February 04, 2013 at 17:00 PM EST
AsiaInfo-Linkage Reports Unaudited Fourth Quarter and Full Year 2012 Results
-- Met fourth quarter 2012 net revenue (non-GAAP)[1] guidance, net income attributable to AsiaInfo-Linkage per basic share (non-GAAP)[2] guidance

BEIJING and SANTA CLARA, Calif., Feb. 4, 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, and the largest Business Support System ("BSS") supplier to the telecommunications industry in Asia, today announced financial results for the fourth quarter and full year ended December 31, 2012.

"We had a strong fourth quarter to finish another solid year for AsiaInfo-Linkage," said Steve Zhang, the Company's president and chief executive officer. "China's telecommunications industry continues to develop rapidly as it confronts the CRM and monetization challenges of data traffic growth, which creates exciting business opportunities for our Company."

"Fourth quarter highlights include successfully delivering our latest CRM and billing solutions to both Shanghai Mobile and Liaoning Mobile, which together serve more than 50 million subscribers. For China Unicom, we completed the major initial phase of our project in the northern six provinces and signed agreements for supplementary work related to that project, which was one of our biggest and most comprehensive in 2012. For China Telecom, in addition to finalizing Billing 2.8 contracts and deploying CRM 2.0 solutions across those same provinces, we won contracts related to the carrier's e-channel business," added Mr. Zhang.

AsiaInfo-Linkage chief financial officer Michael Wu said, "We met both our top-line guidance and our bottom-line guidance for the quarter with strong sales order bookings and cash collection, as our major clients advanced on a number of contract signings and project completions before the end of 2012. Our operating cash flow remained strong and our days of sales outstanding continued to decrease, and we began 2013 with a healthy cash position."

Fourth Quarter 2012 Financial Results

Total revenues for the fourth quarter of 2012 were US$165.7 million, an increase of 26.4% year-over-year and 25.3% sequentially. Net revenue (non-GAAP) for the fourth quarter of 2012 was US$155.2 million, an increase of 21.5% year-over-year and 19.9% sequentially. The year-over-year and sequential increases were mainly the result of increased sales due to the seasonality of our business, which also reflected revenue recognized for our services and products that had been delivered to our major clients in the second and third quarter of 2012 while associated sales contract signings were pushed into the fourth quarter of 2012.

Gross margin for the quarter was 40.9%, compared to 41.4% in the year-ago period and 37.3% in the previous quarter. Gross margin of net revenue (non-GAAP)[3] was 47.4% in the fourth quarter of 2012, compared to 46.6% in the year-ago period and 42.6% in the previous quarter. The slight year-over-year decrease in gross margin was primarily due to wage inflation and increases in headcount of approximately 880 engineers, which resulted in increased total compensation costs. The year-over-year and sequential increase in gross margin of net revenue (non-GAAP) was primarily due to the recognition of revenue from delayed contract signings pushed into the fourth quarter of 2012, as the associated service costs were booked in the second and third quarter prior to contract signing in the fourth quarter of 2012, which offset the negative impact on gross margin of net revenue (non-GAAP) from the increase in the number of delivery engineers and wage inflation.

Total operating expenses for the fourth quarter of 2012 increased 21.4% year-over-year and 11.7% sequentially to US$52.7 million. The year-over-year increase was consistent with the Company's strategic planning regarding new business and new market expansion, product standardization efforts, and integration initiatives. Sales and marketing expenses for the fourth quarter of 2012 increased 21.6% year-over-year and 22.7% sequentially to US$24.6 million. The year-over-year and sequential increases in sales and marketing expenses were mainly attributable to increased sales commissions due to increased sales orders in the fourth quarter of 2012. General and administrative ("G&A") expenses for the fourth quarter of 2012 increased 49.6% year-over-year and 10.7% sequentially to US$6.9 million. The year-over-year increase in G&A expenses was mainly due to increased headcount of approximately 40 professionals, wage inflation and increased third-party professional service charges.  The sequential increase in G&A expenses was primarily the result of an increase in third-party professional service fees, which was offset by a reversal of allowance of doubtful account of US$0.8 million in the fourth quarter of 2012. Research and development ("R&D") expenses increased 21.8% year-over-year and 8.2% sequentially to US$22.6 million. The year-over-year increase in R&D expenses was primarily driven by an increase of approximately 150 engineers, a portion of which were shifted from the Company's delivery organizations to execute the Company's product standardization and integration strategy. The sequential increase in R&D expenses was mainly due to the increased headcount of approximately 70 engineers to support product delivery. In the fourth quarter of 2012, the Company received and recorded a government subsidy of US$1.4 million, mainly as a reward for its high-tech software innovations.

