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CDC Corporation (NASDAQ:CHINA)

Q2 2009 Earnings Call

August 18, 2009 9:00 am ET

Executives

Peter Yip – Executive Vice Chairman & Chief Executive Officer

Monish Bahl – Vice President, Investor Relations & Corporate Communications

Matthew S. Lavelle – Chief Financial Officer

Analysts

Varun Chadha – Raymond James

Patrick Walravens – JMP Securities

Derrick Wood – Wedbush Morgan Securities, Inc.

Alberto Bassetto – Jayhawk Capital Management

David Bayer – Cantor Fitzgerald

Sasa Zorovic – Janney Montgomery Scott

Operator

Good day and welcome to CDC Corporation’s Second Quarter 2009 Results Conference Call. Today’s call is being recorded. For opening remarks and introductions I would like to turn the call over to Mr. Monish Bahl, Vice President of Investor Relations. Please go ahead, sir.

(Audio Gap)

Peter Yip

In the second quarter of 2009 CDC also recorded a significant cash flow with non-GAAP cash up $142.4 million. With the successful carve out of CDC Software into a separate public company. We have accomplished a significant milestone in unlocking shareholder value. We will continue to look at other opportunities with our other aspect to further unlock shareholder value in the coming months.

Let me give you an update on our convertible debt. Originally, we have $168 million of notes due November 2011 at 3.75% interest. Already we have come to term will all 11 holders to-date for the purchase of about 75% of the note outstanding equivalent to $125.8 million in principal repurchase and an average price below par and with no shareholder dilution. Currently, there are two holders, which still hold partial positions. The remaining face value of notes outstanding and held by this two non-affiliates that have been not been negotiated its $42.2 million. We are now working on resolving the remaining notes outstanding and we feel very confident that we could resolve this in an amicable way for both holders of the debt and for CDC Corporation and its shareholders.

For the $125.8 million of notes purchased so far. We will have saved in principal and avoid interest expenses of $39.9 million in cash payments if the November 2009 pre occur with all the original $168 million remaining outstanding and held by the non-affiliates. We would have saved also some $2 million in cash payments if the notes were held until final maturity in 2011.

Let’s turn to the next slide, let us take a look in our cash flow. For the seven consecutive quarters we have had positive cash flow generations. Operating cash flow was $11.2 million for Q2 2009, compared to $5.6 million in Q2 2008. Non-GAAP cash and cash equivalents were $142.4 million as of June 30, 2009. As you can see on the first diagram of this chart, that the cash on a GAAP basis have incurred from $103 million to $111.9 million in the last three months between March 31 to June 30, 2009. We also on the same slide provide you with a reconciliation table between the GAAP cash and non-GAAP cash, which is $142 million versus a $111.9 million on a GAAP basis.

Let us now turn to the next slide, which is slide number eight. And this slide is a little more complicated, which is on page eight, but what we are trying to show you is the positive improvement in our balance sheet on a pro forma basis as of June 30, 2009 by taking into account of some of the recent events such as the CDC stock IPO, such as the recent announced dividend payments on China.com, Inc. as well as the redemption of additional convertible bonds subsequent to June 30, 2009. This positive improvement for example, you will see the pro forma cash would have been $124.5 million instead of $111.9 million. And also you would see improvement in the working capital surplus, which would have been $30 million instead of working capital deficit of $27.4 million. The total debt on a pro forma basis would have been $64.4 million instead of $119.1 million.

Now, let’s take a look at the financial results of CDC Software. Despite the difficult market condition, we have seen a sequential improvement of 10% growth in license revenue in Q2 2009, compared to Q1 2009. A key positive trend is that our pipeline is growing, for example we saw a double-digit growth in license sales in the first four week of Q3 2009, compared to the same period in Q2 of 2009. Maintenance revenue was $24.8 million, compared to $24.2 million in Q1 2009.

