ChinaCache International Holdings Ltd. Announces Second Quarter 2016 Financial Results

BEIJING, Aug. 18, 2016 (GLOBE NEWSWIRE) -- ChinaCache International Holdings Ltd. ("ChinaCache" or the "Company") CCIH, the leading total solutions provider of Internet content and application delivery services in China, today announced its unaudited condensed consolidated financial results for the second quarter ended June 30, 2016.

Second Quarter 2016 Financial Overview

• Net revenues were RMB261.5 million (US$39.3 million), compared with RMB353.3 million in the corresponding period in 2015 and RMB267.8 million in the previous quarter.
• Gross loss was RMB3.9 million (US$0.6 million), compared with gross profit of RMB96.8 million in the corresponding period in 2015 and gross loss of RMB13.6 million in the previous quarter.
• Adjusted EBITDA (non-GAAP) was a loss of RMB55.4 million (US$8.3 million), compared with adjusted EBITDA (non-GAAP) of RMB41.8 million in the corresponding period in 2015 and a loss of RMB56.9 million in the previous quarter.
• Net loss attributable to ordinary shareholders was RMB108.8 million (US$16.4 million), compared with a net loss attributable to ordinary shareholders of RMB7.3 million in the corresponding period in 2015 and a net loss attributable to ordinary shareholders of RMB138.5 million in the previous quarter.

"While the growth rate of China's Content Delivery Network (CDN) industry is higher than that of many other sectors in China's economy, our performance in the second quarter of 2016 continued to be hampered by slower-than-expected improvements in our High Performance Cloud Caching (HPCC) platform. The HPCC platform was constructed using different technologies from the prior platform and requires significant time and effort to achieve optimal operating efficiency. Nevertheless, we believe that platform optimization will serve as our long-term differentiator in this market," commented Mr. Song Wang, Chairman and Chief Executive Officer of ChinaCache.

"We are making steady progresses in our Internet Exchange and Data Center business. We have established Internet Exchange centers in Beijing, Shanghai and Guangzhou, and are planning more in other major cities in China. Although Internet Exchange centers are common in other countries, they are a new development in China. As a leader in the domestic Internet Exchange center business, we strive to bring innovation to the Chinese Internet industry, reduce Internet traffic cost for small- and mid-sized ICPs and ISPs, and improve the end user experience. We believe our efforts are complementary to current industry practices and will contribute to a healthier and stronger Internet industry in China.

"We are working diligently to improve our performance and to seize the opportunities offered by the CDN and Data Center businesses in China. We are investing in R&D to regain technological prominence. We are expanding our U.S. presence to better serve our customers and recruit more R&D talent, and we are initiating a corporate restructuring program to better reward and retain key employees, streamline operations and pursue sustainable growth," concluded Mr. Wang.

Second Quarter 2016 Financial Results

Net revenues for the second quarter 2016 were RMB261.5 million (US$39.3 million), a 2.3% decrease from the previous quarter and a 26.0% decrease from the corresponding period in 2015. The slight decrease quarter-over-quarter in net revenues was primarily attributable to reduced customer traffic and industry competition.

Cost of revenues for the second quarter 2016 decreased by 5.7% quarter-over-quarter and increased by 3.5% year-over-year to RMB265.4 million (US$39.9 million). Gross margin was negative 1.5%, compared with negative 5.1% in the previous quarter and 27.4% in the corresponding period in 2015. Non-GAAP gross margin, which excludes share-based compensation, was negative 0.7%, compared with negative 4.0% in the previous quarter and 27.7% in the corresponding period in 2015. The increase in gross margin in the second quarter of 2016 compared with that of the previous quarter was mainly attributable to efforts in improving bandwidth utilization.

Sales and marketing expenses for the second quarter 2016 were RMB24.4 million (US$3.7 million), or 9.3% of net revenues, a 2.9% increase over the previous quarter and a 4.4% decrease from the corresponding period in 2015. The decrease in sales and marketing expenses in the second quarter of 2016, compared with that of the same period last year was primarily attributable to cost control measures.

