ASIAINFO-LINKAGE INC 
By BEIJING and SANTA CLARA, Calif., Aug. 7, 2013 /PRNewswire-FirstCall/ -- AsiaInfo-Linkage, Inc. (NASDAQ: ASIA) ("AsiaInfo-Linkage," the "Company," "we," "us" or "our"), a leading provider of telecommunication software solutions and services in China, today announced financial results for the second quarter ended June 30, 2013.
"The second quarter was another solid performance for AsiaInfo-Linkage as China's three telecommunications carriers continued to focus on monetization of their data traffic," said Steve Zhang, the Company's president and chief executive officer. "The growth in the number of mobile users and the increase in related data traffic continue to define much of our current project work. We are well positioned to help the carriers adapt as China's telecommunications industry evolves."
AsiaInfo-Linkage chief financial officer Michael Wu said, "In the second quarter, as a result of our periodic goodwill impairment review, which considers a number of factors and market conditions, the Company determined that an impairment loss of US$286.8 million should be recognized in the period."
Second Quarter 2013 Financial Results
Total revenues for the second quarter of 2013 were US$140.2 million, an increase of 11.0% year-over-year and a decrease of 2.0% sequentially. Meeting guidance, net revenue (non-GAAP) for the second quarter of 2013 was US$136.7 million, an increase of 9.8% year-over-year and 0.7% sequentially. The year-over-year and sequential increases were mainly due to growth in demand from China's telecommunication carriers.
Gross margin for the quarter was 37.4%, compared to 38.5% in the year-ago period and 34.7% in the previous quarter. Gross margin of net revenue (non-GAAP)[3] was 42.7% in the second quarter of 2013, compared to 43.8% in the year-ago period and 40.9% in the previous quarter. The year-over-year decrease in gross margin was mainly attributable to an increase in approximately 975 delivery engineers. The sequential increase was mainly due to a reduction in domestic delivery costs and the reclassification of a number of delivery engineers as R&D engineers.
Total operating expenses for the second quarter of 2013 increased 619.6% year-over-year and 619.1% sequentially to US$335.8 million. Excluding the effects of the impairment of goodwill, total operating expenses for the second quarter of 2013 increased 5.0% year-over-year and 4.9% sequentially to US$49.0 million, mainly due to increases in sales and marketing expenses and research and development ("R&D") expenses.
Sales and marketing expenses for the second quarter of 2013 increased 10.1% year-over-year and increased 9.1% sequentially to US$20.3 million. Both the year-over-year and sequential increases were mainly attributable to a combination of an increase in employee welfare and benefits and third-party professional fees of approximately US$2.1 million. General and administrative ("G&A") expenses for the second quarter of 2013 decreased 14.6% year-over-year and decreased 19.0% sequentially to US$6.7 million. The year-over-year decrease was mainly due to a US$1.1 million decrease in bad debt expenses in the second quarter of 2013 compared to the year-ago period. The sequential decrease was mainly due to a US$1.5 million decrease of bad debt expenses in the second quarter of 2013 compared to the first quarter of 2013. R&D expenses for the second quarter of 2013 increased 9.2% year-over-year and 12.3% sequentially to US$22.3 million. The year-over-year change reflected the Company's strategy regarding product development. The sequential change reflects the reclassification of a number of delivery engineers as R&D engineers. In the second quarter of 2013, the Company received government subsidies of US$0.3 million. The Company did not receive government subsidies in the first quarter of 2013 or in the year-ago period.
In the second quarter of 2013, the Company recognized a US$286.8 million impairment of goodwill, which was the result of the Company's periodic impairment review based on a number of factors and market conditions, including changing conditions in the IT services sector in China and projections regarding the country's gross domestic product growth.
Income from operations for the second quarter of 2013 was negative US$283.3 million. Excluding the effects of the impairment of goodwill, income from operations was US$3.4 million, which represented a year-over-year increase of 74.1% and a sequential increase of 16.9%. The year-over-year and sequential increases were mainly due to enhanced cost controls along with growth in revenue. Operating margin of total revenue was negative 202.1% for the second quarter of 2013, compared to 1.6% in the year-ago period and 2.1% in the previous quarter. Operating margin of net revenue (non-GAAP)[4] for the second quarter of 2013 was 11.7%, compared to 12.0% in the year-ago period and 11.4% in the previous quarter.