Income from operations in the fourth quarter of 2012 was US$15.0 million, an increase of 38.2% year-over-year and 584.5% sequentially. Operating margin of total revenue was 9.1% for the fourth quarter of 2012, compared to 8.3% in the year-ago period and 1.7% in the previous quarter. Operating margin of net revenue (non-GAAP)[4] for the fourth quarter of 2012 was 19.0%, compared to 17.5% in the year-ago period and 11.6% in the previous quarter. The year-over-year and sequential increases in operating margin and operating margin of net revenue (non-GAAP) were primarily due to revenue recognized from delayed contracts signed in the fourth quarter of 2012 for which services had been performed prior to signing, as well as seasonality of the Company's business.

Other income for the fourth quarter of 2012 was US$3.0 million compared to US$1.9 million in the year-ago period and US$2.1 million in the previous quarter. The year-over-year and sequential increases in other income were mainly due to dividend income from financial products of US$1.4 million in the fourth quarter of 2012. 

On a GAAP basis in the fourth quarter of 2012, the Company recorded net income attributable to AsiaInfo-Linkage, Inc. of US$15.6 million, or US$0.21 per basic share, compared to US$10.5 million, or US$0.15 per basic share, in the year-ago period and US$4.6 million, or US$0.06 per basic share, in the previous quarter.

In the fourth quarter of 2012, net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) was US$30.1 million, or US$0.41 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) in the year-ago period was US$22.0 million, or US$0.30 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) in the previous quarter was US$17.4 million, or US$0.24 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) increased 37.2% year-over-year and 72.9% sequentially, reflecting the factors discussed above.

In the fourth quarter of 2012, the Company had a net operating cash inflow of US$57.4 million, compared to a net operating cash inflow of US$57.8 million in the fourth quarter of 2011, and net operating cash inflow of US$9.4 million in the third quarter of 2012. The year-over-year change in operating cash flow was mainly due to a decrease in net income which was partially offset by improved cash collection.

Full Year 2012 Financial Results

Full year 2012 total revenues increased 13.9% year-over-year to US$547.9 million. Net revenue (non-GAAP) for full year 2012 increased 14.3% year-over-year to US$530.2 million. The year-over-year increases were mainly due to increased demand for the Company's solutions and services from its China and Southeast Asia telecommunication customers.

Gross margin for full year 2012 was 39.1%, compared to 43.2% in the year-ago period. The decrease in gross margin was mainly attributable to increases in headcount of approximately 1,200 implementation engineers, wage inflation and share-based compensation. Gross margin of net revenue (non-GAAP) for full year 2012 was 44.8%, compared to 49.5% in the year-ago period. The decreases in gross margin and gross margin (non-GAAP) for full year 2012 were primarily due to a headcount increase of approximately 1,200 implementation engineers and increased wage inflation.

Total operating expenses for full year 2012 increased 26.3% year-over-year to US$192.4 million. The year-over-year increase was consistent with the Company's strategic planning regarding new business and new market expansion, product standardization and integration efforts. Sales and marketing expenses for full year 2012 increased 11.3% to US$83.5 million in line with revenue growth. The increase was primarily due to increases in headcount of approximately 25 professionals, increases in sales commissions and marketing activities and an increase in share-based compensation. G&A expenses for full year 2012 increased 39.8% to US$28.8 million primarily due to increased headcount of approximately 40 professionals, increased wage inflation and increased third-party professional service fees. R&D expenses for full year 2012 increased 38.9% to US$81.8 million primarily due to wage inflation and increased headcount of approximately 460 engineers, a portion of which were shifted from the Company's delivery organizations. Government subsidy, as a reward for the Company's high-tech software innovations, decreased 21.0% year-over-year to US$1.7 million.

Operating margin of total revenue was 4.0% for full year 2012, compared to 11.6% in the year-ago period. Operating margin of net revenue (non-GAAP) for full year 2012 was 14.1% compared to 23.5% in the year-ago period. Operating margin decreased year-over-year primarily as a result of increased headcount and wage inflation.

