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conference date: March 29, 2007
for quarter ending: December 31, 2006 (4th quarter)
Overview: Revenues increasing at nice pace. Great net income sequential recovery.
Basic data:
Revenues were $89.0, up approximately 14% sequentially and 43% over Q4 2005.
Non-GAAP net income was $8.8 million, up 183% sequentially and 38% over Q4 2005.
GAAP net income loss was $4.2 million.
Non-GAAP EPS was $0.07 per share.
Cash and equivalents ended at $223.3 million.
Guidance:
Fiscal 2007 revenues estimated between $415 and $420 million, with adjusted (non-GAAP) net income of $57 to $62 million.
Conference Highlights:
EPS was not up as much as net income because share count increased from issue of convertible debenture.
Best revenue quarter ever. Software license revenue from new customers hit 53%.
Revenue by region: Asia Pacific 33%, Americas 45%, EMEA (Europe, Middle East, Africa) 22%.
CDC software revenues were $68.1 milion, up 35% from year-earlier. Break down: consulting and services $16.6 million; software licences $14.8 million; maintenance $16.7 million and business services $20.0 million. Gross margin for this segment was 62.3%
CDC games revenues were $10.7 million, up 27.4% from prior quarter. Gross margin 66.4%.
CDC mobile revenues were $7.1 million, up 11% sequentially but down 18% from Q4 2005. Gross margin 59%.
China.com portal revenues were $3.1 million, up 47% sequentially but flat from the previous year.
CDC software revenue growth was driven by a series of small acquisitions. But also picked up 90 new enterprise software customers including CRM for the Federal Reserve.
"Stars are aligned for our business units. We will continue to execute and we will continue to grow."
Q&A:
Share buyback? Believe stock is extremely undervalued compared to the sum of its parts. Will be agressive with share buyback as long as it is within price window.
Capow status? FCC counsel says cannot comment.
Organic software growth? Seeing great world-wide growth. Customers are coming to us. Good visibility into 2007; growth will continue.
Driver for new customers in software? CRM buyers have tried different software and services, but are looking for integrated vertical complete system. Winning 70% in financial vertical. Lots of former CRM competitors have dropped out. Largest opportunity is businesses with home-grown systems.
Respond Group acquisition? Employees were retained; is a key organization. Moving product from Euro market into worldwide markets. But is early.
One analyst used question to basically argue that the stock is grossly undervalued - [my comment: if you use high multiples of revenues by segment and don't care about GAAP earnings]. Management also believes true value of company is much higher. Only 5 analysts cover stock, but daily trading volume is 10 times what it was a year ago.
Game revenue for 2007? Pipeline: Special Force commercial launch late in May. Others later in 2007. Game revenue included in full year guidance, would not break out.
China area IT service capability? Have more sales people. Looking at acquisitions similar to the India-based acquisitions.
3G in China? Mobile operators can directly partner with content providers, which will fundamentally change the game. So we want to move up content chain by investing in Web 2.0 companies. 3G is already arriving in Japan; can learn a lot from Japanese market. Working on an acquisition, but cannot reveal details.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2007 William P. Meyers