Other income for the second quarter of 2013 was US$2.7 million compared to US$4.0 million in the year-ago period and US$2.2 million in the previous quarter. The year-over-year decrease primarily related to a decrease in dividend income of US$0.5 million in the second quarter of 2013.
In the second quarter of 2013, the Company recorded net income attributable to AsiaInfo-Linkage, Inc. of negative US$281.5 million, or negative US$3.87 per basic share, compared to US$6.2 million, or US$0.09 per basic share, in the year-ago period and US$14.1 million, or US$0.19 per basic share, in the previous quarter. Other than the effects of impairment of goodwill, the sequential decrease was primarily due to the recognition of Key Software Enterprise tax status for two of the Company's Chinese subsidiaries, retroactively granted for the years 2011 and 2012, which resulted in a positive impact of US$9.0 million, or US$0.12 per basic share, and led to a tax benefit of US$6.6 million, or US$0.09 per basic share, which was recognized in the first quarter of 2013.
In the second quarter of 2013, net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) was US$17.7 million, or US$0.24 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) in the year-ago period was US$18.6 million, or US$0.26 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) in the previous quarter was US$26.6 million, or US$0.37 per basic share. The year-over-year and sequential decreases were mainly due to the same factors impacting net income attributable to AsiaInfo-Linkage, Inc.
As of June 30, 2013, AsiaInfo-Linkage had cash and cash equivalents and restricted cash totaling US$296.1 million and short-term investments totaling US$35.3 million. Operating cash outflow in the second quarter of 2013 was US$2.9 million.
As of June 30, 2013, AsiaInfo-Linkage had gross accounts receivable ("AR") of US$341.9 million, compared to US$292.3 million as of March 31, 2013 and US$307.3 million as of June 30, 2012. Gross AR includes agent arrangements with International Business Machines Corporation ("IBM") or its distributors and a number of other hardware companies ("IBM-Type Arrangements"). Since these arrangements typically consist of back-to-back payment terms for certain products sold to AsiaInfo-Linkage customers, there is no impact on the Company's cash flow or days of sales outstanding ("DSO"). Net AR, which excludes IBM-Type Arrangements, was US$259.0 million as of June 30, 2013, compared to US$256.2 million as of March 31, 2013 and US$222.9 million as of June 30, 2012. The combined effect of revenue and the AR trend resulted in the Company's DSO being 156 days as of June 30, 2013 compared to 154 days as of March 31, 2013 and 154 days as of June 30, 2012. A table presenting further information regarding the Company's gross AR, AR relating to IBM-Type Arrangements ("IBM-Related AR"), net AR, revenues and DSO is provided at the end of this press release.
First Half 2013 Financial Results
Total revenue for the first half of 2013 was US$283.2 million, an increase of 13.3% year-over-year. Net revenue (non-GAAP) for the first half of 2013 was US$272.4 million, an increase of 10.9% year-over-year.
In the first half of 2013, gross margin was 36.0%, compared to 38.8% in the year-ago period. Gross margin of net revenue (non-GAAP) was 41.7% in the first half of 2013, compared to 44.3% in the year-ago period.
Income from operations for the first half of 2013 was negative US$280.4 million, compared to US$4.5 million in the year-ago period.
In the first half of 2013, AsiaInfo-Linkage recorded net income attributable to AsiaInfo-Linkage, Inc. of negative US$267.4 million, or negative US$3.67 per basic share, compared to US$12.6 million, or US$0.17 per basic share, in the year-ago period.
Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) was US$44.3 million or US$0.61 per basic share, in the first half of 2013, compared to US$38.0 million, or US$0.52 per basic share, in the year-ago period.
[1] Net revenue (non-GAAP) represents
total revenue net of third-party
hardware costs that are passed
through to our customers. A
reconciliation of all non-GAAP
measures used in this press
release to the most directly
comparable GAAP measures is
provided at the end of this press
release.
