Sky-mobi Limited Announces Second Quarter 2015 Unaudited Financial Results

HANGZHOU, China, Aug. 24, 2015 (GLOBE NEWSWIRE) -- Sky-mobi Limited ("Sky-mobi" or the "Company") (NASDAQ:MOBI), a leading mobile application platform and game publisher in China, today announced its unaudited financial results for the second quarter ended June 30, 2015.

Second Quarter 2015 Highlights
  • Total revenue was RMB164.1 million (US$26.5 million) in the second quarter of 2015, compared to RMB170.2 million in the prior year period.  
  • Revenue from smartphone business increased by 17.0% to RMB154.9 million (US$25.0 million), or 94.4% of total revenue, from RMB132.5 million, or 77.8% of total revenue in the prior year period.

Mr. Michael Tao Song, chairman and chief executive officer of Sky-mobi, stated, "During the second quarter of 2015, we increased the number of games published on both iOS and Android platforms with nearly 37.3 million monthly active users ("MAUs"), despite the various measures tightening payment system security implemented by the big three mobile carriers in China since mid-May, which has adversely affected our operations in the second quarter of 2015. In order to address these challenges, we will continue to strengthen and expand our mobile game publishing capabilities by publishing up to ten more high-quality overseas smartphone games in the China market by the end of this year. We believe these efforts will help us stabilize our business and allow us to reestablish solid growth in the coming quarters."

Mr. Fischer Xiaodong Chen, chief financial officer of the Company, commented, "Our revenue from smartphone business continued to grow during the second quarter of 2015, as indicated by the 17% year-over-year increase to RMB154.9 million, accounting for over 94% of our total revenue. Unfortunately, due to the tightening measures implemented by the big three mobile carriers in China, including but not limited to the suspension of certain of their billing and payment channels, our mobile subscribers experienced increased difficulty in purchasing our mobile content, negatively impacting our total revenue. In an effort to mitigate this negative impact, we have initiated a series of cost-cutting measures, including streamlining our operations and employee base and divesting certain businesses that do not offer strong future growth potential such as Hangzhou Mopin Technology Co., Ltd. ("Mopin"), one of our subsidiaries. Looking ahead, we will continue to focus on introducing high-quality smartphone games, platform expansion, as well as operational discipline."

Second Quarter 2015 Financial Results

Total Revenue

Total revenue was RMB164.1 million (US$26.5 million), compared to RMB233.0 million in the previous quarter and RMB170.2 million in the prior year period. The decrease was mainly due to the various measures and policies tightening payment system security implemented by the big three mobile carriers in China since mid-May, which have discouraged and disabled mobile subscribers from purchasing certain mobile content from mobile application providers, including Sky-mobi .

Revenue from smartphone business was RMB154.9 million (US$25.0 million), or 94.4% of total revenue, compared to RMB219.3 million in the previous quarter, or 94.1% of total revenue, and RMB132.5 million in the prior year period, or 77.8% of total revenue. The quarter-over-quarter decrease was due to the policies implemented by mobile carriers mentioned above. The year-over-year increase was mainly attributable to the Company's increasing efforts in publishing single-player games both over the Maopao platform 1 and through third-party distribution channels.

Revenue can be further broken down into three categories: "revenue from single-player games", "revenue from multiplayer games" and "other revenue". Revenue from single-player games was RMB133.7 million (US$21.6 million), compared to RMB194.9 million in the previous quarter and RMB110.7 million in the prior year period. ARPU 2 for single-player games was RMB10.2, compared to RMB10.3 in the previous quarter. Revenue from multiplayer games was RMB14.7 million (US$2.4 million), compared to RMB22.8 million in the previous quarter and RMB34.3 million in the prior year period. ARPU for multiplayer games was RMB156.9, compared to RMB169.6 in the previous quarter. Other revenue was RMB15.7 million (US$2.5 million), compared to RMB15.3 million in the previous quarter and RMB25.2 million in the prior year period.

Cost of Revenue and Gross Profit

Total cost of revenue was RMB130.6 million (US$21.1 million), compared to RMB185.3 million in the previous quarter and RMB127.1 million in the prior year period.

The discussion and analysis below focuses on non-IFRS cost of revenue, which the Company believes more accurately reflects its operating performance than the IFRS cost of revenue.

