AsiaInfo-Linkage Reports Unaudited Fourth Quarter and Full Year 2011 Results
BEIJING and SANTA CLARA, Calif., Feb. 13, 2012 /PRNewswire-Asia-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 fourth quarter and full year ended December 31, 2011.
“We are ramping up our product standardization and integration initiatives, a multi-year strategy that will improve our competitive advantage as we leverage our core businesses and enter new markets,” said AsiaInfo-Linkage President and Chief Executive Officer Steve Zhang. “In the fourth quarter we announced the first contract signing of our NG-BOSS 3.5 solution upgrade for Shanghai Mobile and will continue to sign contracts and roll out this solution throughout 2012. We also recently announced our agreement with Nepal Telecom to provide a convergent billing solution, which is another regional win for our growing international business.”
Mr. Zhang continued, “This year, China’s telecom carriers will continue to invest heavily in traditional customer management services like billing, CRM and business intelligence, while also seeking to enhance their application platform and network infrastructure. These target areas require sophisticated IT systems as the carriers look to differentiate themselves, gain loyal subscribers and monetize their data traffic. We believe AsiaInfo-Linkage is positioned favorably to capitalize on the carriers’ IT needs and to deliver solutions that enhance the carriers’ customer analysis and operational efficiency. We anticipate contract wins related to these growth areas in 2012. At the same time, we will continue to invest in overseas expansion and in our cable business.”
AsiaInfo-Linkage Chief Financial Officer Michael Wu added, “We delivered on our guidance in the fourth quarter as demand from our core telecommunications customers remained healthy. We also achieved strong operating cash flow and saw accounts receivable decline steadily even as we increased revenue. We believe this reflects our effort to manage our accounts receivables balance and improve cash collection. Moreover, we have a healthy cash position and experienced a sequential decrease in our DSO.”
Fourth Quarter 2011 Financial Results
Total revenues for the fourth quarter of 2011 were US$131.1 million, an increase of 14.6% year over year and 9.9% sequentially. Meeting guidance, net revenue (non-GAAP) for the fourth quarter of 2011 was US$127.7 million, an increase of 16.6% year over year and 9.0% sequentially. The year-over-year and sequential increases were mainly the result of the healthy demand from China’s telecom carriers.
Gross margin for the quarter was 41.4%, compared to 45.3% in the year-ago period and 43.9% in the previous quarter. Gross margin of net revenue (non-GAAP)(2) was 46.6% in the fourth quarter of 2011, compared to 52.5% in the year-ago period and 49.4% in the previous quarter. The year-over-year decrease in gross margin was primarily attributable to an increase in employee compensation and employee headcount of implementation engineers. The sequential decrease was primarily due to the addition of implementation engineers in the fourth quarter of 2011 as AsiaInfo-Linkage continued to expand headcount to generate revenue growth in the fourth quarter and to realize opportunities in the Company’s pipeline.
Total operating expenses for the fourth quarter of 2011 increased 21.3% year over year and 16.8% sequentially to US$43.3 million. The year-over-year increase primarily reflected product standardization and integration initiatives, and the sequential increase primarily reflected increased sales and marketing and general and administrative (“G&A”) expenses. Sales and marketing expenses for the fourth quarter of 2011 increased 7.4% year over year and 24.4% sequentially to US$20.2 million. The year-over-year increase in sales and marketing expenses was driven by revenue growth and the sequential increase was mainly due to increased sales commissions from new contract signings. G&A expenses for the fourth quarter of 2011 decreased 27.1% year over year and increased 105.2% sequentially to US$4.6 million. The year-over-year decrease reflects the Company’s strict management of G&A expenses and operating leverage. The sequential increase in G&A expenses was primarily the result of a US$1.2 million reversal of allowance for doubtful accounts in the third quarter of 2011. R&D expenses increased 74.5% year over year and decreased slightly sequentially to US$18.5 million. The year-over-year increase in R&D expenses was primarily driven by the addition of R&D engineers, investment in product development for current and anticipated overseas expansion, product standardization and delivery improvements.
