar amounts are in U.S. dollars
* CDC Corporation has recently changed the composition of its
Adjusted EBITDA measurement, as provided herein, to be consistent
with the presentation of Adjusted EBITDA for its subsidiary, CDC
Software Corporation. CDC Corporation believes this revised
presentation is a useful measure of operating performance.
* In June 2010, CDC Corporation received approval from its
shareholders to effect a reverse split of its common shares. CDC
Corporation’s board of directors thereafter approved a
one-for-three reverse split of the company’s outstanding, issued
and authorized shares of common stock, which became effective on
August 23, 2010. All numbers set forth herein reflect the effect of
such one-for-three reverse stock split.
(a) Adjusted Financial Measures
This press release includes Adjusted EBITDA, Non-GAAP revenue,
Adjusted EBITDA margin and Non-GAAP cash and cash equivalents,
which are not prepared in accordance with generally accepted
accounting principles in the United States of America (“GAAP”)
(collectively, the "Non-GAAP Financial Measures"). We believe that
these Non-GAAP Financial Measures are helpful in understanding our
past financial performance and our future results. Non-GAAP
Financial Measures are not alternatives for measures such as
revenue, cash and cash equivalents and other measures prepared
under 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.
About CDC Corporation
CDC Corporation is a China-based value-added operator of, and
growth investor in, hybrid (on premise and SaaS) enterprise
software, IT, and new media businesses. The company pursues two
value-added investment strategies. The first strategy includes
actively managing majority interests in its core portfolio of
hybrid enterprise software, IT services and New Media businesses,
adding value by driving operational excellence, top-line growth and
overall profitability. The second strategy includes identifying and
executing on opportunities to co-invest with leading venture
capital and private equity funds through minority interests in
fast growth companies in emerging markets related to CDC
Corporation’s core assets. This second strategy, which complements
the first, helps to mitigate risk and enhance deal flow for the
company. CDC Corporation expects to deliver superior returns and
additional value for its shareholders through these strategies, as
well as through its plans to declare and pay regular dividends in
the form of registered shares of its publicly listed subsidiaries
and other assets. For more information about CDC Corporation
(NASDAQ: CHINA), please visit www.cdccorporation.net.
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 expectations about the continued and
future impact on earnings from ongoing litigation expenses as well
as costs associated with the investigation being undertaken by the
special committee of the board of directors, our plans and efforts
to continue to grow our CDC Software business in emerging markets,
our beliefs regarding settlement negotiations with the developer of
LOTRO and the potential impact thereof, our plans and expectations
regarding litigation matters, financing options, the potential sale
of non-core assets and other strategic alternatives, our beliefs
regarding our strategic investments and initiatives, and our
strategies, and the potential impact and benefit thereof, our
beliefs regarding the utility of the Non-GAAP and pro forma
financial information provided herein, 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
risks relating to: (a) our failure to timely file our Annual Report
on Form 20-F for the year ended December 31, 2010; (b) significant
liability and losses from any litigation matters or other disputes
in which we or any of our subsidiaries may now, or in the future,
be involved, including the litigation between Sunshine Mills, Inc.
and Ross Systems and the litigation between Evolution Capital
Management and CDC Corporation, including the effect and impact of
the summary judgment rendered against us in the New York Supreme
Court in the Evolution matter; (c) the potential impact of any
litigation matters, including the Sunshine Mills or Evolution
matters, on our business, operations and financial condition and
those of our subsidiaries; (d) the ongoing investigation being
conducted by the special committee of our board of directors; (e)
our liquidity and our continued ability to access capital; (f) CDC
Software’s credit facility with Wells Fargo Capital Finance, and
the availability thereof in any future period; (g) the availability
of insurance coverage for any litigation matters that we, or any of
our subsidiaries, may be involved; (h) our internal controls over
financial reporting; (i) our use of judgments, estimates and
assumptions, including risks related to significant charges to
earnings that we may experience, such as the impairment of goodwill
or intangible assets; (j) disruptions in the financial and credit
markets, which may adversely affect our business; (k) our limited
operating history; (l) acquisitions we have made, including our
ability to integrate these businesses and our ability to grow our
business organically; (m) the various, and potentially disparate,
products and services our subsidiaries may offer; (n) fluctuating
expenses and the potential impact thereof on our financial results;