Total non-IFRS cost of revenue was RMB130.4 million (US$21.0 million), compared to RMB184.9 million in the previous quarter and RMB127.0 million in the prior year period. Non-IFRS cost of revenue was composed of non-IFRS cost associated with payments to industry participants and non-IFRS direct cost as further discussed below.

Non-IFRS cost associated with payments to industry participants was RMB124.9 million (US$20.2 million), compared to RMB178.8 million in the previous quarter and RMB120.2 million in the prior year period. The decrease was primarily due to decreased channel cost, which was in line with decrease in total revenue.

Non-IFRS direct cost was RMB5.5 million (US$0.9 million), compared to RMB6.1 million in the previous quarter and RMB6.8 million in the prior year period. Non-IFRS direct cost included salaries and benefits, depreciation, office expenses and utilities directly related to the operation of the Maopao platform. The decrease in non-IFRS direct cost was due to decreased employee-related expenses as a result of the Company's headcount restructuring in an effort to achieve greater efficiency.

Non-IFRS gross profit was RMB33.7 million (US$5.4 million), compared to RMB48.1 million in the previous quarter and RMB43.2 million in the prior year period. Non-IFRS gross margin was 20.6%, compared with 20.6% in the previous quarter and 25.4% in the prior year period. The year-over-year decrease in non-IFRS gross margin was primarily due to the higher revenue contribution of the Company's smartphone business. The Company's smartphone business in general has a lower profit margin compared to its feature phone business as the Company generally offers more attractive revenue sharing arrangements to its smartphone content providers and handset companies.

Operating Expenses and Profit/Loss from Operations

Total operating expenses, primarily consisting of employee salaries and benefits, training expenses, travel, entertainment and office related expenses, were RMB48.7 million (US$7.9 million), compared to RMB40.6 million in the previous quarter and RMB35.3 million in the prior year period.

Total non-IFRS operating expenses were RMB45.5 million (US$7.3 million), compared to RMB35.2 million in the previous quarter and RMB32.6 million in the prior year period. The increase in total non-IFRS operating expenses was mainly due to the increased marketing and promotion expenses to promote the Company's Maopao platform and products, as well as severance costs incurred as a result of the Company's strategy to streamline its employee base.

Loss from operations was RMB15.2 million (US$2.5 million), compared to profit from operations of RMB7.2 million in the previous quarter and RMB7.8 million in the prior year period.

Non-IFRS loss from operations was RMB11.7 million (US$1.9 million), compared to profit from operations of RMB12.9 million in the previous quarter and RMB10.5 million in the prior year period.

Net Profit/Loss

Net loss was RMB6.1 million (US$1.0 million), compared to net profit of RMB14.2 million in the previous quarter and RMB63.4 million in the prior year period. Basic and diluted loss per common share were RMB0.02 (US$0.00) and RMB0.02 (US$0.00), respectively, which represents the equivalent of RMB0.18 (US$0.03) and RMB0.18 (US$0.03) per ADS, respectively.

Non-IFRS net loss was RMB2.7 million (US$0.4 million), compared to net profit of RMB20.0 million in the previous quarter and net profit of RMB66.1 million in the prior year period. Non-IFRS basic and diluted loss per common share were RMB0.01 (US$0.00) and RMB0.01 (US$0.00), respectively, which represents the equivalent of RMB0.06 (US$0.01) and RMB0.06 (US$0.01) per ADS, respectively.

The weighted average number of ADSs used to calculate basic and diluted loss per ADS for the second quarter of 2015 was 27,994,562 and 27,994,562, respectively.

Common Shares

Sky-mobi had approximately 224.8 million common shares outstanding as of June 30, 2015, or the equivalent of approximately 28.1 million ADSs outstanding.

Other Operating Data
  For the three months ended
  March 31, 2015 June 30, 2015
     
Maopao Platform    
Average MAU 3 (in thousands)  37,742  37,268
     
Single-player games     
Average ARPU (RMB)  10.3  10.2
     
Multiplayer games     
Average ARPU (RMB)  169.6  156.9

Business Divestiture

In August 2015, the Company entered into certain equity transfer agreements, pursuant to which it agreed to transfer all of its 79.88% equity interest in Mopin to a shareholder of XPlane Ltd., as well as an entity held by the Mopin management. The consideration of the transfer was determined primarily on the basis of the fair value of Mopin as of July 31, 2015. The transaction is expected to be completed in the third quarter of 2015 and is part of the Company's cost-cutting measures to divest businesses that do not offer strong future growth potential.

