KongZhong Corporation ( KONG)

Q4 2011 Earnings Call

February 21, 2012 7:30 PM EST


Jay Chang – CFO

Leilei Wang – Chairman and CEO


Adam Krejcik – ROTH Capital Partners



Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2011 KongZhong Corporation Earnings Webcast.

At this time, all participants are in a listen-only mode. There will be a presentation followed by a Q&A session, at which time, if you wish to ask a question, you will need to press star 1 on your telephone. I must advise you that this conference is being recorded today, 22 February, 2012.

I would now like to hand the call over to your speaker today, CFO, Mr. Jay Chang. Please go ahead.

Jay Chang

Thank you operator. This conference call may contain forward-looking statements. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance upon that. For additional discussions of risks and uncertainties relating to the forward-looking statements and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements which apply only as of the date of this conference call.

Thank you for your continued interest in KongZhong. I will first review our fourth quarter results before handing over the call to our CEO, Mr. Wang Leilei.

Total revenues, for the fourth quarter of 2011 was $39.3 million, a 1% increase from 3Q and a 9% increase from the same period last year. As we continue to transition our business to become a cross-platform visual entertainment company, Mobile Games made up 90% of total revenues and Internet Games contributed 34%, with gaming revenues now making up 53% of total revenues.

Total gross profit was $16.7 million compared to $14 million in 3Q, while gross margins improved to 42% compared to 36% in 3Q. Total fourth quarter OpEx was $12.3 million.

GAAP net profit was $5.7 million and comparing to $0.14 per ADS while non-GAAP net profit was $7.5 million and compared to $0.18 per ADS exceeding the company’s guidance range of $5 million to $6 million.

At the end of 2011, the company had $154.5 million in cash and cash equivalents including short-term instruments or $3.8 per ADS in cash and cash equivalents, compared to $143.7 million at the end of the 3Q. However, cash and cash equivalents as well as other short-term estimates exclude the $22.3 million loans with third party. It’s including the value of this renminbi/dollar loan, which was made solely for the purposes of treasury management, total cash and third-party loans amounted to $176.6 million at the end of 2011 or equivalent to $4.3 per ADS.

In addition, the company also began to repurchase our ADSs and open market as of September 30, 2011. As of the end of January 31, 2012 we’ve purchased over $800,000 ADS and the average price of roughly $4.43 per ADS.

Also recently we announced our Acquisition of Noumena for a total of $15 million in cash, which is payable over three years from closing of the transaction as well as $1 million ADS which are all subject to about roughly three year lock-up period. The board of directors helped the company has approved this transaction and we expect this – we expect to close this transaction sometime during the end of the first quarter.

Now I would like to turn to each business unit’s financial performance, namely, Internet Games, Mobile Games and WVAS.

Net Game revenues were $13.2 million in the fourth quarter, a 50% increase from 3Q and 123% increase compared to the same period last year. Net Game revenues were driven by the continued strong performance of World of Tanks.

Domestic Internet Game revenues were $12.3 million, a 58% increase from 3Q and a 240% increase from the same period last year.

Overseas Internet Game revenues were $0.94 million, a 10% increase from the third quarter. Total overseas revenues as a percentage of total Internet revenues in 4Q were 7%.

For the fourth quarter, domestic Mainland Chinese Online Game operations achieved average concurrent users or ACUs of 194,000, aggregate paying accounts of 570,000, with a quarterly average ARPU of roughly renminbi 137.

Internet Games gross profit in the fourth quarter was $6.85 million, a 61% increase from 3Q and a 43% increase from the same period last year. Internet Game gross margins in the fourth were 52%.

Now, turning to our Mobile Games. Total Mobile Game revenues in the fourth quarter were $7.6 million, a 24% decrease from 3Q and a 40% decrease from the same period last year. However, with the recently announced Acquisition of Noumena, the company will begin new efforts to develop our mobile game business, our new, mobile operator kind of, smartphone mobile game platforms and those closing we plan to break out feature phone and smartphone mobile games revenues separately in a mobile game business.

Mobile Game gross profit in the fourth quarter was $2.92 million, a 19% decrease from 3Q and a 34% decrease compared to the same period last year. As policies from China Mobile and our Mobile Game monthly subscription business achieved really the higher term and lower profitability. Mobile Games gross margins in the fourth quarter were 38% compared to 36% in the third quarter.

Read the rest of this transcript for free on seekingalpha.com