The last year year-over-year increase indicated the healthy recovery of the business. The sequential decrease reflected Lenovo-Asiainfo impact of the Chinese New Year holiday. Growth margin for Lenovo-Asiainfo increased from 52% in the fall quarter of 2006 to 61% in the first quarter, primarily due to continued improvement in stock return rate. This led to growth margin improvement for the entire company of 7% year-over-year and 1% sequentially.
Total operating expenses for the quarter were up 17% year-over-year and down 1% sequentially.
- The year-over-year increase in operating expenses was primarily due to higher non-cash expenses recognized in the first quarter of 2007, including share-based compensation expenses and amortization of intangible assets relating to two acquisitions completed in late 2006.
- R&D expenses grew 28% year-over-year and 10% sequentially, reflecting the company’s initiative to capture life and growing opportunities in China’s telecom software market.
Sales and marketing expenses increased 54% year-over-year and decreased 6% sequentially.
- The year-over-year increase was mainly due to greater head count and higher sales commissions, which were inline with the increase in sales orders in the first quarter of 2007.
- General and administrative expenses decreased 38% year-over-year and 3% sequential, primarily due to the recovery of certain bad debts.
- During the quarter the Telecom business posted a contribution profit before culprit G&A expenses of $3.5 million.
In the first quarter, Lenovo-Asiainfo recorded other operating income of $2.7 million.
This income related to a settlement agreement that AsiaInfo entered into with Lenovo Group Limited to resolve certain matters arising out of the acquisition agreement dated July 27, 2004 and an escrow agreement dated October 19,, 2004 between the company and Lenovo.
As a result, Lenovo-Asianinfo posted a contribution profit before culprit G&A expenses of $2 million. Excluding this other operating income, Lenovo-Asianinfo would have posted a contribution loss of approximately $0.8 million.
In the first quarter of 2007 the company closed a transaction to sell its financial status Acki Solutions business.
- As a result, AsiaInfo recorded a gain from sales of discontinued operations of $1.4 million in the first quarter.
- Net income is clearly share-based compensation expenses, amortization and impairment charges and other operating income, which is a non-GAAP measure worth $5.2 million in the first quarter of 2007 or 12 cents per basic share.
- Non-GAAP net income in the year ago period was $0.6 million or 1 cent per basic share.
- Non-GAAP net income in the previous quarter was $3.1 million or 7 cents per basic share.
- Operating cash flow in the fourth quarter of 2007 was a net outflow approximately $3 million, primarily due to strong cash collection in the previous quarter.
Balance Sheet Detail
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Cash and cash equivalents of short-term investment increased sequential by approximately $2.8 million to $153.2 million during the quarter, primarily reflecting a higher return on certain short-term investments.
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Accounts receivable rose to $42.4 million from $35.2 million at the end of the fourth quarter of 2006, reflecting the strong collection of this in the previous quarter.
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DSO for the quarter was 117 days versus last quarter’s 120 days.
Financial Guidance for the Second Quarter of 2007
- Revenues net of hot-wear patches in the second quarter of 2007 are expected to be $25 to $27 million, reflecting 26% to 36% year-over-year growth.
- Second-quarter earnings per share from continuing operations are expected to be 6 to 7 cents. This is compared to earnings per basic share for from continuing operations of 3 cents in the second quarter of 2006.
Key questions and answers from the first quarter fiscal 2007 earnings call conducted by AsiaInfo Holdings, Inc. (ASIA) on April 25, 2007.
Regarding your providing the bidding on the CRM through the TD-SCDMA trial, do you expect them to introduce second and potentially third sources there, or do you think for a little while they might be safe to just have one source?
Right now, the company is the only provider in the provincial trials. It’s the company’s intention to do a good delivery job, and hopefully when China Mobile wants to push for full-scale deployment this will be a competitive advantage for AsiaInfo in winning the entire contract.
What functionality have you built into the Mobile Device Management that would be interesting?
Device Management main purpose is to support China Mobile’s initiative for their own handset introduction in the future. The handset is becoming more and more sophisticated, and all the smart phones plus China Mobile’s own branded handset want to have over-the-air support and upgrade capability. AsiaInfo is building this Device Management platform for China Mobile to enable them to do that upgrade, the plans that parameters gather, and all over the air, and this will enhance their wholesale support, but they also want to be able to identify what kind of terminals, what kind of plans that the regular consumer is using and based on the plans and parameters, they can push tailored state applications onto the handset.
Will there also be specifications, either within the current product or within future iteration of the product that would serve the security interest of a user or the service provider?