[2] Net income attributable to
AsiaInfo-Linkage, Inc. (non-
GAAP) and net income attributable
to AsiaInfo-Linkage, Inc. (non-
GAAP) per basic share measures
exclude stock-based compensation
expenses, amortization of
acquired intangible assets,
impairment of goodwill, non-
recurring consulting related
expenses, and dividend income,
net of tax.
[3] Gross margin of net revenue (non-
GAAP) is calculated by dividing
gross profit, excluding third-
party hardware costs,
amortization of acquired
intangible assets and stock-
based compensation expenses, by
net revenue (non-GAAP).
[4] Operating margin of net revenue
(non-GAAP) is calculated by
dividing income from operations,
excluding third-party hardware
costs, amortization of acquired
intangible assets, stock-based
compensation expenses, impairment
of goodwill and non-recurring
consulting related expenses, by
net revenue (non-GAAP).
Recent Developments
Upon the unanimous recommendation of the Special Committee of the Company's board of directors and the approval of the Company's board of directors, on May 12, 2013, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Skipper Limited ("Parent") and Skipper Acquisition Corporation ("Merger Sub"), which are owned indirectly by CITIC Capital Partners, the private equity arm of CITIC Capital Holdings Ltd. ("CITIC Capital Partners"). The Merger Agreement provides that Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent, and each share of the Company's outstanding common stock will convert automatically into the right to receive US$12.00 in cash without interest, except for dissenting shares, shares of treasury stock, and shares held by members of the buyer group that will own all of Parent following the transaction (collectively, the "Merger"). If the Merger closes pursuant to the Merger Agreement, the Company would cease to be listed on the NASDAQ Global Market or a public reporting company in the United States. The Merger Agreement is subject to closing conditions, including stockholder approval, and there can be no assurance that the Merger or any other transaction will be approved or consummated.
In connection with the Merger, certain subsidiaries and employees of the Company entered into a number of agreements with two unaffiliated individuals pursuant to which such individuals purchased the Company's interests in Beijing Zhongxinjia Sci-Tech Development Co., Ltd. ("ZXJ") and Beijing Star VATS Technologies Co., Inc. ("Star VATS"). ZXJ and Star VATS were previously controlled by the Company through a series of contractual arrangements. The transfer of the Company's interests in ZXJ and Star VATS has been completed and the Company no longer has any legal right to control ZXJ and Star VATS. The consideration payable to the Company for its interests in ZXJ and Star VATS is the fair market value of such interests as determined on the basis of an appraisal undertaken by an independent asset appraisal firm.
Business Outlook
The Company expects third quarter 2013 net revenue (non-GAAP) to be in the range of US$137 million to US$141 million. The Company expects third quarter 2013 net income attributable to AsiaInfo-Linkage per basic share (non-GAAP) to be in the range of US$0.22 to US$0.25.