As we have previously announced, our current focus is on selling through our installed base more than 6,000 customer on a global basis, which we believe represent a significant organic growth opportunity. CDC Software is, is an exciting growth story with increasing strong fundamentals of profitability and recurring revenue streams. I would encourage shareholders to listen to a replay of CDC Software's earning call, which was just completed a few minutes ago to get more detail of this very exciting and very profitable businesses.

Now, let’s turn to slide number 10. Now let’s take look at CDC Global Service. The company offering including platform specific services to Microsoft and SAP, as well as project management, IT staffing, managed help desk solutions, and a full range of outsourced service offerings. Two key attributes of this business unit including an onshore and offshore delivery model for project work, which helped keep cost low for our customers, while protecting margins for the company. The other attribute is long-term contract for managed services, which helps to provide CDC Global Services with a more predictable revenue stream.

CDC Global Service posted $18.5 million in revenue, a decline from Q1 2009 revenue of $19.8 million. For Q2 CDC Global Service was negative impact due to the completion of several large deal engagements as well as the investment in our offshore business process outsourcing center in India. Staff utilization for Q2 2009 was 90%, which was up from 89% in Q1 2009. The company believes that its fast utilization rate are higher than industry average, the headcount for the end of June 30, 2009 was 772 employees. Some other major wins and achievement for Q2 2009 included a three-year $2 million contract extension to managing help desk technology for a national non-managed healthcare operations, a large energy delivery company servicing 1.9 million customer signed a $2 million contract extension to manage their desktop technology for another two years.

Completing one of the few successful implementation in the world for SAP extended warehouse management system for international beverage companies. Microsoft recognized that CDC Global Service business unit has a tough partner with induction in the President's Club and a more exclusive Inner Circle. CDC Global Service also was running up for the Asia-Pacific Dynamics SL Partner of the Year award. Our singular focus for CDC Global Service is to return to profitability.

The strategy to accomplish, integrated separate systems into one unit under one experienced and proven management team and unify messaging around solution offering, such as Microsoft Dynamics, SAP Logistic and Managed Service as well as our industry expertise growing existing business by offering incentive for cross trial opportunity and expanding its new business process outsourcing offline, which was launched in Q1 and now servicing over 10 customers.

And finally, scaling two strategic acquisitions by targeting firms that would extend our current offering and offer special industry expertise for which we have currently identified or are in discussions with several companies. For example, just yesterday we announced that we sign a binding term agreement to acquire business intelligent IT service provider in the healthcare industry.

Let us turn our attention to CDC Games. CDC Games reported revenue of $9.5 million during second quarter of 2009 up more than 50% from $6.3 million in Q1 2009. CDC Games saw improvement in revenue in Q2, compared to Q1 2009, due to primarily to the weak down in revenue from Yulgang. During the second quarter of 2009, CDC Games launched Yulgang 3.0, a major new version of the company’s most popular games and a Bloody Sky expansions pack for another game of Shaiya. Adjusted EBITDA improved to $3.3 million, a 27% increase from $2.6 million in Q2 2008.

Adjusted EBITDA margin improved to 35% from 25% in Q2 2008. This margin improvement primarily as a result of the consolidation of operation too one single center currently CDC Games has over 160 million registered users and 8.4 million active users. Fixed active games in this portfolio and 383 employees. CDC Games launch on March 27, 2009 a major new version Yulgang. This new update featured new map system, featured 16 new monsters, a new profession and better feel as well as many new road show merchandise.

Since its launch we have seen a significant up tick in game’s metrics. When more than 78 million registered user and currently ranked number two in the Kung-Fu category for MMO Games in Baidu, which is China’s most popular search engine Yulgang continue to be the most effective games in our current portfolio.

Now, let me give you some background on our exciting new games we are launching next month, which is the Lord of the Rings online. We have just completed a very successful stress test on our advanced gaming and billing platforms, during the next phase of testing, we are deploying 100 server farms. Including 2000 high end servers and more than 200 high volume storage device capable of supporting more than 300,000 players simultaneously doing game play. This server will be locating in 10 major cities throughout China.