Other income for full year 2012 was US$13.4 million compared to US$5.2 million in the year-ago period. The year-over-year increase in other income was mainly due to an increase in dividend gain of US$1.9 million, an increase in interest income of US$2.3 million, and an increase in gain from sale of investments of US$2.9 million.  In addition, in the third quarter of 2011, there was a US$1.1 million impairment charge on both short-term and long-term investments.

The Company recorded net income attributable to AsiaInfo-Linkage, Inc. of US$32.8 million, or US$0.45 per basic share, for full year 2012, compared to US$74.6 million, or US$1.02 per basic share, in full year 2011. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) for full year 2012 was US$86.1 million, or US$1.18 per basic share. Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) for full year 2011 was US$110.8 million, or US$1.51 per basic share. The decreases in net income attributable to AsiaInfo-Linkage, Inc. and net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP) reflect the factors discussed above.

As of December 31, 2012, AsiaInfo-Linkage had cash and cash equivalents and restricted cash totaling US$313.2 million and short-term investments totaling US$40.7 million. Operating cash flow for the full year 2012 was a net inflow of US$45.5 million compared to US$76.5 million for the full year 2011. The year-over-year change in operating cash flow was mainly due to a decrease in net income which was partially offset by improved cash collection.

As of December 31, 2012, AsiaInfo-Linkage had gross accounts receivable ("AR") of US$285.7 million compared to US$282.4 million as of September 30, 2012 and US$281.6 million as of December 31, 2011. Gross AR includes agent arrangements with International Business Machines Corporation ("IBM") or its distributors, as well as 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, was US$233.0 million as of December 31, 2012, compared to US$222.1 million as of September 30, 2012 and US$204.4 million as of December 31, 2011. The combined effect of revenue and AR trends, including the Company's focus on the collections process, resulted in the Company's DSO being 144 days as of December 31, 2012, compared to 151 days as of September 30, 2012 and 147 days as of December 31, 2011. 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.

[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]

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 investments, non-recurring consulting related expenses and a 15% tax rate adjustment for the Company's Nanjing subsidiary ("LKNJ").

[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 share-based compensation expenses, by net revenue (non-GAAP).

[4]

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 consulting related expenses, by net revenue (non-GAAP).

Recent Developments

On January 29, 2013, the Company announced the successful implementation of its industry leading Veris billing system for the CDMA network of Nepal Doorsanchar Company Limited, the largest telecommunications operator in Nepal.

On February 4, 2013, the Company announced the availability in Europe, the Middle East, and Africa markets of its advanced Veris suite of BSS solutions.

Business Outlook

AsiaInfo-Linkage expects first quarter 2013 net revenue (non-GAAP) to be in the range of US$133.0 million to US$136.0 million. The Company expects first quarter 2013 net income attributable to AsiaInfo-Linkage, Inc. per basic share (non-GAAP) to be in the range of US$0.23 to US$0.25.

ASIAINFO-LINKAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands of US$, except share and per share amounts)


Three Months


Twelve Months 

Ended December 31,


Ended December 31,


2012


2011


2012


2011

Revenues:








    Software products and solutions

$145,287


$118,694


$496,991


$431,355

    Service                                                                                                                   

9,352


8,866


32,271


31,513

    Third-party hardware

11,044


3,531


18,610


18,116

Total revenues

165,683


131,091


547,872


480,984

Cost of revenues:








    Software products and solutions

82,362


68,900


297,901


238,593

    Service

5,124


4,575


18,184


17,291

    Third-party hardware

10,492


3,355


17,679


17,211

Total cost of revenues

97,978


76,830


333,764


273,095

Gross profit

67,705


54,261


214,108


207,889

Operating expenses (income):








    Sales and marketing

24,612


20,238


83,455


74,963

    General and administrative

6,928


4,632


28,754


20,566

    Research and development

22,533


18,507


81,845


58,905

    Government subsidies

(1,415)


0


(1,679)


(2,125)

Total operating expenses

52,658


43,377


192,375


152,309

Income from operations

15,047


10,884


21,733


55,580









Other income (expenses), net








    Interest income

1,567


1,668


7,910


5,651

    Dividend income

1,376


0


2,058


180

    Gain from sales of short-term investments

0


280


3,333


479

    Impairment loss on short-term investments

0


0


0


(144)