(o) regulatory compliance, including export compliance and other
matters; (p) our international operations, including compliance
with local laws, rules and regulations, currency exchange
fluctuations, disruptions in foreign markets and economic
downturns; (q) the continuation of our installed base customers
continuing to license additional products, renew support
agreements, and purchase additional services; (r) any forecasts we
may provide; (s) our ability to grow direct and indirect sales
channels; (t) research and development and our ability to
successfully develop, market and sell new products; (u) competition
that any of our subsidiaries may face; (v) CDC Software’s Cloud
business; (w) interruptions or delays in service from our
third-party data center hosting facilities and the hosting,
collection and retention of personal information; (x) our 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; (y) the effects of
restructurings and rationalization of operations in our companies;
(z) the ability to address technological changes and developments
including the development and enhancement of products; (aa) the
ability to develop and market successful products and services;
(bb) the entry of new competitors and their technological advances;
(cc) the need to develop, integrate and deploy enterprise software
applications to meet customer's requirements; (dd) the possibility
of development or deployment difficulties or delays; (ee) the
dependence on customer satisfaction with the company's games,
software products and services; (ff) continued commitment to the
deployment of the products, including enterprise software
solutions; (gg) risks involved in developing software solutions and
integrating them with third-party software and services; (hh) the
continued ability of the company's products and services to address
client-specific requirements; (ii) demand for and market acceptance
of new and existing enterprise software and services and the
positioning of the company's solutions; (jj) the ability of staff
to operate the enterprise software and extract and utilize
information from the company's products and services; (kk) our
dependence on a limited number of games at our CDC Games business,
our dispute with Turbine, Inc. and our ability to maintain our
relationships with licensor and other third parties; (ll)
operations in China; and (mm) our intellectual property, personnel,
technology and networks. 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 on Form 20-F for the year ended
December 31, 2009, filed with the SEC on June 30, 2010. You should
also see the filings or submissions with the United States
Securities and Exchange Commission made by CDC Software Corporation
in its Annual Report on Form 20-F for the year ended December 31,
2009, filed with the SEC on June 1, 2010. We also encourage
you to see other public press releases and filings or submissions
we, or CDC Software, may make, from time to time. 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. Historical results are not
indicative of future performance. For these and other reasons,
investors are cautioned not to place undue reliance upon any
forward-looking statement in this press release.
CDC Corporation
Unaudited Consolidated Balance Sheets (Amounts in
thousands of U.S. dollars except share and per share data)
Table 1 December 31, June
30, 2010 2011 ASSETS Current
assets: Cash $ 99,360 $ 80,646 Restricted cash 140 25
Accounts receivable (net of allowance of
$6,302 at December 31, 2010 and $5,604 at June 30,
2011)
53,432 57,031 Investments 985 394 Deferred tax assets 10,118 10,159
Prepayments and other current assets 12,666
18,515 Total current assets 176,701 166,770 Property
and equipment, net 9,808 8,558 Goodwill 56,391 57,209 Intangible
assets, net 73,124 66,715 Investments 11,943 11,426 Equity
investments 12,134 12,134 Deferred tax assets 47,041 47,432 Other
assets 6,967 7,139 Total assets $
394,109 $ 377,383
LIABILITIES AND
SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $
23,405 $ 26,516 Purchase consideration payables 34 673 Income tax
payable 3,739 3,510 Accrued liabilities 51,076 53,585 Restructuring
accruals 1,610 1,093 Short-term loans 15,078 112 Convertible notes
60,574 64,865 Deferred revenue 59,444 63,778 Deferred tax
liabilities 1,416 1,582 Total current
liabilities 216,376 215,714 Deferred tax liabilities 19,880
19,961 Long-term debt 238 99 Purchase consideration payables 786
110 Other liabilities 14,993 14,298
Total liabilities 252,273 250,182 Shareholders’ equity:
Preferred shares, $0.003 par value;
1,666,667 shares authorized, no shares issued
- -
Class A common shares, $0.00075 par value;
266,666,667 shares authorized; 39,616,132 and
39,655,938 shares issued as of December 31,
2010 and June 30, 2011, respectively; 35,140,879
and 35,180,685 shares outstanding as of December
31, 2010 and June 30, 2011, respectively
28 28 Additional paid-in capital 747,846 754,015
Common stock held in treasury; 4,463,587
shares at December 31, 2010 and June 30, 2011
(59,445 ) (59,445 ) Accumulated deficit (579,234 ) (602,584 )
Accumulated other comprehensive income 21,529
26,792 Total shareholders’ equity 130,724 118,806
Noncontrolling interest 11,112 8,395
Total equity 141,836 127,201 Total
liabilities and shareholders’ equity $ 394,109 $ 377,383
CDC Corporation Unaudited Consolidated
Statement of Operations (Amounts in thousands of U.S.
