This is a summary of the second quarter fiscal 2007 earnings call conducted by AsiaInfo Holdings (ASIA: chart) on July 25, 2007.
Management:
Chief Executive Officer, President, Director: Steve Zhang
Chief Financial Officer: Eileen Chu
Investor Relations: Charles Zhang
Key Investor Issues
- Net income from continuing operations was $2.5 million, or 6 cents per share vs. $1.1 million or 2 cents a year ago, and $5 million or 12 cents per share in the previous quarter.
- AsiaInfo''s telecom business revenue rose 30% from a year ago, and 8% sequentially.
- Net revenue for the Lenovo-AsiaInfo business unit increased 158% year-over-year, and 60% sequentially.
- Third-party hardware revenue was $3.2 million, a 27% decrease from the year-ago period and a decrease of 54% sequentially.
Financial Guidance for the Third Quarter 2007
- Net revenue for the third quarter of 2007 is expected to be $27 million to $29 million, representing 15% to 23% year over year growth.
- Third quarter earnings per basic share from continuing operations are expected to be 7 cents to 8 cents, representing 40% to 50% year-over-year growth. This is compared to earnings per basic share from continuing operations of 5 cents in the third quarter of 2006.
Second Quarter Financial Highlights
Second quarter telecom software products and solutions revenue rose 27% from a year ago and 8% sequentially, on strong demand for AsiaInfo''s telecom software solutions.
Telecom service revenues increased 55% from a year ago and 14% sequentially. The increase in service revenues was in line with continuous growth in the company’s telecommunications software business, which generates more need for services from the company’s customers.
Total net revenue for the telecom business increased 30% from a year ago and 8% sequentially.
Lenovo-AsiaInfo’s net revenue increased 158% from a year ago and 60% sequentially. The large year-over-year increase reflects continuous improvement of operation in this division and the sequential increase was primarily due to the seasonality in the first quarter of 2007.
Group gross margins of net revenue was 54% compared to 48% in the year-ago period and 55% in the previous quarter.
The year-on-year increase was mainly due to improving operating results of the Lenovo-AsiaInfo division.
Total operating expenses were up 49% from a year ago and 10% sequentially.
- The increases were due to increased research and development, sales and marketing, and general and administrative expenses.
- R&D expenses grew 19% from a year ago and 2% sequentially, reflecting the company’s initiative to capitalize on growing opportunities in China’s telecom software market.
Sales and marketing expenses rose 61% from a year ago and 10% sequentially.
- The increases were primarily due to greater marketing assets to break into new customer accounts and prepare for growing market opportunities.
- General and administrative expenses increased 94% year over year and 27% sequentially, primarily due to recovery of bad debt expenses in the year-ago period and the previous quarter.
Telecom business posted a contribution profit before corporate G&A expenses of $3.4 million, and security products and services business posted a nominal loss.
- Net income excluding share-based compensation expenses, amortization and impairment charges, and other operating income, a non-GAAP measure, was $3.9 million, or 9 cents per basic share.
- Non-GAAP net income a year ago was $1.7 million, or 4 cents per basic share, which included $0.2 million, or 1 cent per basic share, gain from discontinued components.
- Non-GAAP net income in the previous quarter was $5.2 million, or 12 cents per basic share, which included $1.4 million, or 3 cents per basic share, gain from discontinued components.
- Operating cash flow for the quarter was a net outflow of $8.4 million, primarily due to bonus payments for 2006, which were made during the second quarter.
Balance Sheet Details
- Total cash provision, including cash and cash equivalents, restricted cash, and short-term investments, was $164.5 million, compared to $166.3 million at the end of the first quarter 2007.
- DSO for the quarter was 116 days versus last quarter’s 117 days.
In the second quarter, the company signed an agreement to upgrade China Unicom’s billing and CRM systems in Jiangsu province to help them support their new GPRS services.
In the fixed line market, AsiaInfo signed a contract with Zhejiang Netcom to expand their broadband billing system to better accommodate their growing subscriber base and increased demand for new services.
Also in Zhejiang province, the company signed a contract with China Telecom to deploy an integrated account inquiry system. This is the first time the company has delivered this solution to a fixed line operator in China, although it is widely used by mobile operators. The account inquiry system is an important component of the company’s core billing solution and this project is an opportunity to demonstrate the value of AsaInfo’s billing solutions for fixed line operators.
