ASIAINFO-LINKAGE INC 
By
BEIJINGand SANTA CLARA, Calif., Nov. 5, 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 third quarter ended September 30, 2013.
"AsiaInfo-Linkage's third quarter results were in line with our expectations and marked by steady growth in our core business with China'stelecommunication carriers. The monetization and optimal management of the carriers' rapidly growing data traffic continues to greatly influence the scope and objectives of our software solutions," said Steve Zhang, the Company's president and chief executive officer.
ThirdQuarter 2013Financial Results
Total revenues for the third quarter of 2013 were US$143.2 million, an increase of 8.3% year-over-year and an increase of 2.1% sequentially. Meeting guidance, net revenue (non-GAAP) for the third quarter of 2013 was US$140 million, an increase of 8.2% year-over-year and 2.4% sequentially.The year-over-year and sequential increases were mainly due to continued growth in the Company's business with China'stelecommunication carriers.
Gross margin for the quarter was 40.7%, compared to 37.3% in the year-ago period and 37.4% in the previous quarter. Gross margin of net revenue (non-GAAP)[3] was 43.5% in the third quarter of 2013, compared to 42.6% in the year-ago period and 42.7% in the previous quarter. The year-over-year increase in gross margin was mainly due to the growth in revenue, while the sequential increase in gross margin was mainly due to a decrease in amortization of intangible assets of approximately US$3.0 million. The year-over-year increase in gross margin (non-GAAP) was mainly due to the growth in revenue, while the sequential increase in gross margin (non-GAAP) was mainly due to an increase in net revenue (non-GAAP).
Total operating expenses for the third quarter of 2013 increased 9.1% year-over-year to US$51.4 million, mainly as a result of increases in sales and marketing expenses and research and development ("R&D") expenses, offset by decreased general and administrative ("G&A") expenses. The sequential decrease in total operating expenses of 84.7% reflects the impairment of goodwill the Company recorded in the second quarter of 2013.
Sales and marketing expenses for the third quarter of 2013 increased 5.1% year-over-year and 3.8% sequentially to US$21.1 million. The year-over-year increase was mainly attributable to an increase in third-party professional fees of approximately US$1.5 millionand an increase in employee welfare and benefits of approximately US$1.0 million, partially offset by a decrease in amortization of intangible assets of US$0.7 millionand conference and training-related expenses of US$0.7 million. The sequential increase in sales and marketing was primarily due to an increase in third-party professional fees of approximately US$0.8 million. G&A expenses for the third quarter of 2013 decreased 10.2% year-over-year and 16.0% sequentially to US$5.6 million. The year-over-year and sequential decreases were mainly due to the Company's strict management of G&A expenses. R&D expenses for the third quarter of 2013 increased 18.8% year-over-year and 11.1% sequentially to US$24.7 million. The year-over-year and sequential increases were primarily attributable to an increase in employee welfare and benefits as a result of the reclassification of a number of delivery engineers as R&D engineers. We did not recognize any loss on impairment of goodwill for the third quarter of 2013 or 2012, and we recognized a US$286.8 millionimpairment of goodwill in the second quarter of 2013.
Primarily as a result of the factors discussed above, income from operations for the third quarter of 2013 was US$6.9 million, representing a year-over-year increase of 214.0% and a sequential increase of 102.4%. Operating margin of total revenue was 4.8% for the third quarter of 2013, compared to 1.7% in the year-ago period and negative 202.1% in the previous quarter. Operating margin of net revenue (non-GAAP)[4] for the third quarter of 2013 was 11.6%, compared to 11.6% in the year-ago period and 11.7% in the previous quarter.
Other income for the third quarter of 2013 was US$2.7 millioncompared to US$2.1 millionin the year-ago period and US$2.7 millionin the previous quarter. The year-over-year increase was attributable to an increase in interest income.