As a result of the aforementioned, income from operations for the fourth quarter of 2011 was US$11.0 million, a decrease of 31.9% year over year and 28.3% sequentially. Operating margin of total revenue was 8.4% for the fourth quarter of 2011, compared to 14.1% in the year-ago period and 12.8% in the previous quarter. The year-over-year decrease in operating margin was mainly attributable to the increases in R&D expenses and cost of labor, and the sequential decrease in operating margin was primarily due to the increase in implementation engineer headcount, higher sales commissions as a result of strong sales orders and a G&A reversal of allowance for doubtful accounts in the third quarter of 2011, which resulted in the increase of cost of sales, increased sales and marketing expenses and increased G&A expenses.
Operating margin of net revenue (non-GAAP)(3) for the fourth quarter of 2011 was 17.6%, compared to 26.4% in the year-ago period and 23.6% in the previous quarter. The year-over-year decrease in operating margin of net revenue (non-GAAP) was mainly attributable to the increases in R&D expenses and cost of labor. The sequential decrease was primarily due to higher sales commissions as a result of strong sales orders and a G&A reversal of allowance for doubtful accounts in the third quarter of 2011, which resulted in the increased sales and marketing expenses and increased G&A expenses.
Other income for the fourth quarter of 2011 was US$1.9 million compared to US$580 thousand in the year-ago period and US$578 thousand in the previous quarter. The year-over-year increase in other income was mainly due to improved return from bank deposits. The sequential increase was mainly due to the impairment loss recognized of US$1.1 million during the third quarter of 2011.
On a GAAP basis in the fourth quarter of 2011, the Company recorded net income attributable to AsiaInfo-Linkage, Inc. of US$10.5 million, or US$0.15 per basic share, compared to US$15.5 million, or US$0.21 per basic share, in the year-ago period and US$13.3 million, or US$0.18 per basic share, in the previous quarter. The year-over-year decrease in net income attributable to AsiaInfo-Linkage, Inc. was mainly due to an increase in employee compensation and increased headcount of implementation engineers and R&D engineers, which resulted in the increase of cost of sales and R&D expenses. The sequential decrease was primarily the result of the addition of additional implementation employees and higher sales commissions, which resulted in the increase of cost of sales and sales and marketing expenses.
In the fourth quarter of 2011, net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP)(4)was US$22.0 million or US$0.30 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) in the year-ago period was US$28.4 million or US$0.38 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) in the previous quarter was US$26.7 million or US$0.37 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) decreased 22.7% year-over-year and 17.9% sequentially. The year-over-year decrease in net income attributable to AsiaInfo-Linkage, Inc. was mainly due to an increase in employee compensation and an increase in the number of implementation and R&D engineers, which resulted in higher cost of sales and R&D expenses. The sequential decrease was primarily the result of additional implementation engineers and higher sales commissions, which resulted in increased cost of sales and sales and marketing expenses.
For the fourth quarter of 2011, AsiaInfo-Linkage had a net operating cash inflow of US$57.8 million mainly due to strong cash collection.
(1) Net revenue (non-GAAP) measures used in this press release
represent total revenue net of third-party hardware costs. 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) Gross margin of net revenue (non-GAAP) is calculated by dividing
gross profit, excluding third-party hardware costs, amortization of
acquired intangible assets and share-based compensation expenses,
by net revenue (non-GAAP).
(3) Operating margin of net revenue (non-GAAP) is calculated by
dividing income from operations, excluding amortization of acquired
intangible assets, share-based compensation expenses and non-
recurring merger related expenses, by net revenue (non-GAAP).
(4) Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP)
and net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP)
per basic share measures exclude share-based compensation expenses,
amortization of acquired intangible assets, impairment loss on
investment, non-recurring merger related expenses, after-tax
dividend income and a 15% tax rate adjustment for the Company's
Nanjing subsidiary.