In addition, CDC Games is planning to distribute more than 500,000 free game DVDs to those who apply for it on our CDC Games website. Already more than 20,000 gamers applied for the free DVD in the first three day it become available. The game DVD also have been installed on a total more than 4 million computers at 40,000 Internet cafes in 25 city and regions in China.

During the current testing phases of Lord of the Rings, the company has seen significant interest and very, very positive feedback by gamers on our unique music systems, on detailed background and excited player versus player features, and innovative and very narrative style quests that differ from most MMOs is available in the market today in China. All this intends an extensive preparation is to help to ensure a smooth and satisfying gaming experience for our many gamers, while we are expecting Lord of the Rings to become available next month.

Lord of the Rings also has been rapidly rising in the ranking of the most, for the most anticipated games in popular search engines and games portals in China. For example, just recently Lord of the Rings was ranked number nine at the most anticipated games in Baidu, which of course is China’s most popular search engine. We recently started operating our first domestic MMO Games called TD Online it is also our first game using a cooperative revenue model, where we are sharing a cost and the revenue with the developer.

This game is very popular and is based on the theme of the popular Monopoly game. Our next planned local game, RU Online there are eight professional and players as they grow and develop their specialties in the game can develop into 20 different professionals. They’re different system features such as class, community systems, patch systems, outfit systems and many, many other exciting features.

We plan to commercially launch this RU Online, a very exciting and fascinating domestic games in November 2009. We are also currently evaluating several more domestic local games, it's very important to note that the trend indicating continued growth in the domestic online MMO Games market in China. According to a key online game study, domestic online games in China increased from 65% in 2007 to more than 80% in 2009.

We feel it is strategically important for CDC Games to launch domestic online games as we intend to search for more domestic online games titles as well as investing in domestic game studios. In closing, we are very excited we have monetized a key asset with the completion of CDC Software IPO. This is part of a first phase of our long-term strategy to unlock shareholder value. Our scalable and global infrastructure enables our key businesses like CDC Software to scale out and to grow rapidly, organically, and through acquisitions.

We had a very positive fact that we are maintaining a solid balance sheet and growing cash flow. We will look to continue to monetize other assets of CDC Corp. at appropriate time. As I said it before, we are currently focusing on expansion of CDC Global Service and CDC Games to reach to our ability and to reach sustainable profitability. The convertible debenture overhang is largely behind us primarily due to our successful repurchase of the notes.

Finally, we remain cautiously optimistic with regarding to our long-term prospects since now we believe we have the optimum business and technology platform in place, further if the economy continue to improve, we believe we are well positioned to take advantages of the market opportunity ahead of us.

Thank you very much and with that we now open up for questions.

Monish Bahl

Thank you, Peter. Ladies and gentlemen, we are ready to take your questions now. Operator, if you can please provide instructions for everyone to get their questions into the queue that would be great. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Shyam Patil with Raymond James.

Varun Chadha – Raymond James

Good morning. This is Varun Chadha filling it for Shyam. Could you just give us an update on Lord of the Rings and what your expectations are from that launch?

Peter Yip

Thank you for the questions. As I said it before, we're expecting to launch next month. So, we are doing extensive preparations by installing for example the DVD in 40,000 Internet cafes in 25 cities around the country and that has been taking up some time for the past several weeks and also by distributing over 500,000 DVD directly to gamers. So, we are very excited and we are seeing more and more interest as we are seeing in mid years in the games industry around China. Lord of the Rings is the game to watch for. It's very exciting and has been taking us sometime to launch the games. And so we're beginning to prepare the final preparation, we are preparing to have a major press conference for example, next Friday in Beijing and we're expecting the CEO of our partner from Turbine, a very exciting company and one of the leading MMO Games developer in the world, and CEO James (Jim) Crowley will be in Beijing and we are most looking forward to his presence as the, all the gamers in China are looking forward to do commercial launch next month.

Varun Chadha – Raymond James

Got it. And could you just give us your thoughts or expectations for the timing on the final resolution for the convert?