Primarily as a result of the factors discussed above, in the third quarter of 2013, the Company recorded net income attributable to AsiaInfo-Linkage, Inc. of US$7.8 million, or US$0.11per basic share, compared to US$4.6 million, or US$0.06per basic share, in the year-ago period and negative US$281.5 million, or negative US$3.87per basic share, in the previous quarter.
In the third quarter of 2013, net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) was US$17.2 million, or US$0.24per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) in the year-ago period was US$17.3 million, or US$0.24per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) in the previous quarter was US$17.7 million, or US$0.24per basic share.
As of September 30, 2013, AsiaInfo-Linkage had cash and cash equivalents and restricted cash totaling US$336.0 millionand short-term investments totaling US$24.8 million. Operating cash flow in the third quarter of 2013 was US$32.7 million.
As of September 30, 2013, AsiaInfo-Linkage had gross accounts receivable ("AR") of US$324.2 million, compared to US$341.9 millionas of June 30, 2013and US$282.4 millionas of September 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$242.5 millionas of September 30, 2013, compared to US$259.0 millionas of June 30, 2013and US$222.1 millionas of September 30, 2012. The combined effect of revenue and AR resulted in the Company's DSO being 151 days as of September 30, 2013, compared to 156 days as of June 30, 2013and 151 days as of September 30, 2012. A table presenting additional 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.
Nine Months Ended September 30, 2013Financial Results
Total revenue for the nine months ended September 30, 2013was US$426.4 million, an increase of 11.6% year-over-year. Net revenue (non-GAAP) for the nine months ended September 30, 2013was US$412.4 million, an increase of 10.0% year-over-year.
In the nine months ended September 30, 2013, gross margin was 37.6%, compared to 38.3% in the year-ago period. Gross margin of net revenue (non-GAAP) was 42.4% in the nine months ended September 30, 2013, compared to 43.7% in the year-ago period.
Loss from operations for the nine months ended September 30, 2013was US$273.5 million, compared to income from operations of US$6.7 millionin the nine months ended September 30, 2012.
In the nine months ended September 30, 2013, AsiaInfo-Linkage recorded net loss attributable to AsiaInfo-Linkage, Inc. of US$259.6 million, or negative US$3.56per basic share, compared to net income attributable to AsiaInfo-Linkage, Inc. of US$17.2 million, or US$0.24per basic share, in the year-ago period.
Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) was US$61.6 millionor US$0.85per basic share in the nine months ended September 30, 2013, an increase of 11.3% and 11.8% year-over-year, respectively.
Recent Developments
Since our announcement of our Agreement and Plan of Merger, dated as of May 12, 2013, with Skipper Limited ("Parent") and Skipper Acquisition Corporation ("Merger Sub"), three alleged Company stockholders filed putative class action complaints against us, the members of our board of directors and Merger Sub in the DelawareCourt of Chancery (the "Court"), which cases have been consolidated under the caption In re AsiaInfo-Linkage, Inc. Stockholder Litigation, Consol. C.A. No. 8583-VCP (the "Consolidated Action"). The Consolidated Action of the plaintiffs in such action have been described in detail in the preliminary proxy statement filed by us with the Securities and Exchange Commission on October 30, 2013(the "Amendment").
On October 28, 2013, the parties to the Consolidated Action executed a memorandum of understanding (the "MOU") setting forth an agreement-in-principle, which, when finalized as a stipulation of settlement, is intended to fully and finally resolve and settle the litigation and all related claims. Pursuant to the MOU, the Company agreed to make certain disclosures in the definitive proxy statement. We refer to the Amendment for greater detail of the Consolidated Action and the MOU.
Business Outlook
The Company expects fourth quarter 2013 net revenue (non-GAAP) to be in the range of US$173.0 million to US$181.0 million. The Company expects fourth quarter 2013 net income attributable to AsiaInfo-Linkage per basic share (non-GAAP) to be in the range of US$0.31 to US$0.40.
[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 Share
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