Full Year 2011 Financial Results
Full year 2011 total revenues increased 40.1% year over year to US$481.0 million. Net revenue (non-GAAP) for full year 2011 increased 40.9% year over year to US$463.8 million. The Company’s revenues for full year 2010 include only six months of consolidated operating results after the closing of the merger of AsiaInfo Holdings, Inc. (“AsiaInfo”) and Linkage Technologies International Holdings Limited (“Linkage”). Full year 2011 and 2010 income statements are not comparable.
Gross margin for full year 2011 was 43.2%, compared to 49.4% for 2010. Gross margin of net revenue (non-GAAP) for full year 2011 was 49.5%, compared to 55.2% for 2010. The lower gross margin for full year 2011 was primarily due to increased implementation headcount and employee compensation, resulting in an increase in overall labor costs, and the addition of new customers such as China Unicom’s northern six provinces and international customers, projects for which required significant upfront investment.
Total operating expenses for full year 2011 increased 39.0% year over year to US$152.2 million.
Operating margin of total revenue was 11.6% for full year 2011, compared to 17.5% for 2010. Operating margin of net revenue (non-GAAP) for full year 2011 was 23.5% compared to 28.9% for 2010. Operating margin decreased year over year primarily as a result of increased headcount and product development for international expansion.
The Company recorded net income attributable to AsiaInfo-Linkage, Inc. of US$74.6 million, or US$1.02 per basic share, for full year 2011, compared to US$56.2 million, or US$0.92 per basic share, in full year 2010. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) for full year 2011 was US$110.6 million, or US$1.51 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) for full year 2010 was US$91.0 million or US$1.49 per basic share.
Operating cash flow for the full year 2011 was a net inflow of US$76.5 million compared to a net inflow of US$47.8 million for the full year 2010. The improved operating cash flow was mainly due to strong cash collection and enhanced account receivables management.
As of December 31, 2011, AsiaInfo-Linkage had cash and cash equivalents and restricted cash totaling US$293.7 million and short-term investments totaling US$27.9 million.
As of December 31, 2011, AsiaInfo-Linkage had gross accounts receivable (“AR”) of US$281.6 million compared to US$258.3 million as of December 31, 2010. Gross AR includes agent arrangements with International Business Machines Corporation (“IBM”) or its distributors and for a few 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 and IT Security business-related AR, was US$204.4 million as of December 31, 2011, compared to US$187.7 million as of December 31, 2010. This slight year-over-year increase in net AR was as a result of the Company’s sequential growth in revenue. This resulted in the Company’s DSO being 147 days as of December 31, 2011 compared to 135 days as of December 31, 2010. A table presenting further information regarding the Company’s gross AR, AR relating to IBM-Type Arrangements (“IBM-Related AR”), revenues and DSO is provided at the end of this press release.
Recent Developments
On January 20, 2012, AsiaInfo-Linkage announced the receipt of a non-binding proposal letter from Power Joy (Cayman) Limited (“Power Joy”), a wholly owned subsidiary of CITIC Capital China Partners II, L.P., pursuant to which Power Joy proposed to acquire all of the outstanding shares of common stock of AsiaInfo-Linkage in cash at a price that represents a premium over the current stock price (“Proposal”). A Special Committee of the Board of Directors (the “Special Committee”) was formed to consider the Proposal and any potential alternative transactions involving the Company if at all. The Special Committee has retained Shearman & Sterling LLP as its legal counsel and Goldman Sachs (Asia) L.L.C as its financial advisor to assist it in consideration of such matters. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved of or consummated.
Business Outlook
AsiaInfo-Linkage expects first quarter 2012 net revenue (non-GAAP) to be in the range of US$119.0 million to US$121.0 million. The Company expects first quarter 2012 net income attributable to AsiaInfo-Linkage, Inc. per basic share (non-GAAP) to be in the range of US$0.25 to US$0.27.
