Market Overview

CDC Corporation Reports Results for Six Months Ended June 30, 2011


CDC Corporation (NASDAQ: CHINA), a leading China-based value-added operator of, and growth investor in, hybrid (Cloud/On-Premise) enterprise software, IT Services, and New Media assets, today announced financial results for the six months ended June 30, 2011. For the first six months of 2011, Non-GAAP revenue(a) was $159.3 million and Adjusted EBITDA(a) was $3.8 million, compared to Non-GAAP revenue of $159.0 million and Adjusted EBITDA of $17.1 million in the first six months of 2010.

The decrease in Adjusted EBITDA largely reflects planned increases in research and development and sales and marketing, as well as litigation expenses at CDC Software and CDC Corporation. The company expects that earnings will continue to be impacted going forward by expenses related to ongoing litigation as well as costs associated with the investigation being undertaken by the special committee of the board of directors. As of June 30, 2011, CDC Corporation reported Non-GAAP cash and cash equivalents(a) of approximately $91.8 million.

Below is a summary of the financial results of CDC Corporation's core portfolio of assets.


On a standalone basis, CDC Software had the following results for the six months ended June 30, 2010 and 2011:



Six Months
ended June 30, 2010

Six Months
ended June 30, 2011


Non-GAAP revenue

$105.7 million

     $109.1 million


Adjusted EBITDA

$21.4 million

$10.8 million


Adjusted EBITDA Margin(a)




Application sales, which is comprised of license revenue plus Secured Total Contract Value (STCV) for Software-as-a-Service (SaaS) sales secured, was $28.7 million during the first six months of 2011, compared to $21.7 million in the six months ended June 30, 2010. STCV, or bookings, for Software-as-a-Service (SaaS) sales was $13.6 million, compared STCV of $5.0 million in the six months ended June 30, 2010. The results for the first six months of 2011 included record bookings in the second quarter of 2011, since the company started its cloud business in the fourth quarter of 2009.

“We are pleased with our six months results, including the growth in our cloud business, as well as our pipeline,” said Bruce Cameron, president of CDC Software. “Notable sales wins in this period, for example, included a seven digit renewal and add-on SaaS deal of CDC TradeBeam for a leading clothing retailer, key new logo customers for CDC Factory that included a leading cosmetic and beauty company, as well as a chemical manufacturer, both new markets for this business. We also continued to grow our business in emerging markets like India, where we reported our largest license deal in the first quarter.”

For more information regarding the financial performance of CDC Software during the first half 2011 of 2010, please see CDC Software's first and second quarter 2011 earnings press releases located at CDC Software's website:

CDC Global Services

On a standalone basis, CDC Global Services had the following results for the six months ended June 30, 2010 and 2011:

Six Months
ended June 30, 2010
Six Months
ended June 30, 2011
GAAP Revenue: $32.2 million $31.1 million
Adjusted EBITDA: $(964,000) $1.4 million
Adjusted EBITDA Margin: (3)% 4%

CDC Global Services' utilization rate was approximately 90 percent in the second quarter of 2011, and 88 percent in the first quarter of 2011.

Some highlights in the CDC Global Services business during the first half of 2011 included:

  • A leading medical device manufacturer extended its current SAP EWM Consulting Services contract for an additional 12 months. CDC Global Services is currently supporting the rollout of Extended Warehouse Management (EWM) to more than 10 sites globally.
  • A leading provider of automation equipment and peripherals for the North American and Latin American markets has engaged CDC Global Services to provide SAP Console consulting and implementation services for their North American distribution hub located near Chicago.
  • CDC Global Services China was awarded a service contract to design and implement an Enterprise Application Integration framework for the Zhangzhou Development Zone of the China Merchants Group. This framework is expected to improve the interoperability of different application systems already installed, as well as those being planned in the Zhangzhou. CDC Software's Event Management Framework is a core component of the designed solution.
  • CDC Global Services China was awarded a three-year service contract for the hosting and support of a CRM system used by a leading cosmetic manufacturer in their China retail outlets. CDC Global Services has agreed to provide technical support through call-centers, application system hosting in the cloud computing center and on-site maintenance services in the various cities where this manufacturer has retail outlets.

“We are pleased with the improvement in our Adjusted EBITDA at CDC Global Services as a result of our focus on higher margin business and better traction in our services businesses,” said CK Wong, CEO of CDC Global Services. “We have been progressing well in our China businesses, and have been securing some key engagements with major companies in our SAP consulting business.”

New Media (includes CDC Games and

On a standalone basis, CDC Games had the following results for the six months ended June 30, 2010 and 2011:

Six Months
ended June 30, 2010
Six Months
ended June 30, 2011
GAAP Revenue: $15.1 million $11.0 million
Adjusted EBITDA: $1.7 million $1.8 million
Adjusted EBITDA Margin: 11% 16%

GAAP revenue for CDC Games during the first six months of 2011 was $11.0 million, compared to $15.1 million in the first six months of 2010. The decrease in revenue for the first six months of this year was largely attributed to a reduction in the number of games offered and less promotional and marketing spending on existing games, compared to the same period last year. Adjusted EBITDA for the first six months of 2011 improved to $1.8 million, compared to Adjusted EBITDA of $1.7 million in the first six months of 2010. Adjusted EBITDA margin was 16 percent in the first six months of 2011, compared to Adjusted EBITDA margin of 11 percent in the first six months of 2010.