dollars except share and per share data) Table
2 Three months ended March 31, June 30,
2011 2011 REVENUE: CDC Software $ 52,376 $
56,385 CDC Global Services 14,780 16,347 CDC Games 5,962 5,064
China.com 4,031 4,001 Total revenue
77,149 81,797
COST OF REVENUE: CDC Software 24,444
26,153 CDC Global Services 11,626 12,498 CDC Games 3,881 3,736
China.com 1,843 1,967 Total cost of
revenue 41,794 44,354 Gross
profit 35,355 37,443 Gross margin % 46 % 46 %
OPERATING
EXPENSES: Sales and marketing expenses 15,045 16,271 Research
and development expenses 7,519 7,959 General and administrative
expenses 17,082 19,789 Exchange (gain) loss 112 1,436 Amortization
expenses 2,117 2,168 Restructuring and other charges 1,107
(24 ) Total operating expenses 42,982
47,599 Operating loss (7,627 ) (10,156 )
Operating margin % -10 % -12 % Other loss, net (1,724
) (2,772 ) Loss before income taxes (9,351 ) (12,928
) Income tax expense (1,271 ) (358 ) Net loss
(10,622 ) (13,286 ) Net loss attributable to noncontrolling
interest 291 270 Net loss
attributable to controlling interest $ (10,331 ) $ (13,016 )
Basic earnings (loss) per share attributable to controlling
interest $ (0.29 ) $ (0.37 ) Diluted earnings (loss) per
share attributable to controlling interest (1) $ (0.29 ) $ (0.37 )
Weighted average number of common shares outstanding - basic
35,141,880 35,180,073 Weighted average number of common
shares outstanding - diluted 35,141,880 35,180,073 (1) Refer
to "Unaudited Basic and Diluted Earnings (Loss) Per Share
Computation" schedule for calculation of earnings per share
amounts.
CDC Corporation Unaudited Consolidated
Statement of Operations (Amounts in thousands of U.S.
dollars except share and per share data) Table
3 Three months ended June 30, 2010
2011 REVENUE: CDC Software $ 52,576 $ 56,385 CDC
Global Services 15,764 16,347 CDC Games 7,111 5,064 China.com
3,092 4,001 Total revenue 78,543 81,797
COST OF REVENUE: CDC Software 23,717 26,153 CDC
Global Services 12,932 12,498 CDC Games 5,233 3,736 China.com
1,361 1,967 Total cost of revenue
43,243 44,354 Gross profit
35,300 37,443 Gross margin % 45 % 46 %
OPERATING
EXPENSES: Sales and marketing expenses 13,415 16,271 Research
and development expenses 7,162 7,959 General and administrative
expenses 14,883 19,789 Exchange (gain) loss (1,182 ) 1,436
Amortization expenses 2,121 2,168 Restructuring and other charges
505 (24 ) Total operating expenses
36,904 47,599 Operating loss (1,604 )
(10,156 ) Operating margin % -2 % -12 % Other income (loss),
net (1,872 ) (2,772 ) Loss before income taxes
(3,476 ) (12,928 ) Income tax benefit (expense) (3,965 )
(358 ) Net loss (7,441 ) (13,286 ) Net (income) loss
attributable to noncontrolling interest (493 ) 270
Net loss attributable to controlling interest $
(7,934 ) $ (13,016 ) Basic earnings (loss) per share
attributable to controlling interest $ (0.23 ) $ (0.37 )
Diluted earnings (loss) per share attributable to controlling
interest (1) $ (0.23 ) $ (0.37 ) Weighted average number of
common shares outstanding - basic 35,232,253 35,180,073
Weighted average number of common shares outstanding - diluted
35,232,253 35,180,073 (1) Refer to "Unaudited Basic and
Diluted Earnings (Loss) Per Share Computation" schedule for
calculation of earnings per share amounts.