Peter Yip

Yeah. Thank you for the questions. As I mentioned before, we are very thankful for all of the 11 holders they have been very kind to us and we bought back more than 75% of the convertible bond from them and we are in active discussions with the remaining I mentioned about $42.4 million on the convertible loans and $42.2 million and we feel confident that we could resolve this over the next months and quarters if you will. And we have done the difficult part already in the past to regain to repurchase 75%. So we feel confident we will be able to continue that trend of amicable settlements and buyback of the convertible.

Varun Chadha – Raymond James

Got it. Thank you.

Operator

Your next question comes from the line of Patrick Walravens with JMP Securities.

Patrick Walravens – JMP Securities

Hello, great, thank you. Can I start with one question about CDC Software, which is that the free cash flow was really strong at 13.7, but I noticed that was almost exactly the same as your adjusted EBITDA? As we look over, a multi-quarter period of time, should your free cash track to adjusted EBITDA?

Matthew S. Lavelle

Hi, Pat, this is Matt. Thanks for the question. Yes, it should track pretty close. I think one of the big only differences would be our capital spend, CapEx that we spend on, and we are not a tremendously large consumer of capital outside of our development efforts that go on in the business. So those two should be relatively close together.

Patrick Walravens – JMP Securities

Okay. So, if we look at the $48 million to $50 million in adjusted EBITDA guidance for the year that shouldn’t be too far off free cash flow?

Matthew S. Lavelle

Yeah, it shouldn't be too far off.

Patrick Walravens – JMP Securities

Okay, that’s really helpful. And then, Peter, one sort of bigger question for you, which is, there is a lot of exciting things going on in all three parts of the business here. How do you expect to allocate your time for the rest of this year between software games and services?

Peter Yip

Well, thank you very much, Pat, for the questions. As you know, we have very good management team over at CDC Software under the leadership Bruce Cameron, so he has been running the company, managing the businesses. And my role at CDC Software has been really, as you know, of strategy and M&A, and M&A focused actually, in China is one of my top priority as we are seeing a fantastic growth economically, historically as well as in the next several years. So with the cash we have raised from CDC Software and now is a good time to put those cash in use particularly by a vertical software company that were complementary to our current roadmap and certain expansion in China is key to us. And I'm going to spend some more time in China, as I have did before. And that would also help out in term of as you know, we also have separate management team for Games and also separate management teams for CDC Global Services. My role in the other two companies again is really strategy in term of helping them to grow, continue recruiting, and expanding the current management team in line with the business growth. And games is exciting, not a lot of business out there today that show double digit like 50% growth quarter-to-quarter with exciting launch of Lord of the Rings, which is one of the biggest games expecting in China if you will. And as that revenue continue to grow, as you see that we are managing the EBITDA gross margin from 25% a year-ago to 35% of CDC Games. And as the revenue grow you would see the margin closer to 40% or 45% plus and that can be a very good operating metric that they continue to grow, keeping track of double-digit growth quarter-to-quarter. And certainly I will spend more time in term of how do we unlock shareholder value, if the games continue growing the right, both in revenue as well as EBITDA margins. And Global Services are certainly the businesses that need more time. They need a lot more scale it's a lower margin business, it’s a business principle fairly with our backend based in India and we have a very strong Indian team and we announced acquisition yesterday. You will see as more acquisitions and that is where I do well in terms of acquisitions and strategic thinking and also planning for unlocking shareholder value event, which have been so far in the face of CDC Software as IPO. Certainly, we will signal inevitably make sense to unlock shareholder value for the business.

Varun Chadha – Raymond James

Okay. Thank you gentleman.

Peter Yip

So it’s a long way to answer your questions. Thank you very much.

Operator

Your next question comes from the line of Derrick Wood with Wedbush.

Derrick Wood – Wedbush Morgan Securities, Inc.

Thanks. Curious, you guys gave guidance for EBITDA for the software business of $48 million to $50 million. Is there any color you can give us for the whole CDC Corporation?