    Impairment loss on long-term investments

0


0


0


(950)

    Other income (expenses)

49


(17)


59


4

Total other income, net 

2,992


1,931


13,360


5,220









Income before income tax expense (benefit), loss on equity method
    investment and income from discontinued operations, net of
    income tax 

18,039


12,815


35,093


60,800

Income tax expense (benefit)

2,785


2,320


5,087


(12,096)

Income after income tax expense (benefit) before loss on equity
    method investment and income from discontinued operations, net
    of income tax 

15,254


10,495


30,006


72,896

Loss on equity method investment, net of income tax

189


0


282


0

Income from continuing operations

15,065


10,495


29,724


72,896

Discontinued operations:








    Income from operations of discontinued operations

280


70


280


190

    Income tax expense for discontinued operations

43


28


51


100

Income from discontinued operations, net of income tax

237


42


229


90

Net income

15,302


10,537


29,953


72,986

    Less: Net (loss) income attributable to noncontrolling interest

(325)


56


(2,880)


(1,573)

Net income attributable to AsiaInfo-Linkage, Inc.

$15,627


$10,481


$32,833


$74,559









Earnings per share:








Net income from continuing operations attributable to AsiaInfo-Linkage, Inc. 

common stockholders:

    Basic

0.21


0.15


0.45


1.02

    Diluted

0.21


0.14


0.45


1.01

Net income from discontinued operations attributable to AsiaInfo-Linkage, Inc. 

common stockholders:

    Basic

0.00


0.00


0.00


0.00

    Diluted

0.00


0.00


0.00


0.00

Net income attributable to AsiaInfo-Linkage, Inc. 

common stockholders

    Basic

$0.21


$0.15


$0.45


$1.02

    Diluted

$0.21


$0.14


$0.45


$1.01









Weighted average shares used in computation:








    Basic

72,691,431


72,221,644


72,572,074


73,106,037

    Diluted

72,819,556


72,590,685


72,778,781


73,670,981

 


 

ASIAINFO-LINKAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands of US$)

 


Three Months Ended

December 31,


Twelve Months Ended

December 31,



2012



2011


2012


2011

Net income

$

15,302


$

10,537

$

29,953

$

72,986

Other comprehensive income (loss), net of tax:










Change in cumulative foreign currency translation adjustment


3,203



3,167


642


17,281

Transfer to statements of operations of realized gain on available-for-sale
          securities, net of tax effects of $0 and $93, $637 and $123 for the three 
          months and twelve months ended December 31, 2012 and 2011, respectively


0



(187)


(2,696)


(356)

Net unrealized (loss) gain on available-for-sale securities, net of tax   
          effects of $220 and $0, $12 and $128 for the three months and twelve 
          months ended December 31, 2012 and 2011, respectively


(551)



(88)


80


(739)

Transfer to statements of operations of other-than-temporary impairment on
         available-for-sale investment


0



0


0


144

Other comprehensive income (loss)


2,652



2,892


(1,974)


16,330

Comprehensive income


17,954



13,429


27,979


89,316

Less: Comprehensive (loss) income attributable to noncontrolling interest


(325)



56


(2,880)


(1,573)

Comprehensive income attributable to AsiaInfo-Linkage, Inc.

$

18,279


$

13,373

$

30,859

$

90,889

 



ASIAINFO-LINKAGE, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(Amounts in thousands of US$)


As of

ASSETS:

December 31, 2012


December 31, 2011

Current Assets:




Cash and cash equivalents

$273,520


$272,438

Restricted cash                                                                               

39,639


21,226

Short-term investments - available-for-sale securities

27,928


27,909

Short-term investments - held-to-maturity securities

12,728


0

Accounts receivable (net of allowances of $2,999 and $2,905 as
       of December 31, 2012 and 2011, respectively)

285,695


281,564

Inventories, net

24,107


15,309

Other receivables

6,504


4,480

Deferred income tax assets - current

5,559


14,294

Prepaid expenses and other current assets

8,311


6,453

Total current assets

683,991


643,673

Long-term investments

5,936


4,863

Property and equipment, net

19,104


8,778

Other acquired intangible assets, net

121,529


163,028

Deferred income tax assets - non-current

2,560


1,751

Goodwill

433,545


433,525

Land use right, net

14,326


14,543

Other non-current assets

1,332


0

Total assets

$1,282,323


$1,270,161

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY



Current Liabilities:




Accounts payable

$78,079


$91,094

Accrued expenses

28,065


22,905

Deferred revenue

40,491


32,378

Accrued employee benefits

76,803


78,972

Other payables

5,270


5,582

Income taxes payable

6,875


12,602

Other taxes payable

10,305


11,864

Deferred income tax liabilities – current

1,565


9,091

Total current liabilities

247,453


264,488





Unrecognized tax benefits

1,703


3,344

Deferred income tax liabilities – non-current

17,928


24,458

Other long term liabilities

387


573

Total Liabilities

$267,471


$292,863





Redeemable noncontrolling interest

(3,488)


385





Equity:




AsiaInfo-Linkage, Inc. Stockholders' Equity:




Common stock

789


786

Additional paid-in capital

858,711


847,879

Treasury stock, at cost

(87,746)


(87,746)

Statutory reserve

22,050


21,748

Retained earnings

179,058


146,527

Accumulated other comprehensive income

45,150


47,124

Total AsiaInfo-Linkage, Inc. stockholders' equity

$1,018,012


$976,318

Noncontrolling interest

328


595

Total Equity

1,018,340


976,913

Total Liabilities, Redeemable Noncontrolling Interest and Equity

$1,282,323


$1,270,161

Fourth Quarter and Full Year 2012 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 4, 2013 (8:00 a.m. Beijing/Hong Kong Time on February 5, 2013). Management will discuss results and highlights of the quarter and answer questions from investors.

The conference call webcast URL is http://www.media-server.com/m/p/ppdjaari.

The dial-in numbers for the conference call are as follows:

Local:

New York: +1-718-354-1231
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 85071222

A replay of the call will be available until 06:59 a.m. Eastern Time on February 12, 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 85071222

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 security 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 the Company's 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, the Company is 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 the Company's customers. Management believes total revenues net of third-party hardware costs more accurately reflects the Company's core business, which is the provision of software solutions and services, and provides transparency to the Company's investors. It is also the same measure used by management to evaluate the competitiveness and development of the Company's business.

Reconciliation of net revenue (non-GAAP) to GAAP total revenues


Three Months Ended Dec 31

Twelve Months Ended Dec 31

2012 Q3


2012

2011

2012

2011


(in US dollar thousands)

Total revenues

165,683

131,091

547,872

480,984

132,221

Third-party hardware costs

10,492

3,355

17,679

17,211

2,792

Net revenue (non-GAAP)

155,191

127,736

530,193

463,773

129,429

(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). Management believes that this non-GAAP financial measure provides meaningful supplemental information regarding the Company's performance by excluding certain expenses and income that may not be indicative of the Company's 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 Dec 31

Twelve Months Ended Dec 31

2012 Q3


2012

2011

2012

2011

Gross margin (GAAP)

40.9%

41.4%

39.1%

43.2%

37.3%

Third-party hardware costs[1]

2.8%

1.1%

1.3%

1.6%

0.8%

Amortization of acquired intangible assets[2]

3.2%

3.9%

3.8%

4.3%

3.9%

Share-based compensation expenses[2]

0.5%

0.2%

0.6%

0.4%

0.6%

Gross margin (non-GAAP)

47.4%

46.6%

44.8%

49.5%

42.6%

[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 consulting related expenses, by net revenue (non-GAAP). Management believes that this non-GAAP financial measure provides meaningful supplemental information regarding the Company's performance by excluding certain expenses and income that may not be indicative of the Company's 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 31

Twelve Months Ended Dec 31

2012 Q3


2012

2011

2012

2011

Operating margin (GAAP)

9.1%

8.3%

4.0%

11.6%

1.7%

Third-party hardware costs[1]

0.6%

0.2%

0.1%

0.4%

0.0%

Amortization of acquired intangible assets[2]

6.7%

8.2%

7.8%

10.0%

8.0%

Share-based compensation expenses[2]

1.6%

0.8%

1.8%

1.5%

1.9%

Non-recurring consulting related expense[2]

1.0%

0.0%

0.4%

0.0%

0.0%

Operating margin (Non-GAAP)

19.0%

17.5%

14.1%

23.5%

11.6%

[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, share-based compensation or non-recurring consulting related expenses, as applicable, 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 investments, non-recurring consulting related expenses and a 15% tax rate adjustment for LKNJ. Management believes that this non-GAAP financial measure provides meaningful supplemental information regarding the Company's performance by excluding certain expenses and income that may not be indicative of the Company's 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 attributable to AsiaInfo-Linkage, Inc.


