KongZhong Corporation's (KZ) Management on Q1 2016 Results - Earnings Call Transcript

| About: KongZhong Corporation (KZ)

KongZhong Corporation (NASDAQ:KZ)

Q1 2016 Earnings Conference Call

June 15, 2016 7:30 p.m. ET

Executives

Jay Chang - CFO

Analysts

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2016 KongZhong Corp. Earnings Conference Call.

[Operator Instructions] I must advise you that this conference is being recorded today.

And I would now like to hand the conference over to your speaker, Mr. Jay Chang. Thank you. Please go ahead.

Jay Chang

Thank you, operator.

This conference call may contain forward-looking statements. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. For additional discussion of risks and uncertainties relating to forward-looking statements and other factors, please see the documents we file from time to time with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements which apply only as of the date of this conference call.

Thank you for your interest in KongZhong.

Total revenues for our first quarter of 2016 were USD51.44 million, a 21.11% increase from the fourth quarter of 2015 and a 1.84% increase from the same period last year.

Total gross profit was USD22.1 million, a 16.18% increase from the fourth quarter of 2015 and a 15.62% increase from the same period last year.

Net income was USD25.6 million, a 320% increase from the fourth quarter of 2015 and a 510% increase from the same period last year. However, this included the realized gain of USD19.78 million on a partial disposal of our shares in Ourgame. Diluted net income per ADS was USD0.54.

Non-GAAP net income was USD6.73 million, a 3.71% decrease from the fourth quarter of 2015 but a 30% increase from the same period last year, with non-GAAP diluted net income per ADS of USD0.14.

As of the end of 1Q, the Company had USD163.5 million in cash and cash equivalents, term deposits, held-to-maturity securities, available-for-sale securities, and restricted cash, to USD3.47 per ADS in cash and cash equivalents.

Now turning to our separate business units. Internet game revenues were USD37.01 million in the first quarter, an increase of 21.5% from the fourth quarter of 2015, due to the release of World of Warships at the end of November and the release of the expansion pack for Guild Wars 2: Heart of Thorns to the mainland China market also at the end of November 2015. Internet game revenues made up 72% of total revenues in the first quarter.

First quarter mainland online game operations achieved average monthly active users or MAUs of 2.74 million users and aggregated monthly paying accounts of 455,000 with monthly average revenue per user of RMB170.

Internet game gross profit was USD19.2 million, a 19.2% increase from gross profits in the fourth quarter of 2015 and a roughly 60% increase from the same period last year. Internet game gross margin was 51.9%, compared to 52.9% in the fourth quarter.

Total mobile game revenues were USD4.5 million, a 127% increase from the fourth quarter of 2015 but a 57.4% decrease from the same period last year. The sequential increase in mobile game revenues was due to the launch of new mobile games, including the launch of Rush Three Kingdoms in Japan in March 10, 2016, the release of Rush Three Kingdoms in Southeast Asia on March 17, 2016, and in the China domestic market we released Battle of Warship on March 16, 2016 and Battleship Girl on April 20 on the iOS and Android smartphone game platforms.

Mobile game gross profit was USD0.41 million, a 4% decrease from the fourth quarter of 2015 and a roughly 89.5% decrease from the same period last year. The decrease in gross profit was primarily due to a recognition of prior prepaid game license fees for mobile games which were not launched in the period. Mobile game gross margins was 9.1%, compared to 21.5% in the fourth quarter of 2015.

Going forward, the Company will continue to concentrate its efforts in internet games and mobile games around its War Saga game platform and KongZhong's China leading military genre online game platform. The Company intends to test and release additional mobile and PC games around our KongZhong military game platform theme in 2016.

WVAS revenues were USD9.93 million, a 1% decrease from the fourth quarter of 2015 and a 27% decrease from the same period last year. WVAS revenues made up roughly 19% of total revenues in the first quarter.

Total gross profit for the first quarter was USD22.1 million, a 16% increase from the gross profit in the fourth quarter of 2015 and a 15.62% increase from the same period last year.

Total gross margin was 43% in the first quarter, compared to gross margins of 44.8% in the fourth quarter of 2015.

Total operating expenses in the first quarter were USD17.5 million, compared to USD16.8 million in the fourth quarter of 2015. Product development expenses in the first quarter were USD6.16 million, compared to USD6.18 million in the fourth quarter.

Sales and marketing expenses in the first quarter were USD9.07 million, compared to USD6.35 million in the fourth quarter. Sales and marketing expenses increased primarily due to the increased promotional activities of some of our new internet games as well as newly-launched smartphone games.

G&A expenses in the first quarter were USD2.25 million, compared to USD4.27 million in the fourth quarter of 2015. G&A expenses moderated due to the decrease in consulting and travel-related expenses relating to our corporate investment activities as well as lower bad debt provisions relating to our WVAS division in 1Q compared to 4Q.

The Company's total headcount in the first quarter was 789 staff, compared to 793 staff at the end of 2015.

Thank you for your continuing interest in KongZhong, and we look forward to speaking to you in the near future.

Operator

Thank you, Mr. Chang.

Question-and-Answer Session

End of Q&A

Ladies and gentlemen, that does our conference for today. Thank you for your attendance. You may all disconnect.

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