Matthew S. Lavelle

Hi Derrick. Matt Lavelle. Thanks for the question. Yeah, we have not provided guidance for corporate at this time. Obviously, software makes up a large chunk of the total corporate entity. Obviously, we are anxiously awaiting the successful launch of Lord of the Rings in Q3, but that obviously can have a fairly significant impact. So we want to see all tests to-date on the stress tests and the systems have been very favorable. So we have all signs of looking positive, but we want to get a little more information under our belt probably before we go ahead and give any further guidance out on corporate at this time. Thanks for the question.

Derrick Wood – Wedbush Morgan Securities, Inc.

Thanks. Could you also give a little bit of color in terms of how the P&L is going to look in Q3, what the carve out of the software business did, did shares outstanding change or is really the difference going to come out of minority interest?

Matthew S. Lavelle

It should look relatively the same, the only difference will come out of minority interest line.

Derrick Wood – Wedbush Morgan Securities, Inc.

And then would you expect any?

Matthew S. Lavelle

Shares will remain the same at corporate.

Derrick Wood – Wedbush Morgan Securities, Inc.

Okay. Is there any one-time G&A costs that come in Q3 due to the IPO?

Matthew S. Lavelle

No, all those expense is associated with the IPO have been capitalized.

Derrick Wood – Wedbush Morgan Securities, Inc.

Okay. That’s it. Thank you.

Matthew S. Lavelle

You're welcome.

Operator

Your next question comes from the line of Alberto Bassetto with Jayhawk Capital.

Alberto Bassetto – Jayhawk Capital Management

Hi, good morning. Peter, can you give us some colors on any plans for soft, again IPO?

Peter Yip

Well. I mean as I mentioned is, our singularly focus now is the games in the pipelines, which is Lord of the Rings, and several domestic games. I would like to see, at least two quarters if you will for continued increase in revenue and cash flow and generate some operations as well as the EBITDA and which we are expecting as the revenue grow, you would see the EBITDA really accelerate on it. And depending on how the capital market go and certainly, we have experience now with CDC Software IPO in term of getting the audit done, getting a legal opinion, and getting the filing and let me assure you that the appropriate time will be in a position to if the capital market already there that that certainly get favorable for a company of this size in terms of their kind of growth rate both in revenue and profitability we are sure that we’d not miss the opportunity should the opportunity available to us.

Alberto Bassetto – Jayhawk Capital Management

Great. Thank you very much.

Operator

Your next question comes from the line of David Bayer with Cantor Fitzgerald.

David Bayer – Cantor Fitzgerald

My name got gargled a bit because I actually had some technical issues with the call a couple of times there and they had to help me back on a few times. So questions are sort of threefold, if you don’t mind. The first has to do with one area of the business that perhaps the most work in process, which is the global business services. It sounds like you’re undergoing some restructuring there, both from an expense side of things and to sort of integrate the business from a sales perspective. Just how long do you think that that will take the sort of get margins expanding and business on track there? Can you give us a little more color there and then also maybe give us a little bit more color on the recent acquisition in terms of if you could anything in terms about the size of it, revenue run rate that kind of stuff and the timing on integrating that?

Peter Yip

Yeah. Thank you for the question again. The Global Services as you know, it's a lower margin business, and that rate is under pressure. So what we are doing in term of managing the business tighter and integrating them, much as a one business unit instead of several scattered, distinct different businesses that certainly will have a overhead in our expenses side and we have made a lot of progress with principally we are almost like on a back-end we are almost 90% done so we are there. In sales and marketing, I will say that we are not quite there yet, we are about 50% done. And because this will be a global business in India, in America, and also in Australia, and some part in China as well. And that's why we need to scale and you will see us to continue making progress in terms of M&A. The first deal we have announced so far is relatively small, but it's in a very exciting healthcare industry with a lot of the customer base in North America and with the back end also in India. So they have the synergy in terms of back-end on the offshore model on the onshore model it’s principle in the North American market, which are the dominates amount of our customer base right now and we will likely expand it to Europe and in particular in the U.K. and Germany and the Nordic regions. And so we would have a global customer base and another area we are looking to expand to is in Japan, because they can use a lot of the outsourced capability we’re building up in China with a Japan customer base. And the integration and building upscale would very much depend on the type of acquisition we make and the timing of it and what our experience is in integrating the company so far we feel we will be in a position to very quickly integrating them and to achieve the kind of scale and also to maintain the margin and maintain the expenses as a percentage of revenue. It won't be overnight, David, and it will take some time.