Business Outlook

Since the second quarter of 2015, the three mobile carriers in China (China Mobile, China Unicom and China Telecom) have implemented various measures tightening payment system security, including suspending certain of their billing and payment channels and introducing additional mandatory payment verification steps to the payment process. These measures have discouraged and disabled mobile subscribers from purchasing certain mobile content from mobile application providers, including Sky-mobi, resulting in lost revenue of these mobile application providers. The Company expects its total revenue for the third quarter of 2015 to be significantly lower than that of the second quarter, as these measures will continue to adversely affect the overall mobile gaming industry in China.

The Company is assessing and will continue to assess the impact of these measures implemented by the three mobile carriers and their implication on its business. In addition, Sky-mobi is in the process of introducing more high-quality smartphone games on both iOS and Android platforms in the coming months, which it believes will partially offset the impact of these measures.

Conference Call and Webcast

The Company will hold a conference call on Monday, August 24, 2015 at 8:00 am Eastern Time, or 8:00 pm Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:
United States: +1-845-675-0438
International Toll Free: +1-855-500-8701
China Domestic: 400-1200654
Hong Kong: +852 3018-6776
Conference ID: # 9738357

The replay will be accessible through September 1, 2015 by dialing the following numbers:
United States Toll Free: +1-855-452-5696
International: +61 2 90034211
Conference ID: # 9738357

A live and archived webcast of the conference call will be available on the Company's investor relation website at http://ir.sky-mobi.com.

About Non-IFRS Financial Measures

To supplement its consolidated financial statements prepared in accordance with International Financial Reporting Standards, or IFRS, Sky-mobi uses several non-IFRS financial measures defined below. The Company believes management and investors benefit from non-IFRS financial measures in assessing the Company's performance and prospects. Specifically, the Company believes that non-IFRS financial measures provide meaningful supplemental information regarding its performance by excluding certain items that may not be indicative of the Company's operating performance.

The presentation of this additional information is not meant to be considered superior to, in isolation from or as a substitute for results prepared in accordance with IFRS. A limitation of using non-IFRS cost of revenue, gross profit, operating expenses, profit/loss from operations, net profit/loss and net profit/loss per share is that these non-IFRS measures exclude share-based compensation expenses that have been and will continue to be for the foreseeable future a significant recurring expense. Management provides specific information regarding the IFRS amounts excluded from each non-IFRS measure. For more information on these non-IFRS financial measures, please see the tables containing reconciliations of non-IFRS financial measures to comparable IFRS measures in this release.

Definitions of Non-IFRS Measures

Non-IFRS c ost of revenue is defined as cost of revenue excluding share-based compensation expenses.

Non-IFRS g ross profit is defined as revenue less non-IFRS cost of revenue.

Non-IFRS o perating expenses are defined as operating expenses excluding share-based compensation expenses.

Non-IFRS profit (loss) from operations is defined as Non-IFRS gross profit less non-IFRS operating expenses.

Non-IFRS net profit (loss) is defined as non-IFRS profit (loss) from operations plus/minus other gains or losses, impairment loss on investments in associates and share of results of associates, less income tax.

Non-IFRS b asic and diluted earnings (loss) per common share/ADS are defined as non-IFRS net profit (loss) attributable to owners of the Company divided by weighted average outstanding shares/ADSs during the period.

Exchange Rate

This announcement contains translations of certain Renminbi (RMB) amounts into U.S. dollars (US$) at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.2000 to US$1.00, the exchange rate at June 30, 2015 as set forth in the H.10 statistical release of the Federal Reserve Board.

About Sky-mobi Limited

Sky-mobi Limited is a leading mobile application platform and game publisher in China. The Company works with handset companies to pre-install its Maopao App Store and other Maopao applications on handsets and with content providers to provide users with applications and content titles. Users of Maopao App Store can browse, download and enjoy a range of applications and content, such as single-player games, mobile music and books on various mobile handsets with different hardware and operating system configurations. The Company also publishes domestic and foreign game titles through its own Maopao App Store platform and third party platforms. The Company's mobile social network community in China, the Maopao Community, offers mobile social games as well as applications and content with social networking functions to its registered users. The Company is based in Hangzhou, China. For more information, please visit: www.sky-mobi.com.