CDC
Corporation Unaudited Consolidated Statement of
Operations (Amounts in thousands of U.S. dollars except
share and per share data) Table 4 Six
months ended June 30, 2010 2011
REVENUE: CDC Software $ 103,077 $ 108,761 CDC Global
Services 32,206 31,127 CDC Games 15,079 11,026
China.com
5,996 8,033 Total revenue 156,358
158,947
COST OF REVENUE: CDC Software 47,611 50,597
CDC Global Services 25,928 24,124 CDC Games 10,818 7,617 China.com
3,047 3,810 Total cost of revenue
87,404 86,148 Gross profit
68,954 72,799 Gross margin % 44 % 46 %
OPERATING
EXPENSES: Sales and marketing expenses 26,395 31,316 Research
and development expenses 13,946 15,478 General and administrative
expenses 29,725 36,872 Exchange gain (588 ) 1,548 Amortization
expenses 4,280 4,284 Restructuring and other charges 716
1,083 Total operating expenses 74,474
90,581 Operating loss (5,520 ) (17,782
) Operating margin % -4 % -11 % Other income (loss), net
(2,969 ) (4,496 ) Income (loss) before income
taxes (8,489 ) (22,278 ) Income tax expense (2,780 )
(1,630 ) Net income (loss) (11,269 ) (23,908 ) Net (income)
loss attributable to noncontrolling interest (716 )
561 Net income (loss) attributable to controlling
interest $ (11,985 ) $ (23,347 ) Basic and diluted earnings
(loss) per share from continuing operations attributable to
controlling interest (1) $ (0.34 ) $ (0.66 ) Basic and
diluted earnings (loss) per share attributable to controlling
interest (1) $ (0.34 ) $ (0.66 ) Weighted average number of
common shares outstanding - basic 35,234,849 35,161,082
Weighted average number of common shares outstanding - diluted
35,234,849 35,161,082 . (1) Refer to "Unaudited Basic and Diluted
Earnings (Loss) Per Share Computation" schedule for calculation of
earnings per share amounts.
CDC Corporation
Unaudited Combined Statement of Cash Flow (Amounts in
thousands of U.S. dollars except share and per share data)
Table 5 Three months ended
March 31, June 30, 2011 2011
OPERATING ACTIVITIES: Net loss $ (10,622 ) $ (13,286 )
Adjustments to reconcile net loss to net cash provided by operating
activities Loss on disposal of property and equipment - 7
Loss on disposal of available-for-sale
securities
9 214 Bad debt expense 263 407 Amortization expense 5,468 5,638
Depreciation expense 1,503 1,445 Stock compensation expenses 1,612
2,956 Deferred income tax provision (273 ) (59 )
Exchange loss (gain)
112 (171 ) Non-cash restructuring and other charges 1,107 (703 )
Amortization of debt issuance costs 87 (256 ) Interest expense
1,805 2,486 Changes in operating assets and liabilities: Accounts
receivable (2,460 ) (1,743 ) Deposits, prepayments and other
receivables (4,063 ) (242 ) Other assets 202 771 Accounts payable
5,241 (2,686 ) Accrued liabilities (509 ) 1,673 Deferred revenue
7,410 (4,496 ) Income tax payable 413 (661 ) Other liabilities
(449 ) (267 ) Net cash provided by (used in)
operating activities 6,856 (8,973 )
INVESTING ACTIVITIES: Acquisitions, net of cash acquired - -
Payments for prior year acquisitions (500 ) (45 ) Purchase of
property, plant & equipment (498 ) (584 ) Purchases of
intangible assets (4,000 ) - Purchase of available-for-sale
securities - 554 Proceeds from disposal of available-for-sale
securities 41 188 Change in restricted cash -
115
Net cash provided by (used in) investing
activities
(4,957 ) 228
FINANCING
ACTIVITIES: Short-term borrowings (repayments) (14,996 ) (4 )
Payment for capital lease obligations (71 ) (54 ) Purchase of CDC
Software shares - (1,553 ) Net cash used in
financing activities (15,067 ) (1,611 ) Effect
of exchange differences on cash 2,583 2,227
Net decrease in cash (10,585 ) (8,129 ) Cash at
beginning of period 99,360 88,775
Cash at end of period $ 88,775 $ 80,646
CDC Corporation Unaudited Combined Statement of Cash
Flow (Amounts in thousands of U.S. dollars except share and
per share data) Table 6
Three months ended Six months ended June
30, June 30, 2010 2011 2010
2011 OPERATING ACTIVITIES: Net loss $ (7,441 ) $
(13,286 ) $ (11,269 ) $ (23,908 ) Adjustments to reconcile net loss
to net cash provided by operating activities Loss on disposal of
property and equipment 17 7 17 7 (Gain) loss on disposal of
available-for-sale securities (101 ) 214 (979 ) 223 Bad debt