ASIAINFO-LINKAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(U.S. dollars in thousands, except share and per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2013 2012 2013 2012
---- ---- ---- ----
Revenues:
Software products and solutions $127,554 $116,772 $257,027 $230,834
Service 8,909 7,553 14,775 14,507
Third-party hardware 3,745 1,946 11,431 4,627
----- ----- ------ -----
Total revenues 140,208 126,271 283,233 249,968
------- ------- ------- -------
Cost of revenues:
Software products and solutions 79,469 71,801 160,644 140,340
Service 4,764 3,985 9,676 8,162
Third-party hardware 3,557 1,848 10,859 4,395
----- ----- ------ -----
Total cost of revenues 87,790 77,634 181,179 152,897
------ ------ ------- -------
Gross profit 52,418 48,637 102,054 97,071
------ ------ ------- ------
Operating expenses (income):
Sales and marketing 20,301 18,440 38,912 38,788
General and administrative 6,685 7,826 14,933 15,304
Research and development 22,264 20,394 42,098 38,491
Government subsidies (273) 0 (273) 0
Impairment of goodwill 286,782 0 286,782 0
------- --- ------- ---
Total operating expenses 335,759 46,660 382,452 92,583
------- ------ ------- ------
(Loss) income from operations (283,341) 1,977 (280,398) 4,488
-------- ----- -------- -----
Other income (expenses), net
Interest income 1,836 2,032 3,992 4,429
Dividend income 103 604 201 604
Gain from sales of short-term investments 1,105 1,245 1,153 3,272
Loss on disposal of variable interest entities (186) 0 (186) 0
Other (expenses) income, net (174) 136 (229) (29)
---- --- ---- ---
Total other income, net 2,684 4,017 4,931 8,276
----- ----- ----- -----
(Loss) income before income tax expense (benefit), loss on equity method investment and (loss) income from discontinued operations, net
of income tax (280,657) 5,994 (275,467) 12,764
-------- ----- -------- ------
Income tax expense (benefit) 1,304 669 (5,299) 2,013
----- --- ------ -----
(Loss) income after income tax expense (benefit) before loss on equity method investment and (loss) income from discontinued operations,
net of income tax (281,961) 5,325 (270,168) 10,751
Loss on equity method investment, net of income tax (190) 0 (461) 0
---- --- ---- ---
(Loss) income from continuing operations (282,151) 5,325 (270,629) 10,751
-------- ----- -------- ------
Discontinued operations:
Loss from operations of discontinued operations 0 (1) 0 0
Gain on sales of discontinued operations 0 0 1,153 0
Income tax expense for discontinued operations 0 0 0 8
--- --- --- ---
(Loss) income from discontinued operations, net of income tax 0 (1) 1,153 (8)
--- --- ----- ---
Net (loss) income (282,151) 5,324 (269,476) 10,743
-------- ----- -------- ------
Less: Net loss attributable to noncontrolling interest (652) (901) (2,078) (1,844)
---- ---- ------ ------
Net (loss) income attributable to AsiaInfo-Linkage, Inc. $(281,499) $6,225 $(267,398) $12,587
========= ====== ========= =======
Earnings per share:
Net (loss) income from continuing operations attributable to AsiaInfo-Linkage, Inc. common stockholders:
Basic $(3.87) $0.09 $(3.69) $0.17
====== ===== ====== =====
Diluted $(3.87) $0.09 $(3.69) $0.17
====== ===== ====== =====
Net (loss) income from discontinued operations attributable to AsiaInfo-Linkage, Inc. common stockholders:
Basic $0.00 $0.00 $0.02 $0.00
===== ===== ===== =====
Diluted $0.00 $0.00 $0.02 $0.00
===== ===== ===== =====
Net (loss) income attributable to AsiaInfo-Linkage, Inc. common stockholders:
Basic $(3.87) $0.09 $(3.67) $0.17
====== ===== ====== =====
Diluted $(3.87) $0.09 $(3.67) $0.17
====== ===== ====== =====
Weighted average shares used in computation:
Basic 72,819,969 72,508,556 72,781,310 72,491,005
========== ========== ========== ==========
Diluted 72,819,969 72,763,879 72,781,310 72,744,716
========== ========== ========== ==========
ASIAINFO-LINKAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(U.S. dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2013 2012 2013 2012
---- ---- ---- ----
Net (loss) income $(282,151) $5,324 $(269,476) $10,743
Other comprehensive income (loss), net of tax:
Change in cumulative foreign currency translation adjustment 6,656 (1,922) 7,709 (1,377)
Transfer to statements of operations of realized gain on (939) (934) (980) (2,657)
available-for-sale securities, net of tax effects of $166
and $311, $173 and $615 for the three months and six
months ended June 30, 2013 and 2012, respectively
