Company Achieves a 10 Percent Improvement in License Sales in Second Quarter Compared to the First Quarter of 2009 and Operating Cash Flow of $15.2 million in the Second Quarter of 2009
Hong Kong, Atlanta, August 18, 2009 — CDC Software Corporation (NASDAQ: CDCS), a global provider of a broad suite of scalable enterprise software applications to customers in select industries today announced its financial results for the quarter ended June 30, 2009. For the second quarter of 2009, revenue and Adjusted EBITDA(a) were (U.S.)$50.6 million and (U.S.)$13.7 million, respectively. This compares to revenue and Adjusted EBITDA of (U.S.)$66.8 million and (U.S.)$11.3 million, respectively, for the second quarter of 2008. CDC Software also increased its operating cash flow in the second quarter of 2009 to (U.S.)$15.2 million compared to (U.S.)$3.7 million in the same period last year, representing a 311 percent improvement.
For the second quarter of 2009, GAAP net income was (U.S.)$5.9 million, compared to a loss of (U.S.)$241,000 for the same quarter last year. Earnings per share for the second quarter of 2009 were (U.S.)$0.20.
For the six months ended June 30, 2009, CDC Software reported revenue of (U.S.)$101.0 million, Adjusted EBITDA of (U.S.)$26.4 million and GAAP net income of (U.S.)$9.9 million, compared to (U.S.)$126.0 million in revenue, (U.S.)$18.3 million in Adjusted EBITDA and a net loss of (U.S.)$277,000 for the comparable six months of 2008. For the six months ended June 30, 2009, basic and diluted earnings per share were (U.S.)$0.34.
“We are pleased to report strong results for the second quarter of 2009,” said Peter Yip, CEO of CDC Software. “In the second quarter of 2009, we were able to increase Adjusted EBITDA by 21 percent compared to the second quarter of 2008 and our Adjusted EBITDA margin, as a percentage of revenue, increased ten percentage points from 17 percent to 27 percent, primarily through our efforts to strategically realign operations and position the Company as a scalable platform. We have also improved our Day sales outstanding (DSOs) to 89 days from last quarter’s 99 days. Over the past several quarters, we have taken proactive steps to improve operational efficiencies and leverage our offshore product engineering centers in India and China. In addition, in the second quarter of 2009, we saw a 10 percent increase in license sales as compared to the first quarter of 2009.
“We were also pleased that we recently completed the successful IPO of CDC Software, as this was a critical milestone in helping the Company expand its brand and fund its acquisition and global growth initiatives,” said Bruce Cameron, President of CDC Software. “We look forward to working with new investors who are particularly interested in a pure-play software company with a compelling global presence and a scalable platform for growth, both organically and through acquisitions. With the IPO proceeds, CDC Software has significant cash to fund its growth initiatives.”
In the second quarter of 2009, total revenue was (U.S.)$50.6 million compared to revenue of (U.S.)$66.8 million in the second quarter of 2008. Foreign currency fluctuations negatively impacted revenues by approximately (U.S.)$5.0 million in the second quarter of 2009 compared to the second quarter of 2008. During the second quarter, license sales represented 15 percent, maintenance 49 percent, services 34 percent and hardware 2 percent, of total revenue.
License sales declined to (U.S.)$7.8 million compared to (U.S.)$13.7 million in the second quarter of 2008. However, licenses sales increased 10 percent in the second quarter of 2009 compared to the first quarter of 2009. Maintenance revenue in the second quarter increased to (U.S.)$24.8 million compared to (U.S.)$24.2 million in the first quarter of 2009. Further, CDC Software continued to enjoy a maintenance retention rate of approximately 90 percent. In the second quarter, CDC Software won (U.S.)$867,000 through its maintenance win-back program. Since the beginning of this program, CDC Software has won back more than (U.S.)$1.9 million in maintenance revenue. Professional services revenues in the quarter were (U.S.)$17.3 million while hardware sales were (U.S.)$0.7 million.