expense 426 407 378 670 Amortization expense 6,679 5,638 13,771
11,106 Depreciation expense 1,820 1,445 3,418 2,948 Stock
compensation expenses 1,535 2,956 2,648 4,568 Deferred income tax
provision 2,293 (59 ) 2,293 (332 ) Exchange gain (1,182 ) (171 )
(558 ) (59 ) Non-cash restructuring and other charges - (703 ) -
404 Amortization of debt issuance costs (63 ) (256 ) 58 (169 )
Interest expense 1,570 2,486 3,165 4,291 Changes in operating
assets and liabilities: Accounts receivable (1,251 ) (1,743 )
(1,095 ) (4,203 ) Deposits, prepayments and other receivables 2,453
(242 ) (731 ) (4,305 ) Other assets 760 771 286 973 Accounts
payable (1,555 ) (2,686 ) (3,377 ) 2,555 Accrued liabilities (1,345
) 1,673 (3,426 ) 1,164 Deferred revenue (1,929 ) (4,496 ) (2,621 )
2,914 Income tax payable 1,192 (661 ) (801 ) (248 ) Other
liabilities (99 ) (267 ) 211
(716 ) Net cash provided by (used in) operating activities
3,779 (8,973 ) 1,388 (2,117 )
INVESTING ACTIVITIES: Acquisitions, net of cash
acquired (21,075 ) - (23,321 ) - Payments for prior year
acquisitions (2,100 ) (45 ) (2,100 ) (545 ) Purchase of property,
plant & equipment (144 ) (584 ) (431 ) (1,082 ) Purchases of
intangible assets (956 ) - (1,213 ) (4,000 ) Disposal (acquisition)
of cost method investments (82 ) - 1,394 - Purchase of
available-for-sale securities (391 ) 554 (688 ) 554 Investment in
cost method investees (1,920 ) - (1,920 ) - Proceeds from disposal
of available-for-sale securities - 188 1,427 229 Change in
restricted cash 606 115 686
115
Net cash provided by (used in) investing
activities
(26,062 ) 228 (26,166 ) (4,729 )
FINANCING ACTIVITIES: Short-term borrowings
(repayments) 12,699 (4 ) 9,887 (15,000 ) Debt issuance costs (1,389
) - (1,389 ) - Payment for capital lease obligations (289 ) (54 )
(407 ) (125 ) Purchase of CDC Software shares (1,599 ) (1,553 )
(2,913 ) (1,553 ) Purchases of treasury stock (569 )
- (698 ) -
Net cash provided by (used in) financing
activities
8,853 (1,611 ) 4,480
(16,678 ) Effect of exchange differences on cash (982
) 2,227 (1,337 ) 4,810
Net decrease in cash (14,412 ) (8,129 ) (21,635 ) (18,714 ) Cash at
beginning of period 108,067 88,775
115,290 99,360 Cash at end of
period $ 93,655 $ 80,646 $ 93,655 $ 80,646
CDC Corporation Unaudited Reconciliation
From GAAP Results to Adjusted EBITDA (Amounts in thousands
of U.S. dollars) Table 7 Three months
ended March 31, June 30, 2011 2011
(a) Reconciliation from GAAP results to Adjusted EBITDA
Operating loss $ (7,627 ) $ (10,156 ) Add back restructuring and
other charges 1,107 (24 ) Add back depreciation expense 1,503 1,445
Add back amortization expense 2,117 2,167 Add back amortization
expense included in cost of revenue 3,351 3,471 Add back stock
compensation expenses 1,612 2,955 Subtract exchange (gain) loss 114
1,436 Add back deferred revenue grind (1) 263
82 Adjusted EBITDA $ 2,440 $ 1,376 Adjusted
EBITDA margin % 3 % 2 %
CDC Software Unaudited
Reconciliation From GAAP Results to Adjusted EBITDA (Amounts
in thousands of U.S. dollars) Three months ended
March 31, June 30, 2011 2011 (a)
Reconciliation from GAAP results to Adjusted EBITDA Operating
loss $ (2,710 ) $ (3,213 ) Add back restructuring and other charges
1,074 148 Add back depreciation expense 766 746 Add back
amortization expense 1,606 1,635 Add back amortization expense
included in cost of revenue 3,082 2,858 Add back stock compensation
expenses 978 1,015 Add back (subtract) exchange gain (loss) 519
1,912 Add back deferred revenue grind (1) 263
82 Adjusted EBITDA $ 5,578 $ 5,183 Adjusted
EBITDA margin % 11 % 9 %
CDC Global Services
Unaudited Reconciliation From GAAP Results to Adjusted
EBITDA (Amounts in thousands of U.S. dollars) Three
months ended March 31, June 30, 2011
2011 (a) Reconciliation from GAAP results to Adjusted
EBITDA
Operating income (loss)
$ (227 ) $ 598 Add back restructuring and other charges 33 (173 )
Add back depreciation expense 77 91 Add back amortization expense
276 297 Add back amortization expense included in cost of revenue 1
6 Add back stock compensation expenses 130 321 Add back (subtract)
exchange gain (loss) (1 ) - Adjusted EBITDA $
289 $ 1,140 Adjusted EBITDA margin % 2 % 7 %
CDC Games Corporation Unaudited Reconciliation From GAAP
Results to Adjusted EBITDA (Amounts in thousands of U.S.