In light of the ongoing work being performed by the Special Committee, the Company will not at this time provide earnings guidance regarding the outlook for full year 2012.
ASIAINFO-LINKAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands of US$, except share and per share amounts)
Three Months
Ended Dec 31,
2011 2010
Revenues:
Software products and solutions $118,694 $101,201
Service 8,866 8,137
Third party hardware 3,531 5,042
----- -----
Total revenues 131,091 114,380
Cost of revenues:
Software products and solutions 68,900 53,703
Service 4,575 4,104
Third party hardware 3,355 4,789
----- -----
Total cost of revenues 76,830 62,596
------ ------
Gross profit 54,261 51,784
------ ------
Operating expenses (income):
Sales and marketing 20,238 18,835
General and administrative 4,562 6,259
Research and development 18,507 10,606
Government subsidy - -
Total operating expenses (income) 43,307 35,700
------ ------
Income from operations 10,954 16,084
------ ------
Other income (expenses):
Interest income 1,668 742
Dividend income - -
Gain from sales of short-term
investments 280 -
Impairment loss on short-term
investments - -
Impairment loss on long-term
investments - -
Other (expenses) income, net (17) (162)
--- ----
Total other income, net 1,931 580
Income before provisions for income
taxes and discontinued operations 12,885 16,664
Income taxes expense (benefit) 2,348 1,942
Income from continuing operations 10,537 14,722
Discontinued operations
Gain from operations of discontinued
operations - 1,023
Loss on sale of discontinued
operations - (84)
Income tax expense for discontinued
operation - (382)
Income from discontinued operations,
net of taxes - 557
---
Net income 10,537 15,279
------ ------
Less: Net income (loss) attributable
to noncontrolling interest 56 (226)
--- ----
Net income attributable to AsiaInfo-
Linkage, Inc. $10,481 $15,505
Earnings per share:
Net income from continuing operations
attributable to AsiaInfo-Linkage,
Inc. common stockholders
Basic 0.15 0.20
Diluted 0.14 0.20
Net income from discontinued
operations attributable to AsiaInfo-
Linkage, Inc. common stockholders
Basic 0.00 0.01
Diluted 0.00 0.01
Net income attributable to AsiaInfo-
Linkage, Inc. common stockholders
Basic $0.15 $0.21
===== =====
Diluted $0.14 $0.21
===== =====
Weighted average shares used in
computation:
Basic 72,221,644 74,904,875
========== ==========
Diluted 72,590,685 75,473,867
========== ==========
Twelve Months
Ended Dec 31,
2011 2010
Revenues:
Software products and solutions $431,355 $301,970
Service 31,572 26,596
Third party hardware 18,116 14,817
------ ------
Total revenues 481,043 343,383
Cost of revenues:
Software products and solutions 238,609 147,386
Service 17,291 12,341
Third party hardware 17,211 14,074
------ ------
Total cost of revenues 273,111 173,801
------- -------
Gross profit 207,932 169,582
------- -------
Operating expenses (income):
Sales and marketing 74,963 50,019
General and administrative 20,425 23,284
Research and development 58,905 36,172
Government subsidy (2,125) -
Total operating expenses (income) 152,168 109,475
------- -------
Income from operations 55,764 60,107
------ ------
Other income (expenses):
Interest income 5,657 2,851
Dividend income 180 507
Gain from sales of short-term
investments 479 472
Impairment loss on short-term
investments (144) (281)
Impairment loss on long-term
investments (950) -
Other (expenses) income, net 4 (353)
--- ----
Total other income, net 5,226 3,196
Income before provisions for income
taxes and discontinued operations 60,990 63,303
Income taxes expense (benefit) (11,996) 9,560
Income from continuing operations 72,986 53,743
Discontinued operations