Net unrealized gain on available-for-sale securities, net 251 474 774 768
of tax effects of ($41) and ($133), ($153) and ($233)
for the three months and six months ended June 30,
2013 and 2012, respectively
Other comprehensive income (loss) 5,968 (2,382) 7,503 (3,266)
----- ------ ----- ------
Comprehensive (loss) income (276,183) 2,942 (261,973) 7,477
-------- ----- -------- -----
Less: Comprehensive loss attributable to noncontrolling interest (652) (901) (2,078) (1,844)
---- ---- ------ ------
Comprehensive (loss) income attributable to AsiaInfo-Linkage, Inc. $(275,531) $3,843 $(259,895) $9,321
========= ====== ========= ======
ASIAINFO-LINKAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(U.S. dollars in thousands, except share and per share amounts)
June 30, December 31,
2012
2013
----
ASSETS
Current Assets:
Cash and cash equivalents $256,704 $273,520
Restricted cash 39,435 39,639
Short-term investments - available-for-sale securities 9,384 27,928
Short-term investments - held-to-maturity securities 25,896 12,728
Accounts receivable (net of allowances of $4,168 and $2,999 as of June 30, 2013 and 341,861 285,695
December 31, 2012, respectively)
Inventories, net 31,600 24,107
Other receivables 6,270 6,504
Deferred income tax assets - current 5,644 5,559
Income taxes recoverable 2,496 0
Prepaid expenses and other current assets 12,695 8,311
Total current assets 731,985 683,991
Long-term investments 7,372 5,936
Property and equipment, net 24,756 19,104
Other acquired intangible assets, net 101,882 121,529
Deferred income tax assets - non-current 2,560 2,560
Goodwill 145,453 433,545
Land use right, net 14,380 14,326
Other non-current assets 1,356 1,332
----- -----
Total assets $1,029,744 $1,282,323
===
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities:
Accounts payable $112,550 $78,079
Accrued expenses 22,735 28,065
Deferred revenue 37,639 40,491
Accrued employee benefits 57,304 76,803
Other payables 4,736 5,270
Income taxes payable 5,426 6,875
Other taxes payable 7,852 10,305
Deferred income tax liabilities - current 1,674 1,565
Total current liabilities 249,916 247,453
Unrecognized tax benefits 2,477 1,703
Deferred income tax liabilities - non-current 17,928 17,928
Other long term liabilities 387 387
--- ---
Total liabilities $270,708 $267,471
---
Redeemable noncontrolling interest (4,885) (3,488)
Equity:
AsiaInfo-Linkage, Inc. stockholders' equity:
Common stock (100,000,000 shares authorized; $0.01 par value; 79,030,247 shares and 790 789
78,865,818 shares issued as of June 30, 2013 and December 31, 2012, respectively;
72,863,747 shares and 72,699,318 shares outstanding as of June 30, 2013 and
December 31, 2012, respectively)
Additional paid-in capital 864,371 858,711
Treasury stock, at cost (6,166,500 shares as of June 30, 2013 and December 31, (87,746)
2012,respectively)
(87,746)
(Accumulated deficit) retained earnings (88,340) 179,058
Statutory reserve 22,050 22,050
Accumulated other comprehensive income 52,653 45,150
Total AsiaInfo-Linkage, Inc. stockholders' equity $763,778 $1,018,012
---
Noncontrolling interest 143 328
--- ---
Total equity 763,921 1,018,340
Total liabilities, redeemable noncontrolling interest and equity $1,029,744 $1,282,323
===
Second Quarter 2013 Conference Call Details
AsiaInfo-Linkage's senior management will hold an earnings conference call at 5:00 p.m. Pacific Time / 8:00 p.m. Eastern Time on August 7, 2013 (8:00 a.m. Beijing/Hong Kong Time on August 8, 2013). Management will discuss results and highlights of the quarter as well as answer questions from investors.
The conference call webcast URL is http://www.media-server.com/m/p/z9v9tnbc
The dial-in numbers for the conference call are as follows:
Local:
New York: 1-845-675-0437
Hong Kong: 852-2475-0994
China, Domestic Mobile: 400-620-8038
China, Domestic: 800-819-0121
International Toll Free:
United States: 1-866-519-4004
Hong Kong: 800-930-346
International Toll: 65-6723-9381
The conference ID # is 16362833
A replay of the call will be available until 9:59 a.m. Eastern Time on August 15, 2013 by dialing one of the following numbers:
U.S Toll Free: +1-855-452-5696
International: +61-2-8199-0299
The replay ID # is 16362833
Additionally, a live and archived webcast of this call will be available on the Investor Relations section of the AsiaInfo-Linkage website at www.asiainfo-linkage.com
About AsiaInfo-Linkage, Inc.