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by such terms as "may," "will," "believes," "expects," "anticipates," "intends," "estimates," "plans," "continues" or other similar expressions, the negative of these terms, or other comparable terminology. Such statements, including statements relating to the Company's business outlook, are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These forward-looking statements are based on current expectations, assumptions, estimates and projections about the Company and its industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law.

1 "Maopao Platform" refers to Sky-mobi's Maopao-branded smartphone products and services, including but not limited to Maopao App Store, Maopao Game Center, Maopao Community, Maopao Browser, Maopao Assistant, Maopao Desktop and Zimon.

2 "ARPU" stands for average revenue per paying user.

3 "MAU" stands for monthly active users. It refers to the number of users that visit Maopao Platform in a particular month, adjusted to eliminate double-counting of the same user. Average MAUs for a particular period is the average of the MAU during that period.

FINANCIAL TABLES FOLLOW
Sky-mobi Limited
Unaudited Consolidated Statements of Profit or Loss and Other Comprehensive Income (IFRS)
 
  For the three months ended For the six months ended
  June 30, March 31, June 30, June 30, June 30, June 30, June 30,
  2014 2015 2015 2015 2014 2015 2015
In thousands (RMB) (RMB) (RMB) (US$) (RMB) (RMB) (US$)
(Except for share and per share data)              
               
Revenue  170,220  233,008  164,142  26,475  298,784  397,150  64,056
Cost of revenue  (127,140)  (185,254)  (130,570)  (21,060)  (223,146)  (315,824)  (50,939)
Gross profit  43,080  47,754  33,572  5,415  75,638  81,326  13,117
               
Research and development expenses  (9,035)  (12,451)  (12,513)  (2,018)  (18,154)  (24,964)  (4,026)
Sales and marketing expenses  (10,192)  (13,230)  (16,235)  (2,619)  (20,186)  (29,465)  (4,752)
General and administrative expenses  (17,064)  (16,103)  (21,582)  (3,481)  (31,556)  (37,685)  (6,078)
Other income and expense  1,017  1,225  1,602  258  2,816  2,827  456
Total operating expenses  (35,274)  (40,559)  (48,728)  (7,860)  (67,080)  (89,287)  (14,400)
Profit (loss) from operations  7,806  7,195  (15,156)  (2,445)  8,558  (7,961)  (1,284)
               
Other gains and losses  5,319  6,523  4,666  753  11,229  11,188  1,805
Impairment loss on investments in associates  (765)  (2,222)  (776)  (125)  (765)  (2,998)  (484)
Share of results of associates  (288)  4,690  5,416  874  (1,250)  10,106  1,630
Gain on disposal of associates  56,351  --   497  80  56,351  497  80
Profit (loss) before tax  68,423  16,186  (5,353)  (863)  74,123  10,832  1,747
Income tax expenses  (5,067)  (1,941)  (740)  (119)  (6,138)  (2,681)  (432)
Profit (loss) for the period  63,356  14,245  (6,093)  (982)  67,985  8,151  1,315
               
Total comprehensive profit (loss) for the period  63,356  14,245  (6,093)  (982)  67,985  8,151  1,315
               
Profit and total comprehensive income (loss) attributable to:               
- Owners of the Company  63,667  14,669  (5,308)  (855)  68,432  9,360  1,510
- Non-controlling interests  (311)  (424)  (785)  (127)  (447)  (1,209)  (195)
   63,356  14,245  (6,093)  (982)  67,985  8,151  1,315
               
Earnings (loss) per common share              
Basic  0.26  0.06  (0.02)  (0.00)  0.29  0.04  0.01
Diluted  0.26  0.06  (0.02)  (0.00)  0.28  0.04  0.01
               
Weight average number of ADS              
Basic  29,631,757  27,807,989  27,994,562    29,512,576  27,901,791  
Diluted  29,788,088  27,874,209  27,994,562    29,721,468  27,973,071  
               
Weight average number of shares              
Basic  237,054,058  222,463,910  223,956,494    236,100,612  223,214,326  
Diluted  238,304,704  222,993,672  223,956,494    237,771,740  223,784,569  
               
Unaudited Reconciliations of non-IFRS financial measures
to comparable IFRS financial measures
 