Gain from operations of discontinued
operations - 1,663
Loss on sale of discontinued
operations - (84)
Income tax expense for discontinued
operation - (521)
Income from discontinued operations,
net of taxes - 1,058
--- -----
Net income 72,986 54,801
------ ------
Less: Net income (loss) attributable
to noncontrolling interest (1,573) (1,410)
------ ------
Net income attributable to AsiaInfo-
Linkage, Inc. $74,559 $56,211
Earnings per share:
Net income from continuing operations
attributable to AsiaInfo-Linkage,
Inc. common stockholders
Basic 1.02 0.90
Diluted 1.01 0.89
Net income from discontinued
operations attributable to AsiaInfo-
Linkage, Inc. common stockholders
Basic 0.00 0.02
Diluted 0.00 0.02
Net income attributable to AsiaInfo-
Linkage, Inc. common stockholders
Basic $1.02 $0.92
===== =====
Diluted $1.01 $0.91
===== =====
Weighted average shares used in
computation:
Basic 73,106,037 61,036,299
========== ==========
Diluted 73,670,981 61,782,710
========== ==========
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands of US$, except share and per share amounts)
As of
Dec 31,
Dec 31, 2011 2010
ASSETS:
Current Assets:
Cash and cash equivalents $272,438 $237,844
Restricted cash 21,226 13,943
Short term investments - held to
maturity securities - 10,570
Short term investments - available for
sale securities 27,909 31,682
Accounts receivable, trade (net of
allowances of $2,905 and $2,514 as of 281,564 258,338
December 31, 2011 and December 31, 2010,
respectively)
Inventories, net 15,309 9,902
Other receivables 4,480 5,934
Deferred income tax assets - current 14,294 13,781
Prepaid expenses and other current
assets 6,453 4,774
Total current assets 643,673 586,768
------- -------
Long term investments 4,863 5,646
Property and equipment, net 8,778 5,961
Other acquired intangible assets, net 163,028 209,626
Deferred income tax assets - non-
current 1,751 2,066
Goodwill 433,525 433,139
Land use right 14,543 10,000
------ ------
Total Assets $1,270,161 $1,253,206
========== ==========
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND
EQUITY
Current Liabilities:
Accounts payable $91,094 $89,867
Accrued expenses 22,905 25,391
Deferred revenue 32,378 27,963
Accrued employee benefits 78,972 72,309
Other payables 5,582 6,608
Income taxes payable 12,602 18,457
Other taxes payable 11,864 11,678
Deferred income tax liabilities -
current 9,091 3,657
-----
Total current liabilities 264,488 255,930
------- -------
Unrecognized tax benefits 3,344 4,870
Deferred income tax liabilities - non-
current 24,458 51,836
Other long term liabilities 573 274
---
Total Liabilities $292,863 $312,910
-------- --------
Redeemable noncontrolling interest 385 1,918
Equity:
Common stock 786 779
Additional paid-in capital 847,879 840,328
Treasury stock, at cost (6,166,500
shares and 3,000,000 at December 31,
2011 and December 31, 2010,
respectively) (87,746) (27,749)
Statutory reserve 21,748 21,640
Retained earnings 146,527 72,076
Accumulated other comprehensive income 47,124 30,794
------ ------
Total AsiaInfo-Linkage, Inc.
stockholders' equity $976,318 $937,868
-------- --------
Noncontrolling interest 595 510
--- ---
Total equity 976,913 938,378
------- -------
Total Liabilities, Redeemable
Noncontrolling Interest and Equity $1,270,161 $1,253,206
========== ==========
Fourth Quarter and Full Year 2011 Conference Call Details
AsiaInfo-Linkage management will hold an earnings conference call at 4:00 p.m. Pacific Time / 7:00 p.m. Eastern Time on February 13, 2012 (8:00 a.m. Beijing/Hong Kong Time on February 14, 2012). Management will discuss results and highlights of the quarter and answer questions from investors.