General and administrative expenses for the second quarter 2016 were RMB65.0 million (US$9.8 million), or 24.9% of net revenues, a 25.7% decrease from the previous quarter and a 19.3% increase from the corresponding period in 2015. The decrease in general and administrative expenses in the second quarter of 2016 compared with that of the first quarter of 2016 was primarily attributable to a decrease in share-based compensation expenses.

Research and development (R&D) expenses for the second quarter 2016 were RMB26.9 million (US$4.1 million), or 10.3% of net revenues, a 3.6% decrease from the previous quarter and a 0.4% increase from the corresponding period in 2015.

Adjusted EBITDA (non-GAAP), defined as EBITDA excluding share-based compensation expenses and foreign exchange gain (loss), was a loss of RMB55.4 million (US$8.3 million) for the second quarter 2016. Adjusted EBITDA (non-GAAP) was a loss of RMB56.9 million in the previous quarter and RMB41.8 million in the corresponding period in 2015.

Operating loss was RMB119.2 million (US$17.9 million) in the second quarter 2016, compared with an operating loss of RMB147.2 million in the previous quarter and an operating loss of RMB10.0 million in the corresponding period in 2015. Non-GAAP operating loss, which excludes share-based compensation expenses, was RMB95.7 million (US$14.4 million) for the second quarter 2016, compared with a non-GAAP operating loss of RMB97.0 million in the previous quarter and a non-GAAP operating income of RMB1.5 million in the corresponding period in 2015.

Income tax benefit was RMB4.8 million (US$0.7 million) in the second quarter 2016, compared with income tax benefit of RMB12.4 million in the previous quarter and income tax benefit of RMB3.0 million in the corresponding period in 2015.

Net loss was RMB108.9 million (US$16.4 million) in the second quarter 2016, compared with a net loss of RMB138.5 million in the previous quarter, and a net loss of RMB7.3 million in the corresponding period in 2015. Net loss per basic and diluted American depositary share ("ADS") for the second quarter 2016 was RMB4.31 (US$0.65) each. Each ADS represents 16 ordinary shares of the Company.

Adjusted net loss (non-GAAP), defined as net loss before share-based compensation expenses and foreign exchange gain (loss), was RMB91.4 million (US$13.8 million) in the second quarter 2016, compared with adjusted net loss (non-GAAP) of RMB87.5 million in the previous quarter and adjusted net income (non-GAAP) of RMB4.0 million in the corresponding period in 2015. Non-GAAP net loss per basic and diluted ADS for the second quarter 2016 was RMB3.62 (US$0.55) each.           

Balance Sheet

As of June 30, 2016, the Company had cash and cash equivalents of RMB367.8 million (US$55.3 million), compared with RMB606.8 million as of December 31, 2015. Capital expenditures for the second quarter 2016 were RMB27.7 million (US$4.2 million). 

2016 Full Year Guidance

ChinaCache currently expects to generate total net revenues in the range of RMB1.04 billion to RMB1.10 billion for the full year of 2016.

This forecast reflects ChinaCache's current view, which is subject to change.

Subsequent Event

On July 1, 2016, the Company announced that Ms. Jing An, Chief Financial Officer, resigned from the Company to pursue other opportunities and will remain as a consultant to the Company. Mr. Naijiang Zhou, the Company's senior vice president of corporate strategy and investment, assumed the role of interim Chief Financial Officer. 

Conference Call Information

The Company has scheduled a conference call to discuss these results at 8:00 PM Eastern time on August 18, 2016, which corresponds to 8:00 AM Beijing time on August 19, 2016.