At the end of the first quarter of 2011, CDC Games introduced an expansion pack, “Tyrannis” for EVE Online in China. On June 30, 2011, CDC Games launched Yulgang 6.0, known as “Blood War,” a major new version release of its popular massively multiplayer online role-playing game (MMORPG). Since the launch of Yulgang 6.0, CDC Games has reported an increase in peak concurrent users (PCU) of more than 10 percent.

In September 2006, CDC Games licensed the exclusive rights to distribute, in China, Lord of the Rings Online: Shadows of Angmar (LOTRO), a MMORPG based upon the Lord of the Rings trilogy. For the past several years, CDC Games has experienced significant delays in the continued development and launch of this game. Since initially licensing this game, CDC Games has invested approximately $10.0 million in licensing, development and other costs related to it, including a $4.0 million initial non-refundable license fee.

CDC Games has received notification from the game's developer that the failure to launch LOTRO constituted an event of default under our agreements with them. The developer has also asserted that our license agreement for LOTRO has been terminated. CDC Games is currently in settlement discussions regarding the license for LOTRO, but does not currently believe that settlement discussions will permit it to retain future licensing rights for LOTRO.

“We are pleased with the improvement in our profitability and the solid metrics of Yulgang 6.0,” said Simon Wong, CEO of CDC Games. “After six years of operating Yulgang, we are very pleased to see this popular game maintaining a strong base of loyal users. While we are disappointed that we do not expect to be launching LOTRO, we believe this is the best financial decision for us in terms of focus on our time and resources.”

On a standalone basis, had the following results for the six months ended June 30, 2010 and 2011:


Six Months
ended June 30, 2010

Six Months
ended June 30, 2011
GAAP Revenue: $6.0 million $8.0 million
Adjusted EBITDA: $(558,000) $(47,000)

Adjusted EBITDA Margin:




During the first half of 2011,'s automobile and web games channels continued to expand. Its social network, for example, launched the following new games during the first quarter: “Wind of War,” “City Battle” and “Beautiful City.” In the second quarter, the automobile channel participated in the 2011 Shanghai International Auto Show.

In April 2011,'s webgame channel organized the 2011 National Webgames Summit in the City of Jiaxing, Zhejiang Province, the fourth time hosting this event. This Summit received wide attention in the webgame community in China, with more than 300 webgame developers and operators participating with more than 100 media representatives reporting on the event.

Management News:

As previously announced, the company's chief executive officer, Peter Yip is on administrative leave and John Clough, chairman of CDC Corporation, is serving as interim CEO for the company.

Concluding Remarks:

“Our operating business units have been performing reasonably well,” said John Clough, interim CEO of CDC Corporation. “CDC Software has continued to report solid results in its business while CDC Games, CDC Global Services and have been making strong progress in improving profitability. We are weighing our options regarding the various litigation matters in which we and our subsidiaries are involved, and are considering financing options, potentially selling non-core assets, as well as other strategic alternatives.”

Share Buyback:

Since January 2009, CDC Corporation has purchased an aggregate of 918,637 of its shares at an average price of $3.85 per share.

Revised 2010 Information:

Results provided herein for 2010 have been revised from those previously reported in CDC Corporation's press releases due to certain year-end adjustments required to be made in connection with the audit of its financial statements for the year ended December 31, 2010.

The revisions recorded by CDC Corporation included a $133.4 million goodwill impairment charge, $113.1 million of which related to CDC Software's on-premise business, $10.8 million of which related to CDC Software's Cloud business and $9.5 million of which is related to CDC Global Services. The company also recorded a $1.3 million impairment charge for identifiable intangible assets in CDC Software's on-premise business, $7.5 million of tax related purchase accounting adjustments relating to CDC Software's TradeBeam acquisition, and a $4.0 million write-off in CDC Games for pre-paid license fees relating to The Lord of the Rings Online. Furthermore, in accordance with U.S. GAAP, management has accrued an expected loss contingency of $10.0 million related to the ongoing litigation between the company's subsidiary, Ross Systems, Inc., and Sunshine Mills, Inc. as of December 31, 2010, which is subject to further revision. Additional adjustments relate to changes in estimates which impacted the reserves for litigation settlements, purchase consideration payables, and valuation of deferred tax assets and deferred tax liabilities.


All dollar amounts are in U.S. dollars

* CDC Corporation has recently changed the composition of its Adjusted EBITDA measurement, as provided herein, to be consistent with the presentation of Adjusted EBITDA for its subsidiary, CDC Software Corporation. CDC Corporation believes this revised presentation is a useful measure of operating performance.

* In June 2010, CDC Corporation received approval from its shareholders to effect a reverse split of its common shares. CDC Corporation's board of directors thereafter approved a one-for-three reverse split of the company's outstanding, issued and authorized shares of common stock, which became effective on August 23, 2010. All numbers set forth herein reflect the effect of such one-for-three reverse stock split.

(a) Adjusted Financial Measures

This press release includes Adjusted EBITDA, Non-GAAP revenue, Adjusted EBITDA margin and Non-GAAP cash and cash equivalents, which are not prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) (collectively, the "Non-GAAP Financial Measures"). We believe that these Non-GAAP Financial Measures are helpful in understanding our past financial performance and our future results. Non-GAAP Financial Measures are not alternatives for measures such as revenue, cash and cash equivalents and other measures prepared under 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.

About CDC Corporation

CDC Corporation i

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