dollars) Three months ended March 31, June
30, 2011 2011 (a) Reconciliation from GAAP
results to Adjusted EBITDA
Operating income (loss)
$ 387 $ (1,278 ) Add back restructuring and other charges (1 ) -
Add back depreciation expense 613 579 Add back amortization expense
included in cost of revenue 268 607 Add back stock compensation
expenses 155 483 Adjusted EBITDA $
1,422 $ 391 Adjusted EBITDA margin % 24 % 8 %
CDC China.com Unaudited Reconciliation From GAAP Results
to Adjusted EBITDA (Amounts in thousands of U.S.
dollars) Three months ended March 31, June
30, 2011 2011 (a) Reconciliation from GAAP
results to Adjusted EBITDA
Operating loss
$ (102 ) $ (508 ) Add back depreciation expense 47 29 Add back
stock compensation expenses 165 323
Adjusted EBITDA $ 110 $ (155 ) Adjusted EBITDA margin % 3 %
-4 %
Corporate Unaudited Reconciliation From GAAP
Results to Adjusted EBITDA (Amounts in thousands of U.S.
dollars) Three months ended March 31, June
30, 2011 2011 (a) Reconciliation from GAAP
results to Adjusted EBITDA from operations Operating loss $
(4,975 ) $ (5,755 ) Add back depreciation expense 1 - Add back
amortization expense 236 236 Add back stock compensation expenses
185 813 Subtract exchange loss (406 ) (477 ) Adjusted
EBITDA $ (4,959 ) $ (5,183 ) (1) Deferred revenue grind
represents the fair value adjustment required to reduce the
historical deferred revenue liabilities from acquisitions to the
fair value of the Company’s legal performance obligations plus a
normal profit margin based on fulfillment effort.
CDC
Corporation Unaudited Reconciliation From GAAP Results to
Adjusted EBITDA (Amounts in thousands of U.S. dollars)
Table 8 Three months
ended Six months ended June 30, June 30,
2010 2011 2010 2011 (a)
Reconciliation from GAAP results to Adjusted EBITDA Operating
loss $ (1,604 ) $ (10,156 ) $ (5,520 ) $ (17,782 ) Add back
restructuring and other charges 505 (24 ) 716 1,083 Add back
depreciation expense 1,820 1,445 3,418 2,948 Add back amortization
expense 2,121 2,167 4,280 4,284 Add back amortization expense
included in cost of revenue 4,558 3,471 9,491 6,822 Add back stock
compensation expenses 1,534 2,955 2,648 4,568 Add back exchange
gain (1,182 ) 1,436 (588 ) 1,548 Add back deferred revenue grind
(1) 1,444 82 2,647
345 Adjusted EBITDA (2) $ 9,196 $ 1,376 $
17,092 $ 3,816 Adjusted EBITDA margin % 12 % 2 % 15 %
9 %
CDC Software Unaudited Reconciliation From
GAAP Results to Adjusted EBITDA (Amounts in thousands of
U.S. dollars) Three months ended Six months
ended June 30, June 30, 2010 2011
2010 2011 (a) Reconciliation from GAAP results to
Adjusted EBITDA Operating income (loss) $ 4,582 $ (3,213 ) $
5,989 $ (5,925 ) Add back restructuring and other charges 229 148
802 1,223 Add back depreciation expense 952 746 1,651 1,512 Add
back amortization expense 1,293 1,635 2,573 3,241 Add back
amortization expense included in cost of revenue 3,457 2,858 7,282
5,940 Add back stock compensation expenses 551 1,015 996 1,993 Add
back exchange gain (1,156 ) 1,912 (562 ) 2,431 Add back deferred
revenue grind (1) 1,444 82 2,647
345 Adjusted EBITDA (2) $ 11,352 $
5,183 $ 21,378 $ 10,760 Adjusted EBITDA margin
% 22 % 9 % 12 % 3 %
CDC Global Services Unaudited
Reconciliation From GAAP Results to Adjusted EBITDA (Amounts
in thousands of U.S. dollars) Three months ended
Six months ended June 30, June 30, 2010
2011 2010 2011 (a) Reconciliation from GAAP
results to Adjusted EBITDA
Operating income (loss)
$ (1,579 ) $ 598 $ (2,834 ) $ 371 Add back restructuring and other
charges 135 (173 ) 226 (140 ) Add back depreciation expense 70 91
157 168 Add back amortization expense 641 297 1,284 572 Add back
amortization expense included in cost of revenue 1 6 2 7 Add back
stock compensation expenses 105 321 200 451 Add back (subtract)
exchange gain (loss) - - 1
(1 ) Adjusted EBITDA $ (627 ) $ 1,140 $ (964 )
$ 1,428 Adjusted EBITDA margin % -4 % 7 % -3 % 4 %
CDC Games Corporation Unaudited Reconciliation From GAAP
Results to Adjusted EBITDA (Amounts in thousands of U.S.