Adjusted EBITDA margin in the second quarter of 2009 was 27 percent compared to 17 percent in the same quarter last year. GAAP net income margin was 12 percent in the second quarter of 2009 compared to a loss in the second quarter of 2008. Sequentially, gross margin improved by 1 percentage point up to 53 percent during the second quarter of 2009. CDC Software continued to experience healthy license and maintenance gross margins during the second quarter of 2009. The Company believes that its improvement in operating expenses allowed it to generate significantly improved GAAP Net Income for the period.
Operating cash flow in the second quarter of 2009 was (U.S.)$15.2 million compared to (U.S.)$3.7 million in the same period last year. DSOs in the second quarter was 89 days, compared to 99 days for Q1 2009. Accounts receivable as of June 30, 2009 was (U.S.)$42.0 million, down from (U.S.)$53.0 million as of December 31, 2008. Deferred revenue as of June 30, 2009 was (U.S.)$53.4 million, down slightly from (U.S.)$54.5 million as of December 31, 2008.
CDC Software believes that it has positioned itself as a platform for growth both through acquisitions and organically, given its scalable infrastructure. This business and technology platform includes leveraging its global sales and marketing engine, using its lower cost, high quality offshore development centers in India and China, as well as back office support. The Company believes this type of infrastructure can promote and facilitate acquisitions and improve operating leverage. As such, CDC Software has developed a pipeline of acquisition targets which it may pursue in the next several quarters. The Company hopes to complete its previously-announced acquisition of WKD Solutions Ltd. (Categoric), which is subject to several closing conditions, including the receipt of approval from our board of directors and the successful completion of due diligence, during the third quarter of 2009. Categoric is a provider of supply chain event management solutions.
Revenue for CDC Software during the second quarter of 2009 was geographically distributed, with the Americas contributing about 50 percent of the total, and the rest of the world contributing about 50 percent. Notably, CDC Software’s Asia/Pacific operations saw license sales grow from 14 percent of total license sales in the first quarter of 2009 to 23 percent in the second quarter of 2009.
CRM solutions accounted for the largest share of license sales in the second quarter of 2009. Direct sales accounted for 76 percent of total revenue in the second quarter of 2009, while channel sales accounted for 24 percent. Currently, CDC has more than 58 sales executives dedicated to direct sales.
Of the top 10 license deals in the second quarter, CDC Software reported sales from a balanced mix of vertical industries that included Food & Beverage, Manufacturing, Healthcare, Retail, Government and Financial Services.
Further, during the second quarter of 2009, CDC Software added a total of 45 new customers and signed upgrade and expansion agreements with 233 enterprise software customers. New customers accounted for 16 percent of total software license revenue during the quarter and included Aguas de Mondariz, Fullerton Investment & Credit Guarantee, Co. Ltd, Pfizer Investment Corp., Ltd., RIMAC, Shanghai Bertelsmann Commercial Services Co., Ltd., Tenneco Automotive China Co. Ltd. and Tree Top Foods.
Repeat business with existing customers accounted for 84 percent of total software license revenue for the second quarter of 2009. Customers with expanded and repeat business during the quarter included Cardo Group Asia Pacific Pte, Heng An Standard Life Insurance Co., Red Gold, Shanghai Roche Pharmaceuticals Ltd., SKF Investment Consultancy Co., Smart Balance, SODEXCO Management Services, Staubli Mechatronic Co., and Sudzucker, Urbaser.
During the second quarter of 2009, CDC Software also introduced new products and version upgrades for its core ERP, Supply Chain Management and CRM applications. During the quarter, the Company released new versions of the following solutions:
- CDC Pivotal CRM 6.0.3 and 6.0.4
- CDC Ross ERP Version 6.3.3, Ross EPM version 6.3, Ross ECM version 6.3, and Ross Mobile for Blackberry smartphones
- CDC Factory Version 5.4
- CDC Respond Version 3.7.3 and new application Respond Analytics
- CDC Supply Chain cSuite version 10.3, Supplier Collaboration Version 2.1, Activity Based Costing Version 5.2
Overall, through its offshore infrastructure as well as its agile development methodology, CDC Software has been able to significantly accelerate the rate of new product releases.
Recent highlights included:
- CDC Pivotal CRM 6.0 was honored as 2009 Microsoft Worldwide Partner Conference award winner in Information Worker Solutions, Office Solutions Development.