The dial-in details for the live conference call are as follows:

• U.S. dial-in number: +1 (845) 675-0438
• Hong Kong dial-in number: +852 3018-6776
• International dial-in number: +65 6713-5440
• China dial-in number: 400-1200-654
• Conference ID: 65818965

A live audio webcast of the call can be accessed by visiting ChinaCache's Investor Relations website at ir.chinacache.com. A replay of the conference call will also be available approximately two hours after the conclusion of the live call until August 25, 2016 by dialing:

• U.S. dial-in number: +1 (855) 452-5696 
• International dial-in number: +61 (2) 9003-4211   
• China dial-in number: 400-632-2162
• Conference ID: 65818965

About ChinaCache International Holdings Ltd.

ChinaCache International Holdings Ltd. CCIH is the leading total solutions provider of Internet content and application delivery services in China. As a carrier-neutral service provider, ChinaCache's network in China is interconnected with networks operated by all telecom carriers, major non-carriers and local Internet service providers. With more than a decade of experience in developing solutions tailored to China's complex Internet infrastructure, ChinaCache is a partner of choice for businesses, government agencies and other enterprises to enhance the reliability and scalability of online services and applications and improve end-user experience. For more information on ChinaCache, please visit ir.chinacache.com.

Use of Non-GAAP Financial Measures

In evaluating its business, ChinaCache considers and uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC as supplemental measures to review and assess its operating performance: non-GAAP gross profit, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP research and development expenses, non-GAAP operating income (loss), adjusted net income (loss) (non-GAAP), EBITDA and adjusted EBITDA (non-GAAP). The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of Non-GAAP to GAAP Financial Measures" set forth at the end of this press release.

To present non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses and non-GAAP research and development expenses, the Company excludes share-based compensation expense.

To present non-GAAP gross profit (loss), the Company excludes share-based compensation expense.

To present non-GAAP operating income (loss), the Company excludes share-based compensation expense.

The Company defines adjusted net income (loss) as net income (loss) before share-based compensation expense and foreign exchange gain (loss).

The Company uses EBITDA to assist in reconciliation to adjusted EBITDA. The Company defines EBITDA as net income (loss) before interest expense, interest income, income tax expense and depreciation and amortization. The Company defines adjusted EBITDA as EBITDA before share-based compensation expense and foreign exchange gain (loss) that the Company does not consider reflective of its ongoing operations. The Company believes that the use of adjusted EBITDA facilitates investors' use of operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in items such as capital structure (affecting relative interest expense and share-based compensation expense), the book amortization of intangibles (affecting relative amortization expense), the age and book value of facilities and equipment (affecting relative depreciation expense) and other non-cash expenses. The Company also presents adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties as a measure of the financial performance of companies in its industry.

Those non-GAAP financial measures are not defined under U.S. GAAP and are not measures presented in accordance with U.S. GAAP. Those non-GAAP financial measures have limitations as analytical tools, and when assessing the Company's operating performance, investors should not consider them in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:

• Adjusted net income, EBITDA and adjusted EBITDA do not reflect the Company's cash expenditures or future requirements for capital expenditures or contractual commitments;
• They do not reflect changes in, or cash requirements for, the Company's working capital needs;
• They do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt;
• They do not reflect income taxes or the cash requirements for any tax payments;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted net income, EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements;
• While share-based compensation is a component of cost of revenues and operating expenses, the impact on the Company's financial statements compared to other companies can vary significantly due to such factors as assumed life of the options and assumed volatility of the Company's ordinary shares; and
• Other companies may calculate adjusted net income, EBITDA and adjusted EBITDA differently than the Company does, limiting their usefulness as comparative measures.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are based on the effective exchange rate of 6.6459 as of June 30, 2016.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook of the Company and quotations from management in this announcement, as well as ChinaCache's strategic and operational plans, contain forward-looking statements. ChinaCache may also make written or oral forward-looking statements in its reports filed or furnished to the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements, including but not limited to the following: the Company's goals and strategies, expansion plans, the expected growth of the content and application delivery services market, the Company's expectations regarding keeping and strengthening its relationships with its customers, and the general economic and business conditions in the regions where the Company provides its solutions and services. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission. All information provided in this press release is as of the date of this press release, and ChinaCache undertakes no duty to update such information, except as required under applicable law.