David Bayer – Cantor Fitzgerald

Sure, now I understand. Then with regards to two other things in the business if you could, one on the convert I gather you’re negotiating either repurchase the remaining outstanding portions of it or I would assume that you are trying to arrange some sort of agreement that they would not exercise some of the provisions that would cause to pay higher rates and what have you in that, if there is anymore color along those lines or if that there is any sort of the assumptions that’s we are doing with that, I'd understand that too. And then I have one other question related to margins and other business, but I'll let answer the convert question first?

Peter Yip

Well, our convertible holder has been very supportive with us. They been very kind as I mentioned and we are thankful for them and they are very understanding of our businesses. And so far we've been successful with. 75% of the amount of money we have repurchase so far in a very win-win situation. The accounting continued to be difficult, cash is king and now we have got cash. We are generally in a lot of cash and with our good relationship with our convertible bond holders have been very supportive. As I mentioned I’m very confident to reach again a win-win situation whereby they feel comfortable. They get the return they want at the same time, we will be able to pay them back and we have the cash to pay them back and so I feel comfortable we will reach something amicable in nature and with a good and fair terms to both parties.

David Bayer – Cantor Fitzgerald

Okay, that’s very fair. And then the last question, I apologize for asking so many. On the software company it appeared that you had very, very strong expense controls in the quarter and at the same time my sense is that businesses continues to show signs of picking up there. Should we perhaps not assume that the margins will be exactly at those levels for the next few quarters, or can you give us some thoughts along those lines?

Matthew S. Lavelle

Hi David, this is Matt. Thanks for the question. I think on the operating expense side, kind of the discussion we had earlier this morning was around those percentages remaining relatively flat to declining. Obviously largely dependent upon growth on the top line, on the services side, we anticipate seeing slight improvements on our gross margins through software services piece. License will probably remain relatively flat to where it is today. Again improvement in top line license revenue will certainly improve the gross margin as I mentioned on the call earlier, maintenance, we expect to really maintain the guidance of 85% that I spoke to again earlier this morning there as well. So, gross margins probably improving slightly, operating costs remaining relatively flat to improving depending on how we see top-line continue to ramp up.

David Bayer – Cantor Fitzgerald

Great, thank you.

Operator

Your next question comes from the line of Sasa Zorovic with Janney Montgomery Scott.

Sasa Zorovic – Janney Montgomery Scott

Thank you. So, my question would be with regards, excuse me, with regards to I guess somebody related rather to a question that was already asked and that is specifically now that you have sort of a spun out software and sort of really unlocking the value in that part of the business? How do you look at others and how do you prioritize the others and what can you tell us at this point obviously, I would imagine probably you can’t tell us much, but I still need to sort of just to ask the question and see from how you are thinking and unlocking value in the value-added businesses and how your prioritize that? And the second part of the question would be regarding M&A for the various businesses. Do you compare the pipeline that you are currently looking at be it for software or services, games, other parts of that overall business?

Peter Yip

Let me handle the first part of the question first. As I mentioned on my call, our priority certainly is on both Games and Global Services. Games very much we have the plan layout ahead of us particular with the Lord of the Rings launch imminently as well as several domestic games. So you can see if indeed the revenue come true and you can see it very quickly if you will. Game is a kind of business similar to movie in a way. It is something everybody want to play, they will play. If the game doesn't work even if you give them money, they won't play the game. So to speak because they have other things to do and other games to play.

So its relatively quick that you can see if the games will work, if they work and have supplies to me how long they will last, if you will, like for example Yulgang this is in almost in the in its fifth year already still going strong for us, when you look at some of the games company in China, some of the number one games have to be number one game for the past five six years and how it has been the biggest money maker for them so to speak. So, we are hopeful and indeed we are hopeful and we will see very quickly whether they work or not and if they does work certainly, the way to monetize and unlock shareholder value particularly as they continue to grow as we are expecting to grow if the capital market continue to be favorable and particular for our China story with a double-digit growth more than 50% if you will year-on-year and particularly with expanded margin close to 45, 46%, then I think IPO is certainly one of the option, if you will in term of unlocked value.