dollars) Three months ended Six months
ended June 30, June 30, 2010 2011
2010 2011 (a) Reconciliation from GAAP results to
Adjusted EBITDA
Operating loss
$ (1,638 ) $ (1,278 ) $ (1,982 ) $ (891 ) Add back restructuring
and other charges 141 - (312 ) (1 ) Add back depreciation expense
734 579 1,476 1,192 Add back amortization expense included in cost
of revenue 1,100 607 2,207 875 Add back stock compensation expenses
181 483 339 638
Adjusted EBITDA $ 518 $ 391 $ 1,728 $
1,813 Adjusted EBITDA margin % 7 % 8 % 11 % 16 %
CDC China.com Unaudited Reconciliation From GAAP Results
to Adjusted EBITDA (Amounts in thousands of U.S.
dollars) Three months ended Six months
ended June 30, June 30, 2010 2011
2010 2011 (a) Reconciliation from GAAP results to
Adjusted EBITDA Operating loss $ (496 ) $ (508 ) $ (911 ) $
(611 ) Add back restructuring and other charges - 1 - 1 Add back
depreciation expense 60 29 117 75 Add back stock compensation
expenses 146 323 236
488 Adjusted EBITDA $ (290 ) $ (155 ) $ (558 ) $ (47
) Adjusted EBITDA margin % -9 % -4 % -9 % -1 %
Corporate Unaudited Reconciliation From GAAP Results to
Adjusted EBITDA (Amounts in thousands of U.S. dollars)
Three months ended Six months ended June
30, June 30, 2010 2011 2010
2011 (a) Reconciliation from GAAP results to Adjusted
EBITDA Operating loss $ (2,473 ) $ (5,755 ) $ (5,782 ) $
(10,726 ) Add back depreciation expense 4 - 17 1 Add back
amortization expense 187 236 423 471 Add back stock compensation
expenses 551 813 877 998 Subtract exchange loss (26 )
(477 ) (27 ) (882 ) Adjusted EBITDA $ (1,757 ) $
(5,183 ) $ (4,492 ) $ (10,138 ) (1) Deferred revenue grind
represents the fair value adjustment required to reduce the
historical deferred revenue liabilities from acquisitions to the
fair value of the Company’s legal performance obligations plus a
normal profit margin based on fulfillment effort.
CDC
Corporation Unaudited Reconciliation From GAAP Results to
Non-GAAP Net Income (Loss) (Amounts in thousands of U.S.
dollars) Table 9 Three months
ended June 30, March 31, June 30,
2010 2011 2011
(a) Reconciliation from GAAP net (loss)
attributable to controlling interestto Non-GAAP net income
(loss) and Non-GAAP net income (loss) per share
Net loss attributable to controlling interest $ (7,934 ) $ (10,331
) $ (13,016 ) Add back restructuring and other charges 505 1,107
(24 ) Add back amortization expense 2,121 2,117 2,121 Add back
amortization expense included in cost of revenue 4,558 3,351 4,558
Add back stock based compensation 1,534 1,612 2,955 Add back
(subtract) exchange gain (loss) (1,182 ) 114 1,436 Add back
deferred revenue grind 1,444 263 82 Add back (subtract) non cash
tax expense (benefit) 2,379 763 215 Tax effect on all reconciling
items @ 31% (324 ) 548 585
Non-GAAP net income (loss) $ 3,101 $ (456 ) $ (1,088 )
Non-GAAP net income (loss) as % of revenue 4 % -1 % -1 %
Weighted average number of common shares outstanding - basic
35,232,253 35,141,880 35,180,073 Weighted average number of common
shares outstanding - diluted 35,232,253 35,141,880 35,180,073
Non-GAAP net income (loss) per share - basic $
0.09 $ (0.01 ) $ (0.03
) Non-GAAP net income (loss) per share - diluted
$ 0.09 $ (0.01 ) $
(0.03 ) CDC Corporation Unaudited
Reconciliation From GAAP Cash to Non-GAAP Cash (Amounts in
thousands of U.S. dollars) Table 10 June
30,
(a) Non-GAAP Cash and Cash Equivalents
Reconciliation
2011 Cash $ 80,646 Add restricted cash 25 Add available for
sale securities - current 394 Investments (1) 11,426
Non-GAAP cash and cash equivalents $ 92,491 (1) - Excludes
investments of $713 in franchise and strategic cloud investment
partners at June 30, 2011.