The dial-in numbers for the conference call are as follows:
Local:
New York: +1-718-354-1231
Hong Kong: +852-2475-0994
International Toll Free:
United States: +1-866-519-4004
China, Domestic Mobile: 400-620-8038
China, Domestic: 800-819-0121
Hong Kong: 800-930-346
International Toll: +65-6723-9381
The conference ID # is 44064634
A replay of the call will be available until 11:59 p.m. Eastern Time on February 21, 2012 by dialing one of the following numbers:
U.S Toll Free: +1-866-214-5335
International: +61-2-8235-5000
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 in China’s telecommunications industry. The Company was formed through a merger between AsiaInfo and Linkage on July 1, 2010. The combined Company leverages both AsiaInfo’s and Linkage’s leading market positions and complementary customer bases to provide a robust, comprehensive service offering primarily to China’s telecom operators. AsiaInfo-Linkage’s world-class R&D capabilities and extensive base of highly skilled engineers provide best-of-class solutions to help customers differentiate themselves from the competition.
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 Dec 31
-------------------------
2011 2010
---- ----
(in US dollar thousands)
------------------------
Total Revenues 131,091 114,380
-------------- ------- -------
Third Party Hardware
Costs 3,355 4,789
-------------------- ----- -----
Net Revenue (non-
GAAP) 127,736 109,591
----------------- ------- -------
Twelve Months Ended Dec 31 2011 Q3
-------------------------- -------
2011 2010
---- ----
(in US dollar thousands)
------------------------
Total Revenues 481,043 343,383 119,285
-------------- ------- ------- -------
Third Party Hardware
Costs 17,211 14,074 2,060
-------------------- ------ ------ -----
Net Revenue (non-
GAAP) 463,832 329,309 117,225
----------------- ------- ------- -------
(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 share-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 (non-GAAP) to GAAP gross margin
--------------------------------------------------------------
Three Months Ended Twelve Months Ended
Dec 31 Dec 31 2011 Q3
------------------ -------------------
2011 2010 2011 2010
---- ---- ---- ----
Gross margin (GAAP) 41.4% 45.3% 43.2% 49.4% 43.9%
------------------- ---- ---- ---- ---- ----
Third party hardware
costs(1) 1.1% 2.0% 1.6% 2.1% 0.8%
------------------------ --- --- --- --- ---
Amortization of acquired
intangible assets(2) 3.9% 4.7% 4.3% 3.1% 4.3%
---------------------------- --- --- --- --- ---
Share-based compensation
expenses(2) 0.2% 0.5% 0.4% 0.6% 0.4%
---------------------------- --- --- --- --- ---
Gross margin (non-GAAP) 46.6% 52.5% 49.5% 55.2% 49.4%
----------------------- ---- ---- ---- ---- ----
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 share-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 amortization of acquired intangible assets, share-based compensation expenses and non-recurring merger 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 (non-GAAP) to GAAP operating margin
----------------------------------------------------------------------
Three Months Ended Dec Twelve Months Ended
31 Dec 31 2011 Q3
2011 2010 2011 2010
Operating margin
(GAAP) 8.4% 14.1% 11.6% 17.5% 12.8%
Third party
hardware costs(1) 0.2% 0.6% 0.4% 0.7% 0.2%
Amortization of
acquired
intangible
assets(2) 8.2% 10.0% 10.0% 7.0% 8.9%
Share-based
compensation
expenses(2) 0.8% 1.7% 1.5% 2.4% 1.7%
Non-recurring
merger related
expenses(2) 0.0% 0.0% 0.0% 1.3% 0.0%
Operating margin
(non-GAAP) 17.6% 26.4% 23.5% 28.9% 23.6%
1. Percentages represent the difference between GAAP operating income
divided by GAAP revenue and GAAP operating income divided by net
revenue (non-GAAP).