Three Months Ended Dec 31

Twelve Months Ended Dec 31

 2012 Q3


2012

2011

2012

2011


 (in US dollar thousands)

Net income attributable to AsiaInfo-Linkage, Inc. (GAAP)

15,627

10,481

32,833

74,559

4,619

Adjustments:






 - Share-based compensation expenses

2,537

1,059

9,832

6,787

2,415

 - Amortization of acquired intangible assets

10,373

10,416

41,498

46,618

10,375

 - Impairment loss on investments

0

0

0

1,094

0

 - Non-recurring consulting related expenses

1,580

0

1,950

0

6

 - LKNJ  tax rate 15% adjustment

0

0

0

(18,289)

0

Net income attributable to AsiaInfo-Linkage, Inc. (non-GAAP)

30,117

21,956

86,113

110,769

17,415

(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 investments, non-recurring consulting related expenses and a 15% tax rate adjustment for LKNJ) 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 attributable to AsiaInfo-Linkage, Inc. per basic share


Three Months Ended Dec 31

Twelve Months Ended Dec 31

2012 Q3


2012

2011

2012

2011


(in US dollar)

Net income attributable to AsiaInfo-Linkage, Inc. per basic share (GAAP)

0.21

0.15

0.45

1.02

0.06

Adjustments:






 - Share-based compensation expenses

0.03

0.01

0.14

0.09

0.03

 - Amortization of acquired intangible assets

0.15

0.14

0.57

0.64

0.15

 - Impairment loss on investments

0.00

0.00

0.00

0.01

0.00

 - Non-recurring consulting related expenses

0.02

0.00

0.02

0.00

0.00

 - LKNJ  tax rate 15% adjustment

0.00

0.00

0.00

(0.25)

0.00

Net income attributable to AsiaInfo-Linkage, Inc. (Non-GAAP) per basic share

0.41

0.30

1.18

1.51

0.24

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, and with revenues excluding those attributable to the IT Security Business, respectively:               

1) Q1 2011 DSO = (Q4 2010 net AR + Q1 2011 net AR)/2/Q1 revenue x 90
2) Q2 2011 DSO = (Q4 2010 net AR + Q2 2011 net AR)/2/Q2 cumulative revenue x 180
3) Q3 2011 DSO = (Q4 2010 net AR + Q3 2011 net AR)/2/Q3 cumulative revenue x 270
4) Q4 2011 DSO = (Q4 2010 net AR + Q4 2011 net AR)/2/Q4 cumulative revenue x 360
5) Q1 2012 DSO = (Q4 2011 net AR + Q1 2012 net AR)/2/Q1 revenue x 90
6) Q2 2012 DSO = (Q4 2011 net AR + Q2 2012 net AR)/2/Q2 cumulative revenue x 180
7) Q3 2012 DSO = (Q4 2011 net AR + Q3 2012 net AR)/2/Q3 cumulative revenue x 270
8) Q4 2012 DSO = (Q4 2011 net AR + Q4 2012 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.


2011-Q1

2011-Q2

2011-Q3

2011-Q4

2012-Q1

2012-Q2

2012-Q3

2012-Q4


(in US dollar thousands, except DSO)

Gross AR

302,806

298,146

292,220

281,564

301,333

307,261

282,424

285,695

- IBM Related AR

85,923

77,476

67,950

77,200

79,345

84,357

60,354

52,717

Net AR

216,883

220,670

224,270

204,364

221,988

222,904

222,070

232,978










Revenues

114,481

116,186

119,285

131,091

123,697

126,271

132,221

165,683










DSO (in days)

159

159

159

147

155

154

151

144

Cautionary Note Regarding Forward-Looking Statements

The information contained in this document is as of February 4, 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; 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, 2011, 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.

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