AsiaInfo-Linkage, Inc. (NASDAQ: ASIA) is a leading provider of high-quality software solutions and IT services to the telecommunications industry. Headquartered in Beijing, we employ more than 11,000 professionals worldwide. We provide a full suite of business and operational support solutions (BSS/OSS) and associated professional services. Our core Veris product line includes billing and customer care systems that serve nearly a billion subscribers globally - almost one seventh of the world's population - plus business intelligence, network management and solutions.
Our customers work with us to converge large scale pre- and post-paid mobile operations; improve time to market for new products and services; and develop cost-effective new business models. In China, we have more than 50% market share in billing, CRM and business intelligence through our longstanding partnerships with China Mobile, China Unicom and China Telecom. We aim to be the leading IT solutions provider to the global telecommunications industry, enabling the Connected Digital Lifestyle, and helping our customers build, maintain, operate and constantly improve their network infrastructure and IT environment.
For more information about AsiaInfo-Linkage, please visit www.asiainfo-linkage.com.
Reconciliation of non-GAAP Measures
This earnings release presents the following "non-GAAP financial measures" as defined by applicable U.S. securities regulations. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. The non-GAAP financial measures are provided as additional information to help both management and investors compare business trends among different reporting periods on a consistent and more meaningful basis and enhance investors' overall understanding of the Company's current financial performance and prospects for the future. These non-GAAP measures have limitations, however, because they do not include all items of income and expenses that impact the Company's operations. Management compensates for these limitations by also considering the Company's GAAP results. The non-GAAP financial measures the Company uses are not prepared in accordance with, and should not be considered an alternative to measurements required by GAAP and should not be considered measures of the Company's liquidity. Pursuant to relevant regulatory requirements, we are providing the following reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures.
(1) Net revenue (non-GAAP)
AsiaInfo-Linkage's net revenue (non-GAAP) represents total revenue net of third-party hardware costs that are passed through to our customers. We believe total revenues net of third-party hardware costs more accurately reflects our core business, which is the provision of software solutions and services, and provides transparency to our investors. It is also the same measure used by our management to evaluate the competitiveness and development of our business.
Reconciliation of net revenue (non-GAAP) to GAAP total revenues
Three Months Ended Jun 30 Six Months Ended Jun 30 2013 Q1
2013 2012 2013 2012
(in US dollar thousands)
Total 140,208 126,271 283,233 249,968 143,025
Revenues
Third-Party 3,557 1,848 10,859 4,395 7,302
Hardware
Costs
Net Revenue 136,651 124,423 272,374 245,573 135,723
(non-GAAP)
(2) Gross margin of net revenue (non-GAAP)
Gross margin of net revenue (non-GAAP) is calculated by dividing gross profit, excluding third-party hardware costs, amortization of acquired intangible assets and stock-based compensation expenses, by net revenue (non-GAAP). We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the gross margin of net revenue (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP gross margin and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.
Reconciliation of gross margin of net revenue (non-GAAP) to GAAP gross margin
Three Months Ended Jun 30 Six Months Ended Jun 30 2013 Q1
2013 2012 2013 2012
Gross margin (GAAP) 37.4% 38.5% 36.0% 38.8% 34.7%
Third-party hardware costs[1] 1.0% 0.6% 1.4% 0.7% 1.9%
Amortization of acquired intangible 3.7% 4.0% 3.7% 4.1% 3.7%
assets[2]
Stock-based compensation expenses[2] 0.6% 0.7% 0.6% 0.7% 0.6%
Gross margin of net revenue (non- 42.7% 43.8% 41.7% 44.3% 40.9%
GAAP)
[1] Percentages represent the
difference between GAAP gross
profit divided by GAAP revenue
and GAAP gross profit divided by
net revenue (non-GAAP).
[2] Percentages represent the result
of dividing the amounts of
amortization of acquired
intangible assets or stock-based
compensation expenses by net
revenue (non-GAAP).