2. Percentages represent the result of dividing the amounts of
amortization of acquired intangible assets, share-based
compensation or non-recurring merger 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 share-based compensation expenses, amortization of acquired intangible assets, impairment loss on investment, non-recurring merger related expenses, after-tax dividend income and a 15% tax rate adjustment for the Company’s Nanjing subsidiary (“LKNJ”). 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
-------------------------------------------------------------------
Three Months Ended Dec
31
-----------------------
2011 2010
---- ----
(in US dollar thousands)
------------------------
Net income (GAAP) 10,481 15,505
----------------- ------ ------
Adjustments:
------------
- Share based compensation 1,059 1,896
-------------------------- ----- -----
-Amortization of acquired
intangible assets 10,416 11,010
------------------------- ------ ------
-Impairment loss on
investment 0 0
------------------- --- ---
- Non-recurring merger
related expenses 0 0
---------------------- --- ---
- Dividend income, net of tax 0 0
----------------------------- --- ---
-LKNJ tax rate 15%
adjustment 0 0
------------------- --- ---
Net income (non-GAAP) 21,956 28,411
--------------------- ------ ------
Twelve Months Ended Dec
31 2011 Q3
------------------------ -------
2011 2010
---- ----
(in US dollar thousands)
------------------------
Net income (GAAP) 74,559 56,211 13,289
----------------- ------ ------ ------
Adjustments:
------------
- Share based compensation 6,787 7,999 1,937
-------------------------- ----- ----- -----
-Amortization of acquired
intangible assets 46,618 22,822 10,409
------------------------- ------ ------ ------
-Impairment loss on
investment 1,094 281 1,094
------------------- ----- --- -----
- Non-recurring merger
related expenses 0 4,158 0
---------------------- --- ----- ---
- Dividend income, net of tax (180) (507) 0
----------------------------- ---- ---- ---
-LKNJ tax rate 15%
adjustment (18,289) 0 0
------------------- ------- --- ---
Net income (non-GAAP) 110,589 90,964 26,729
--------------------- ------- ------ ------
(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 share-based compensation expenses, amortization of acquired intangible assets, impairment loss on investment, non-recurring merger related expenses, after-tax dividend income and a LKNJ 15% tax rate adjustment) 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 income per basic share
-------------------------------------------------------------------
Three Months Ended
Dec 31
------------------
2011 2010
---- ----
(in US dollars)
---------------
Net income per basic share
(GAAP) 0.15 0.21
-------------------------- ---- ----
Adjustments:
------------
- Share-based compensation
expenses 0.01 0.02
-------------------------- ---- ----
-Amortization of acquired
intangible assets 0.14 0.15
------------------------- ---- ----
- Impairment loss on investment 0.00 0.00
------------------------------- ---- ----
- Non-recurring merger
related expenses 0.00 0.00
---------------------- ---- ----
- Dividend income, net of tax 0.00 0.00
----------------------------- ---- ----
- LKNJ 15% tax rate adjustment 0.00 0.00
------------------------------ ---- ----
Net income per basic share
(non-GAAP) 0.30 0.38
-------------------------- ---- ----
Basic shares: 72,221,644 74,904,875
------------- ---------- ----------
Twelve Months Ended
Dec 31 2011 Q3
------------------- -------
2011 2010
---- ----
(in US dollars)
---------------
Net income per basic share
(GAAP) 1.02 0.92 0.18
-------------------------- ---- ---- ----
Adjustments:
------------
- Share-based compensation
expenses 0.09 0.13 0.03
-------------------------- ---- ---- ----
-Amortization of acquired
intangible assets 0.64 0.37 0.14
------------------------- ---- ---- ----
- Impairment loss on investment 0.01 0.01 0.02
