CDC Corporation Reports Record Adjusted EBITDA from Continuing Operations for the Third Quarter of 2008
Company Generates Adjusted EBITDA from Continuing Operations of $12.0 million and Operating Cash Flows of $7.9 million for Q3 2008
HONG KONG, ATLANTA (November 06, 2008) –
CDC Corporation (NASDAQ: CHINA), a leading global enterprise software and new media company, today announced financial results for the third quarter of 2008 that exceed Wall Street consensus estimates, with Adjusted EBITDA (a) from continuing operations (b) up by approximately 91 percent from the third quarter of 2007 and approximately 71 percent from the second quarter of 2008. Total revenue from continuing operations for the quarter ended September 30, 2008 was (U.S.) $103.8 million, up five percent from (U.S.) $98.4 million in the third quarter of 2007. Adjusted EBITDA from continuing operations was a record in the third quarter of 2008 at (U.S.) $12.0 million.
According to Thomson Financial First Call, Wall Street consensus estimates for CDC Corporation’s third quarter of 2008 were expected to be $100.6 million in total revenue and Adjusted EBITDA of $4.7 million. This marks the third consecutive quarter where CDC Corporation has reported quarterly results that have exceeded Wall Street consensus estimates.
Furthermore, both CDC Software and CDC Games generated positive Adjusted EBITDA from continuing operations. T otal revenue and Adjusted EBITDA from continuing operations for the Company’s two primary operating subsidiaries for the third quarter of 2008 were as follows:
Company Revenues Adjusted EBITDA
CDC Software (U.S.) $89.0 million ( U.S.) $9.9 million
CDC Games (U.S.) $12.1 million ( U.S.) $3.1 million
The company also generated positive operating cash flow in the third quarter, marking three consecutive quarters of cash generated from operations in 2008. Operating cash flow was (U.S.) $7.9 million in Q3 2008. For the first nine months of 2008 operating cash flow was $18.8. Non-GAAP Cash and Cash Equivalents (a) totaled ( U.S.) $212.6 million as of September 30, 2008.
“We are very pleased with our third quarter results, especially achieving such strong Adjusted EBITDA from continuing operations results during a period of extreme uncertainty in the global markets,” said Peter Yip, CEO of CDC Corporation. “We were fortunate to have foreseen the economic downturn late last year and we believe we have made the tough decisions to help prepare us for these volatile conditions in the global software industry. As a result, this is the third consecutive quarter in which we were able to exceed Wall Street consensus estimates. Despite the modest year over year revenue increase for this year’s third quarter, a significant percentage of our revenue continues to come from relatively stable and recurring sources, such as maintenance, which has typically been consistent over time.”
Yip added, “We continue to generate strong operating cash flow. During the third quarter of 2008 we generated (U.S.) $7.9 million in cash flow from operations. We expect to continue generating positive cash from operations. We also believe that CDC is in a fortunate position to have significant cash and cash equivalent reserves to assist us during this difficult economic environment. In fact, we have in excess of ( U.S.) $212.6 million in Non-GAAP Cash and Cash Equivalents. We are also looking at ways to improve our cash collection, as we have seen an improvement in our DSOs.
“Also, we believe that several of our solutions, including CDC Factory, CDC Supply Chain and CDC Respond, are beneficial to customers during times of difficult economic conditions, and that our recent results reflect this trend. For instance, CDC Factory and CDC Supply Chain specifically provide enterprises with critical operating tools to better manage their costs and improve their productivity and efficiency during economic downturns. CDC Respond can deliver a significant return on investment to customers since it enables them to improve customer retention through more efficient complaint and feedback management. CDC Games also delivered strong results, as is evidenced by our third consecutive quarter of double digit sequential growth.”
“On a standalone basis, both CDC Software and CDC Games posted strong Adjusted EBITDA from continuing operations performance and we plan to look for opportunities to capitalize on these results, when and if the equity markets recover. Overall, despite the difficult economic backdrop, we remain cautiously optimistic with regard to our near-term prospects,” continued Yip.
Third Quarter Highlights:
* Total revenue from continuing operations for CDC Corporation was (U.S.) $103.8 million in Q3 2008, a five percent increase compared to (U.S.) $98.4 million in Q3 2007.
* Adjusted EBITDA from continuing operations for CDC Corporation was ( U.S.) $12.0 million for Q3 2008 compared to ( U.S.) $6.3 million for Q3 2007.
* Total revenue for CDC Software for Q3 2008 was ( U.S.) $89.0 million compared to ( U.S.) $89.5 million in Q3 2007. Maintenance revenue was ( U.S.) $26.4 million, up 13 percent compared to Q3 2007.
* Total revenue from continuing operations for CDC Games for Q3 2008 was (U.S.) $12.1 million, an 83 percent increase compared to $6.6 million in Q3 2007.