(3) Operating margin of net revenue (non-GAAP)
Operating margin of net revenue (non-GAAP) is calculated by dividing income from operations, excluding third-party hardware costs, amortization of acquired intangible assets, stock-based compensation expenses, impairment of goodwill and non-recurring consulting related expenses, by net revenue (non-GAAP). We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the operating margin of net revenue (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP operating margin and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.
Reconciliation of operating margin of net revenue (non-GAAP) to GAAP operating margin
Three Months Ended Jun 30 Six Months Ended Jun 30 2013 Q1
2013 2012 2013 2012
Operating margin (GAAP) (202.1)% 1.6% (99.0)% 1.8% 2.1%
Third-party hardware costs[1] (5.3)% 0.0% (3.9)% 0.0% 0.1%
Amortization of acquired intangible 7.2% 8.3% 7.2% 8.4% 7.2%
assets[2]
Stock-based compensation expenses[2] 1.8% 2.0% 1.8% 2.0% 1.8%
Impairment of goodwill[2] 209.9% 0.0% 105.3% 0.0% 0.0%
Non-recurring consulting related 0.2% 0.1% 0.2% 0.1% 0.2%
expenses[2]
Operating margin of net revenue (non-GAAP) 11.7% 12.0% 11.6% 12.3% 11.4%
[1] Percentages represent the
difference between GAAP income
from operations divided by GAAP
revenue and GAAP income from
operations divided by net revenue
(non-GAAP).
[2] Percentages represent the result of
dividing the amounts of
amortization of acquired
intangible assets, stock-based
compensation, impairment of
goodwill or non-recurring
consulting related expenses by net
revenue (non-GAAP).
(4) Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP)
Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) excludes stock-based compensation expenses, amortization of acquired intangible assets, impairment of goodwill, non-recurring consulting related expenses, and dividend income, net of tax. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes the Company's net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) measure, when read in conjunction with the Company's GAAP net income measure and other GAAP financial metrics, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models.
Reconciliation of net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) to GAAP net income (loss) attributable to AsiaInfo-Linkage, Inc.
Three Months Ended Jun 30 Six Months Ended Jun 30 2013 Q1
2013 2012 2013 2012
(in US dollar thousands)
Net (loss) income attributable to (281,499) 6,225 (267,398) 12,587 14,101
AsiaInfo-Linkage, Inc. (GAAP)
Adjustments:
- Stock-based compensation 2,440 2,454 4,884 4,879 2,444
expenses
- Amortization of acquired 9,778 10,375 19,573 20,750 9,795
intangible assets
- Impairment of goodwill 286,782 0 286,782 0 0
- Non-recurring consulting 237 165 486 364 249
related expenses
- Dividend income, net of tax 0 (604) 0 (604) 0
Net income attributable to 17,738 18,615 44,327 37,976 26,589
AsiaInfo-Linkage, Inc. (non-
GAAP)
(5) Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) per basic share
Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) per basic share is calculated by dividing net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) (which as discussed above excludes stock-based compensation expenses, amortization of acquired intangible assets, impairment of goodwill, non-recurring consulting related expenses, and dividend income, net of tax) by the same number of weighted average shares outstanding used in the computation of net income per basic share. Management believes that net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) per basic share, when used in conjunction with the Company's GAAP net income attributable to AsiaInfo-Linkage, Inc. per basic share, provides useful information to investors for the same reasons discussed above regarding net income attributable to AsiaInfo-Linkage, Inc (non-GAAP). In addition, net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) per basic share allows investors to evaluate the Company's operating performance from period to period on a per share basis, thus providing a useful basis for assessing the Company's value on a per share basis.
Reconciliation of net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) per basic share to GAAP net (loss) income attributable to AsiaInfo-Linkage, Inc. per basic share
Three Months Ended Jun 30 Six Months Ended Jun 30 2013 Q1
2013 2012 2013 2012
(in US dollar)
Net (loss) income attributable to AsiaInfo- (3.87) 0.09 (3.67) 0.17 0.19
Linkage, Inc. (GAAP) per
basic share
Adjustments:
- Stock-based 0.03 0.04 0.07 0.07 0.04
compensation expenses
- Amortization of acquired 0.14 0.14 0.27 0.29 0.14
intangible assets
- Impairment of goodwill 3.94 0.00 3.94 0.00 0.00
- Dividend income, net of 0.00 (0.01) 0.00 (0.01) 0.00
tax
Net income attributable to 0.24 0.26 0.61 0.52 0.37
AsiaInfo-Linkage, Inc.