And Global Service will take some time that I answered to your other question before it’s different business, it’s a tougher business, we have a strong management team in India and in U.S. managing the business and it’s great time to buy, if you have the money and you have the reasonable platform to integrating them into and we are very good at doing M&A deal and cutting expenses and growing the top line as we demonstrate we have done with CDC Software over the past several years. So certainly it’s a business that would take some time and we are being patient for example on the software business it took us almost six years to integrate what we have bought and as you can demonstrate how we can manage expenses including margins I think we can repeat the same thing for Global Service even though it took us some time for it.

So I think that’s the way to answer your question in term of priority and both are very exciting business for us and we have the foundation now and we just need to be really more patient particularly in case of Games hopefully in next two to three quarters. In terms of acquisitions pipeline for Software, for Global Service. Software, I mentioned to you we have a very rich pipeline both in China as well as around the world. We are particularly strong in U.K. buying the number one and number two players in certain point solutions that would complement to our existing product roadmap, similar to what we have bought a company in Birmingham called MVI, which we subsequently renamed to CDC Factory. We are showing one of our best acquisition of CDC Factory, we are the number one player in the point solutions, in the food and beverage industry, play very well.

They sell into our food and beverage installed base in the process manufacturing industry in U.S. and around the world and so as response. So now is really a great time to buy those company, which unfortunately some of those companies faced the global recession in the past two years and they are running out of money and some of the VC might get little tired, if you will, and, but we normally are looking for companies that are indeed the category killer, if you will, in that particular point solution or proven solution and proven installed base with a nice maintenance recurring income. And historically as I mentioned we are being particularly pricey in term of how much we are willing to pay for and truly understanding and agree on the integration plan before we buy the company.

So, we being, we have the experience now over the past six, seven years. So U.K. is a good market for us and certainly in U.S. both in our vertical space we are looking for those company that will either expand in our vertical presence as well as leaving us to additional under penetrating vertical of which we are not currently in, as we know, we cannot be all things to all people vertical [specificity] its clearly a way for us to continue to grow our businesses and to be really 18 months or 2 years ahead of curve, ahead of our competitor in terms of functionality, in terms of solution offering to our customers in that vertical space.

Latin America, an area that we are very excited about we see a lot of growth over the past two years in that regions and we think we can continue to make progress in that fast growing region along with China and India. So those are the area where we are focusing our effort in and, actually, we have a set formula in term of what exactly what we need to buy to fuel our product roadmap and when we see a deal that doesn't make sense for us, we just say no to them. So we are very selective, we look at a lot of deals, but over 80% of the deal we look at we say no, I am sorry, it doesn’t suite us. So that disciplined approach is very, it worked well for us very well and also the discipline in term of not overpaying and structure it that make sense for both parties, and in particular for us in terms of it have to be earning accretive, has to be able to expanding our margins and also expanding our installed base, and also have to be industry and application that – that it fits into our current space and our current skill set.

Sasa Zorovic – Janney Montgomery Scott

Thank you.

Operator

At this time there are no further questions. Are there any closing remarks?

Monish Bahl

Thank you for your time today. If you have any follow-up questions, please feel free to give us a call. And operator if you can just give the replay instructions that would be great. Thank you.

Operator

Thank you for participating in today's CDC Corporation second quarter 2009 results conference call. This call will be available for replay beginning at 12 o'clock PM Eastern Standard Time today through 11:59 PM Eastern Standard Time on Tuesday, September 1, 2009. The conference ID number for the replay is 23710558. Again the conference ID number for the replay is 23710558. The number to dial for the replay is 1-800-642-1687 or 1-706-645-9291. You may now disconnect.

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Source: CDC Corporation Q2 2009 Earnings Call Transcript
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