------------------------------- ---- ---- ----
- Non-recurring merger
related expenses 0.00 0.07 0.00
---------------------- ---- ---- ----
- Dividend income, net of tax (0.00) (0.01) 0.00
----------------------------- ----- ----- ----
- LKNJ 15% tax rate adjustment (0.25) 0.00 0.00
------------------------------ ----- ---- ----
Net income per basic share
(non-GAAP) 1.51 1.49 0.37
-------------------------- ---- ---- ----
Basic shares: 73,106,037 61,036,299 71,934,704
------------- ---------- ---------- ----------
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. In December 2010, the Company disposed of its former IT Security business and, accordingly, no longer generates revenues from the sale of its information security products. 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 IT Security Business and the IBM-Type Arrangements, and with revenues excluding those attributable to the IT Security Business, respectively:
- Q1 2010 DSO = (Q4 2009 net AR + Q1 2010 net AR)/2/Q1 revenue x 90
- Q2 2010 DSO = (Q4 2009 net AR + Q2 2010 net AR)/2/Q2 cumulative revenue x 180
- Q3 2010 DSO = (Q4 2009 net AR + Q3 2010 net AR)/2/Q3 cumulative revenue x 270
- Q4 2010 DSO = (Q4 2009 net AR + Q4 2010 net AR)/2/Q4 cumulative revenue x 360
- Q1 2011 DSO = (Q4 2010 net AR + Q1 2011 net AR)/2/Q1 revenue x 90
- Q2 2011 DSO = (Q4 2010 net AR + Q2 2011 net AR)/2/Q2 cumulative revenue x 180
- Q3 2011 DSO = (Q4 2010 net AR + Q3 2011 net AR)/2/Q3 cumulative revenue x 270
- Q4 2011 DSO = (Q4 2010 net AR + Q4 2011 net AR)/2/Q4 cumulative revenue x 360
The following table presents further information regarding the Company’s gross AR, net AR, revenues, and DSO.
2010-Q1 2010-Q2 2010-Q3 2010-Q4
------- ------- ------- -------
(in US dollar thousands, except DSO)
------------------------------------
Gross AR 117,868 120,860 237,730 258,338
-------- ------- ------- ------- -------
- IT Security AR 3,061 1,658 3,845 -
---------------- ----- ----- ----- ---
- IBM Related AR 45,280 27,135 37,894 70,673
---------------- ------ ------ ------ ------
Net AR 69,527 92,067 195,991 187,665
------ ------ ------ ------- -------
Revenue 63,465 66,864 121,688 114,380
------- ------ ------ ------- -------
IT Security -
Revenue 4,222 7,566 11,226 -
------------- ----- ----- ------ ---
Revenue (excluding
IT Security) 59,243 59,298 110,462 114,380
------------------ ------ ------ ------- -------
DSO 106 123 157 135
--- --- --- --- ---
2011-Q1 2011-Q2 2011-Q3 2011-Q4
------- ------- ------- -------
(in US dollar thousands, except DSO)
------------------------------------
Gross AR 302,806 298,146 292,220 281,564
-------- ------- ------- ------- -------
- IT Security AR - - -
---------------- --- --- ---
- IBM Related AR 85,923 77,476 67,950 77,200
---------------- ------ ------ ------ ------
Net AR 216,883 220,670 224,270 204,364
------ ------- ------- ------- -------
Revenue 114,481 116,186 119,285 131,091
------- ------- ------- ------- -------
IT Security -
Revenue - - -
------------- --- --- ---
Revenue (excluding
IT Security) 114,481 116,186 119,285 131,091
------------------ ------- ------- ------- -------
DSO 159 159 159 147
--- --- --- --- ---
Cautionary Note Regarding Forward-Looking Statements
The information contained in this document is as of February 13, 2012. 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; 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 the outcome of the Special Committee‘s evaluation of strategic alternatives, including the privatization proposal announced on January 20, 2012. 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, 2010, 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
Mr. Justin Knapp
Ogilvy Financial, Beijing
Tel: +86-10-8520-6556
Email: asia@ogilvy.com
In the United States:
Ms. Jessica Barist Cohen
Ogilvy Financial, New York
Tel: +1-646-460-9989
Email: asia@ogilvy.com
SOURCE AsiaInfo-Linkage, Inc.