CDC Corporation
Unaudited Basic and Diluted Loss Per Share Computation
(Amounts in thousands of U.S. dollars except share and per share
data) Table 11
Three months ended Six months ended June 30,
June 30, 2010 2011 2010 2011
Numerator for earnings (loss)attributable to controlling
interest per common share: Net loss $ (7,441 ) $ (13,286 ) $
(11,269 ) $ (23,908 )
Net adjustments for (income) loss
attributable to noncontrolling interest
and dilutive effect of subsidiary issued stock
(1)
(493 ) 270 (716 ) 561
Adjusted loss (7,934 ) (13,016 ) (11,985 ) (23,347 ) Amount
allocated to convertible notes (2) - -
- - Net loss attributable to
controlling interest $ (7,934 ) $ (13,016 ) $ (11,985 ) $ (23,347 )
Numerator for loss attributable to controlling interest
per common share: Net loss attributable to
controlling interest $ (7,934 ) $ (13,016 ) $ (11,985 ) $ (23,347 )
Denominator: Weighted average number of common shares
outstanding - basic 35,232,253 35,180,073 35,234,849 35,161,082
Employee compensation related to common
shares including stock options
- - - -
Weighted average number of common shares outstanding - diluted
35,232,253 35,180,073 35,234,849
35,161,082
Per share amounts:
Loss attributable to controlling interest per common share - basic
$ (0.23 ) $ (0.37 ) $ (0.34 ) $ (0.66 ) Loss attributable to
controlling interest per common share - dilutive $ (0.23 ) $ (0.37
) $ (0.34 ) $ (0.66 )
(1) Includes the dilutive effects of
subsidiary-issued stock-based awards, if any.
(2) Income has been allocated to common
stock and convertible notes based on their respective rights to
share in dividends. In accordance with FASB Accounting Standards
Codification 260, "Earnings Per Share" the Company's convertible
notes meet the definition of participating securities and are
included in the basic earnings per share using the two-class stock
method and in diluted earnings per share using the more dilutive of
the if-converted method or two-class stock method.
CDC Corporation Unaudited Reconciliation of GAAP
Revenue to Non-GAAP Revenue (Amounts in thousands of U.S.
dollars) Table 12 Three months
ended June 30, 2010 GAAP Revenue Non-GAAP Adjustment
(1) Non-GAAP Revenue Software $ 52,576 $ 1,443 $
54,019 Global Services 15,764 - 15,764 CDC Games 7,111 - 7,111
China.com 3,092 - 3,092 Total revenue $ 78,543
$ 1,443 $ 79,986
Three months ended March 31,
2011 GAAP Revenue Non-GAAP Adjustment (1)
Non-GAAP Revenue Software $ 52,376 $ 263 $ 52,639
Global Services 14,780 - 14,780 CDC Games 5,962 - 5,962 China.com
4,031 - 4,031 Total revenue $ 77,149 $ 263 $
77,412
Three months ended June 30, 2011
GAAP Revenue Non-GAAP Adjustment (1) Non-GAAP
Revenue Software $ 56,385 $ 82 $ 56,467 Global Services
16,347 - 16,347 CDC Games 5,064 - 5,064 China.com 4,001
- 4,001 Total revenue $ 81,797 $ 82 $ 81,879
Six months ended June 30, 2010 GAAP Revenue
Non-GAAP Adjustment (1) Non-GAAP Revenue
Software $ 103,077 $ 2,647 $ 105,724 Global Services 32,206 -
32,206 CDC Games 15,079 - 15,079 China.com 5,996 -
5,996 Total revenue $ 156,358 $ 2,647 $ 159,005
Six months ended June 30, 2011 GAAP Revenue
Non-GAAP Adjustment (1) Non-GAAP Revenue
Software $ 108,761 $ 345 $ 109,106 Global Services 31,127 - 31,127
CDC Games 11,026 - 11,026 China.com 8,033 -
8,033 Total revenue $ 158,947 $ 345 $ 159,292 (1) Non-GAAP
adjustment represents deferred revenue grind adjustment required to
reduce the historical deferred revenue liabilities from
acquisitions to the fair value of the Company’s legal performance
obligations plus a normal profit margin based on fulfillment
effort.
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