- Tree Tops, one of the leading processors of apple products, plans to implement CDC Factory at its entire five plant network.
“While the third quarter, traditionally, is slow due to the long holidays in certain international markets, we currently have a larger sales pipeline than we have had in the last four sequential quarters,” noted Yip. “In the first month of Q3 2009, we saw a slight improvement in license sales compared to the same period in Q2 2009. CDC Software currently has a customer base of over 6,000 customers. We believe that we have only begun our cross-selling initiatives into this installed base and that this represents a significant opportunity for organic growth. With the successful completion of our IPO, we believe that CDC Software is well-positioned to continue its Adjusted EBITDA growth and to expand through organic growth and acquisitions. Furthermore, if we do see continued improvement in the economy, we believe we are well-positioned to take advantage of market opportunities. We remain cautiously optimistically on our third quarter outlook and beyond.”
CDC Software offers the following guidance for 2009, based upon preliminary financial results, information and estimates:
- 2009 Revenue: (U.S.)$197 – $200 million
- 2009 GAAP Net Income: (U.S.)$15 – $18 million
- 2009 Adjusted EBITDA: (U.S.)$48 – $50 million
The Company’s senior management will host a conference call for financial analysts and investors, Tuesday, August 18, 2009 at 8 am EDT.
USA-based Toll Free Number: +1 (866) 903-3296
International: +1 (706) 643-6263
Pass code: 23712966
Call Leader: Monish Bahl
This call is being webcast by CCBN and can be accessed at CDC Software’s corporate web site at www.cdcsoftware.com.
The webcast is also being distributed over CCBN's Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through CCBN's individual investor center at www.fulldisclosure.com or by visiting any of the investor sites in CCBN's Individual Investor Network. Institutional investors can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com).
For those unable to call in, a digital instant replay will be available after the call until Sept. 1, 2009. U.S. based Toll Free Number: +1 800 642 1687, U.S.-based Toll Number: +1 706 645 9291 Passcode or PIN #: 23712966
(a) Adjusted Financial Measures
This press release includes Adjusted EBITDA and Adjusted EBITDA Margin, which is not prepared in accordance with GAAP (“Non-GAAP Financial Measures”). Non-GAAP Financial Measures are not alternatives for measures such as net income, earnings per share and cash and cash equivalents prepared under generally accepted accounting principles in the United States (“GAAP”). These Non-GAAP Financial measures may also be different from non-GAAP measures used by other companies. Non-GAAP Financial Measures should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP.
Investors should be aware that these Non-GAAP Financial Measures have inherent limitations, including their variance from certain of the financial measurement principals underlying GAAP, should not be considered as a replacement for GAAP performance measures, and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. These supplemental Non-GAAP Financial Measures should not be construed as an inference that the Company’s future results will be unaffected by similar adjustments to net earnings determined in accordance with GAAP. Reconciliations of Non-GAAP Financial Measures to GAAP are provided herein immediately following the financial statements included in this press release.
SFAS 160 Adoption
As of January 2009, the Company adopted SFAS 160, Non-controlling Interests in Consolidated Financial Statements. After the adoption of SFAS 160, net income (loss) is now referred to as net income (loss) attributable to controlling interest on the consolidated statement of operations.
About CDC Software
CDC Software (NASDAQ: CDCS), The Customer-Driven Company™, is a provider of enterprise software solutions and services designed to help organizations deliver a superior customer experience while increasing efficiencies and profitability. CDC Software’s product suite includes: CDC Factory (Enterprise Manufacturing Intelligence)), CDC Ross ERP (enterprise resource planning) and CDC SCM (supply chain management), e-M-Power (discrete manufacturing), CDC Supply Chain (supply chain management, warehouse management and order management), Pivotal CRM and Saratoga CRM (customer relationship management), CDC MarketFirst (marketing automation and lead management), CDC Respond (customer complaint and feedback management), c360 CRM add-on products, industry solutions and development tools for the Microsoft Dynamics CRM platform, CDC HRM (human resources) and business analytics solutions.
These industry-specific solutions are used by customers worldwide within the manufacturing, financial services, health care, home building, real estate, and wholesale and retail distribution industries. CDC Software also offers a comprehensive portfolio of services that span the life cycle of its software applications. For more information, please visit www.cdcsoftware.com.