(non-GAAP) per basic
share
AR, IBM-Related AR, Revenue and DSO
AR balances included both billed and unbilled amounts. Revenue recognized in excess of billings is recorded as unbilled receivable. In addition to revenues from the sales of its goods and services and from hardware procured on behalf of customers, the Company generated service revenues by acting as a sales agent pursuant to the IBM-Type Arrangements. The Company's DSO calculations are as follows as of the last day of the respective periods indicated, with net AR excluding the receivables attributable to the IBM-Type Arrangements:
1. Q1 2012 DSO = (Q4 2011 net AR + Q1 2012 net AR)/2/Q1 revenue x 90
2. Q2 2012 DSO = (Q4 2011 net AR + Q2 2012 net AR)/2/Q2 cumulative revenue x
180
3. Q3 2012 DSO = (Q4 2011 net AR + Q3 2012 net AR)/2/Q3 cumulative revenue x
270
4. Q4 2012 DSO = (Q4 2011 net AR + Q4 2012 net AR)/2/Q4 cumulative revenue x
360
5. Q1 2013 DSO = (Q4 2012 net AR + Q1 2013 net AR)/2/Q1 revenue x 90
6. Q2 2013 DSO = (Q4 2012 net AR + Q2 2013 net AR)/2/Q2 cumulative revenue x
180
The following table presents further information regarding the Company's gross AR, net AR, revenues, and DSO.
2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2
(in US dollar thousands, except DSO)
Gross AR 301,333 307,261 282,424 285,695 292,293 341,861
- IBM-
Related AR 79,345 84,357 60,354 52,717 36,103 82,839
Net AR 221,988 222,904 222,070 232,978 256,190 259,022
Revenues 123,697 126,271 132,221 165,683 143,025 140,208
DSO (in
days) 155 154 151 144 154 156
Cautionary Note Regarding Forward-Looking Statements
The information contained in this document is as of August 7, 2013. AsiaInfo-Linkage assumes no obligation to update any forward-looking statements contained in this document as a result of new information or future events or developments.
This document contains forward-looking information about AsiaInfo-Linkage's operating results and business prospects that involve substantial risks and uncertainties. You can identify these statements by the fact that they use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are the following: government telecommunications infrastructure and budgetary policy in China; our ability to maintain our concentrated customer base; the long and variable billing cycles for our products and services that can cause our revenues and operating results to vary significantly from period to period; our ability to meet our working capital requirements; our ability to retain our executive officers; our ability to attract and retain skilled personnel; potential liabilities we are exposed to because we extend warranties to our customers; risks associated with cost overruns and delays; impairments of our assets and corresponding charges to earnings; our ability to develop or acquire new products or enhancements to our software products that are marketable on a timely and cost-effective basis; our ability to adequately protect our proprietary rights; the competitive nature of the markets we operate in; political and economic policies of the Chinese government; and whether our stockholders approve the Merger Agreement and we are otherwise able to consummate the merger or any other strategic alternative. A further list and description of these risks, uncertainties, and other matters can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and in our reports on Forms 10-Q and 8-K filed with the United States Securities and Exchange Commission and available at www.sec.gov.
For more information about AsiaInfo-Linkage, please visit www.asiainfo-linkage.com.
For investor and media inquiries, please contact:
In China:
Mr. Jimmy Xia
AsiaInfo-Linkage, Inc.
Tel: +86-10-8216-6039
Email: ir@asiainfo-linkage.com
In the United States:
Mr. Justin Knapp
Ogilvy Financial
Tel: +1-646-460-9989
Email: asia@ogilvy.com
SOURCE AsiaInfo-Linkage, Inc.