  For the three months ended For the six months ended
  June 30, March 31, June 30, June 30, June 30, June 30, June 30,
  2014 2015 2015 2015 2014 2015 2015
In thousands (RMB) (RMB) (RMB) (US$) (RMB) (RMB) (US$)
(Except for share and per share data)              
               
IFRS cost of revenue  (127,140)  (185,254)  (130,570)  (21,060)  (223,146)  (315,824)  (50,939)
Less: share-based compensation expenses  98  336  169  27  341  505  81
Non-IFRS cost of revenue   (127,042)  (184,918)  (130,401)  (21,033)  (222,805)  (315,319)  (50,858)
               
IFRS gross profit  43,080  47,754  33,572  5,415  75,638  81,326  13,117
Add: share-based compensation expenses  98  336  169  27  341  505  81
Non-IFRS gross profit  43,178  48,090  33,741  5,442  75,979  81,831  13,198
               
Total IFRS operating expenses  (35,274)  (40,559)  (48,728)  (7,860)  (67,080)  (89,287)  (14,400)
Less: share-based compensation expenses  2,635  5,402  3,248  524  6,643  8,650  1,395
Total non-IFRS operating expenses  (32,639)  (35,157)  (45,480)  (7,336)  (60,437)  (80,637)  (13,005)
               
IFRS profit (loss) from operations  7,806  7,195  (15,156)  (2,445)  8,558  (7,961)  (1,283)
Add: share-based compensation expenses  2,733  5,738  3,417  551  6,984  9,155  1,477
Non-IFRS profit (loss) from operations  10,539  12,933  (11,739)  (1,894)  15,542  1,194  194
               
IFRS net profit (loss) for the period  63,356  14,245  (6,093)  (982)  67,985  8,151  1,315
Add: share-based compensation expenses  2,733  5,738  3,417  551  6,984  9,155  1,477
Non-IFRS net profit (loss) for the period  66,089  19,983  (2,676)  (431)  74,969  17,306  2,792
               
Non-IFRS earnings (loss) per common share              
Basic  0.28  0.09  (0.01)  (0.00)  0.31  0.08  0.01
Diluted  0.27  0.09  (0.01)  (0.00)  0.31  0.08  0.01
               
Weight average number of shares              
Basic  237,054,058  222,463,910  223,956,494    236,100,612  223,214,326  
Diluted  238,304,704  222,993,672  223,956,494    237,771,740  223,784,569  
               
Sky-mobi Limited
Unaudited Consolidated Statements of Financial Position (IFRS)
 
  As of As of As of
  March 31, June 30, June 30,
  2015 2015 2015
In thousands (RMB) (RMB) (US$)
       
ASSETS      
Current assets      
Cash and cash equivalents  135,362  127,598  20,580
Term deposits  369,427  366,505  59,114
Investment at fair value through profit or loss  28,702  37,729  6,085
Trade and other receivables  246,711  216,533  34,925
Amounts due from related parties  7,879  7,444  1,201
Total current assets  788,081  755,809  121,905
       
Non-current assets      
Property and equipment  8,601  7,870  1,269
Investments in associates  107,954  111,091  17,918
Investments in funds  12,284  12,218  1,971
Available-for-sale investments  50  50  8
Other non-current assets  2,458  2,214  357
Deferred tax assets  2,746  2,746  443
Total non-current assets  134,093  136,189  21,966
       
Total assets  922,174  891,998  143,871
       
EQUITY AND LIABILITIES      
Current liabilities      
Trade and other payables  239,920  237,551  38,314
Income tax liabilities  8,226  8,126  1,311
Amounts due to related parties  44,707  19,646  3,169
Deferred revenue  3,659  3,049  492
Total current liabilities  296,512  268,372  43,286
       
Total liabilities  296,512  268,372  43,286
       
Equity      
Share capital  81  82  13
Share premium  602,854  610,648  98,492
Reserves  154,037  150,299  24,242
Deficit  (134,984)  (140,293)  (22,628)
Equity attributable to owners of the Company  621,988  620,736  100,119
Non-controlling interests  3,674  2,890  466
Total equity  625,662  623,626  100,585
       
Total equity and liabilities  922,174  891,998  143,871
CONTACT: Investor Relations Contact:                  Chenjiazi Zhong         ICR, Inc.         Phone: + (1) (646)-915-1615 (US)         Email: investor.relations@sky-mobi.com

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