About CDC Corporation
The CDC family of companies includes CDC Software focused on enterprise software applications and services, CDC Global Services focused on IT consulting services, outsourced application development and IT staffing, CDC Games focused on online games, and China.com focused on portals for the greater China markets. For more information about CDC Corporation (NASDAQ: CHINA), please visit www.cdccorporation.net.
Cautionary Note Regarding Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our beliefs regarding our strategic realignment of our operations and the utility of our platform strategy, our beliefs regarding our strategies, the effects thereof and the reasons for changes in our financial results and achievements, our beliefs regarding any preliminary results or indications for the third quarter of 2009, our beliefs regarding our business and financial decisions and the benefits and effects thereof, our beliefs about our products, as well as the characteristics and potential benefits and uses thereof ,our beliefs regarding the sufficiency of our cash to fund our growth initiatives, our beliefs regarding our strategic position as a platform for growth both acquisitions and organically, our beliefs regarding our scalable infrastructure, our beliefs regarding our ability to leverage our global sales and marketing engine, using our lower cost, high quality offshore development centers in India and China, and our back office support systems, our beliefs regarding the benefits of our infrastructure, our beliefs regarding our acquisition pipeline and our execution of acquisitions or other transactions, our beliefs regarding seasonal fluctuations in our sales and our expectations regarding future sales performance, our beliefs regarding our cross-selling efforts and the potential associated with them, our beliefs regarding our strategic position for growth and expansion, our expectations and estimates regarding our financial performance for future periods and 2009, including revenue, GAAP net income and Adjusted EBITDA, our beliefs regarding CDC Software bookings of license revenues and pipeline of sales opportunities, our beliefs regarding our metrics and leading indicators, our expectations about improvements in certain financial measures at CDC Software and the continuation of sales trends for certain CDC Software products, the recurring nature of certain revenue streams and the potential benefits of certain of our products to users, our beliefs regarding our establishment of a platform for growth and expansion, our expectations regarding our ability to continue to generate positive cash flows from operations, our beliefs regarding our current and future strategic, business and financial position, including the sufficiency of our cash and cash equivalents, our beliefs regarding customer implementations, our beliefs regarding the composition of our revenues and the recurring or non-recurring nature thereof, our beliefs regarding customer preferences and market trends, and other statements that are not historical fact, the achievement of which involve risks, uncertainties and assumptions. These statements are based on management’s current expectations and are subject to risks and uncertainties and changes in circumstances. There are important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, including the following: (a) the ability to realize strategic objectives by taking advantage of market opportunities in targeted geographic markets; (b) the ability to make changes in business strategy, development plans and product offerings to respond to the needs of current, new and potential customers, suppliers and strategic partners; (c) the effects of restructurings and rationalization of operations in our companies; (d) the ability to address technological changes and developments including the development and enhancement of products; (e) the ability to develop and market successful products and services; (f) the entry of new competitors and their technological advances; (g) the need to develop, integrate and deploy enterprise software applications to meet customer’s requirements; (h) the possibility of development or deployment difficulties or delays; (i) the dependence on customer satisfaction with the company’s games, software products and services; (j) continued commitment to the deployment of the products, including enterprise software solutions; (k) risks involved in developing software solutions and integrating them with third-party software and services; (l) the continued ability of the company’s products and services to address client-specific requirements; (m) demand for and market acceptance of new and existing enterprise software and services and the positioning of the company’s solutions; and (n) the ability of staff to operate the enterprise software and extract and utilize information from the company’s products and services. If any such risks or uncertainties materialize or if any of the assumptions proves incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. Also, the results and benefits experienced by customers and users set forth in this press release may differ from those of other users and customers. Further information on risks or other factors that could cause results to differ is detailed in our filings or submissions with the United States Securities and Exchange Commission, and those of our ultimate parent company, CDC Corporation. All forward-looking statements included in this press release are based upon information available to management as of the date of the press release, and you are cautioned not to place undue reliance on any forward looking statements which speak only as of the date of this press release. The company assumes no obligation to update or alter the forward looking statements whether as a result of new information, future events or otherwise. Historical results are not indicative of future performance.
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