* Total revenue from continuing operations for China.com was (U.S.) $2.7 million for Q3 2008, an increase of 12 percent over (U.S.) $2.4 million in Q3 2007.
* Operating cash flow for CDC Corporation was (U.S.) $7.9 million in Q3 2008. In the first and second quarters of 2008, operating cash flow was ( U.S.) $5.3 million and ( U.S.) $5.6 million, respectively.
* As previously announced, CDC Corporation is currently pursuing active discussions about possible early redemptions and/or other potential debenture modifications with holders of its 3.75 percent senior exchangeable convertible debentures due in 2011, of which there is currently $168 million in principal outstanding. CDC also is in the process of engaging an investment bank to assist in these efforts and the company expects to continue to provide updates on its efforts.
* The company continues to streamline its senior management team and pursue a more flat organizational structure. To that end the company is pleased to announce several key executive changes: Matt Lavelle, most recently our vice president of Financial Planning and Analysis for CDC Software, was promoted to Chief Financial Officer of CDC Corporation; and Bruce Cameron, formerly executive vice president of Global Sales and Marketing at CDC Software, was promoted to President of CDC Software. Furthermore, James McDevitt, formerly COO of CDC Software, has left the Company to pursue other opportunities.
“I am pleased to announce the promotion of Bruce Cameron has president of CDC Software,” said Peter Yip, CEO of CDC Corporation. ” Bruce been with the company since 2004 and his sales and marketing leadership has been instrumental to our outstanding financial results in this difficult market environment. In addition, the appointment of Matt Lavelle as CDC’s Chief Financial Officer is a direct result of his strong leadership within our finance team, which has already delivered on a more rapid financial reporting schedule and improved transparency under his guidance.”
Subsidiary Revenue and Operating Metrics Summary
Highlights for Q3 2008:
CDC Software
Total revenue for CDC Software for Q3 2008 was ( U.S.) $89.0 million. This amount was comprised of software license revenue of ( U.S.) $12.8 million, maintenance revenue of ( U.S.) $26.4 million, software consulting and services revenue of ( U.S.) $21.1 million, global services revenue of ( U.S.) $26.5 million, and hardware revenue of ( U.S.) $2.2 million.
Gross margin for CDC Software (excluding Global Services), was 56 percent during Q3 2008 compared to 58 percent in Q3 2007. Gross margin for Global Services was 25 percent in Q3 2008 compared to 26 percent in Q3 2007. CDC Software generated positive Adjusted EBITDA of (U.S.) $9.9 million. Days sales outstanding (DSOs) during Q3 2008 were 75 days compared to 77 days for the Q2 2008, and the company expects to improve this in the future.
CDC Software has recently implemented several initiatives intended to help improve its margins. New customer education classes have been added; a new low-cost packaged solution is being sold to smaller businesses; product extensions such as data archiving, document management, analytics and middleware tools are being offered to enhance customer’s current systems; and the coverage and capabilities of CDC Software’s support team have been expanded in the areas of products, language, geography and time zones.
Despite essentially flat revenues from Q3 2007 to Q3 2008, CDC Software experienced a significant improvement in Adjusted EBITDA margins due primarily to its cost saving initiatives. The company intends to continue to focus significant effort to improve on its operating margins through initiatives including leveraging an off shore model, improving sales force performance and working on maintenance win-backs.
CDC Software also continued to see strong sales from its three product lines that can specifically help customers address the challenges of rising costs and recessionary market conditions within their industries. CDC Factory is an enterprise manufacturing intelligence solution that helps food enterprises minimize the impact of rising commodity and packaging costs in the industry. Although results may vary from customer to customer, on average, CDC Software believes that some food enterprises may realize a two to four percent margin improvement and 15 percent productivity gain within 12 months of implementing CDC Factory. CDC Supply Chain can help enterprises manage the rising costs in transportation and in the supply chain with its comprehensive set of supply chain management solutions. CDC Respond, a suite of complaint management and feedback management solutions, can help organizations improve their customer retention by increasing customer satisfaction.
Q3 2008 revenue for CDC Software was geographically distributed, with the Americas contributing about 60 percent of the total, and the rest of world contributing about 40 percent.
During Q3 2008, CDC Software added a total of 211 new customers and signed upgrade and expansion agreements with 468 enterprise software customers.
New customers accounted for 31 percent of total software license deals during the quarter and included: Max New York Life Insurance Co. Ltd., Alliant, John Haas, Starkey Labs, Measurement Specialties Inc., Pacific BioScience, OSO BioPharma, Wild Rocket Foods, Tokmanni, Estonian Post, Paradise Tomato, Menadiona, Artis, Vicente Lopez, and Balfeg
