ASIA Asiainfo-Linkage, Inc. (MM)

-- Third quarter 2008 total revenue increases 38.4% year over year(Note 1) to US$44.8 million -- Exceeding guidance, third quarter 2008 net revenue (Non-GAAP)(Note 2) increases 44.6% year over year to US$42.7 million -- Third quarter 2008 income from operations increases 68.9% year over year to US$5.3 million; operating margin of total revenue(Note 3) expands to 11.8%; and operating margin of net revenue (Non-GAAP)(Note 4) expands to 12.4% BEIJING and SANTA CLARA, Calif., Oct. 30 /Xinhua-PRNewswire-FirstCall/ -- AsiaInfo Holdings, Inc. (NASDAQ:ASIA), ("AsiaInfo" or the "Company") a leading provider of telecom software solutions and IT security products and services in China, today announced financial results for the third quarter ended September 30, 2008. "I'm pleased to report that continued execution of our growth strategy has resulted in strong net revenue and operating income growth of 45 percent and 69 percent, respectively," said Steve Zhang, AsiaInfo's president and chief executive officer. "The restructuring of China's telecommunications industry, while still in its early stages, has already presented us with some excellent opportunities. We have had a successful win rate in tenders so far, including wins for billing, online charging systems and business intelligence systems across our China Telecom and China Netcom-Unicom accounts. We also continue to see strong revenues from maintenance, upgrades and integration services in our China Mobile account as they prepare for increased competition in the market. Going forward, we see further opportunities for integration services across all our accounts as carriers complete their build-outs of fixed-line, broadband and wireless infrastructure." Third Quarter 2008 Financial Results Total revenue for the third quarter of 2008 was US$44.8 million, an increase of 38.4% year over year and 6.5% sequentially. Exceeding guidance, net revenue (Non-GAAP) for the third quarter of 2008 was US$42.7 million, an increase of 44.6% year over year and 24.2% sequentially. The year-over-year and sequential increases were mainly driven by strong uptake for the Company's software and service solutions, most notably in the China Telecom account. Total revenue and net revenue (Non-GAAP) were also boosted by a strong performance from the Company's Lenovo-AsiaInfo business unit, which was primarily the result of improved operations and seasonally strong sales in this division. In the third quarter, AsiaInfo announced several significant contracts with China's major telecom carriers including contracts to upgrade wireless local area network and IP billing systems for the Northern Telecom division of China Telecom, to develop billing and customer relationship management systems for China Telecom's subsidiaries in Heilongjiang and Henan provinces, to develop an online charging system for China Telecom in Heilongjiang province and to develop business intelligence systems for China Telecom in Beijing municipality, and Henan and Heilongjiang provinces. In the third quarter of 2008, gross margin was 51.8%, compared to 49.9% in the year-ago period and 45.3% in the previous quarter. The increase in gross margin was primarily due to a decrease in third party hardware sales and an increased contribution to revenue from high-margin software solutions. Gross profit as a percentage of net revenue (Non-GAAP) was 54.2% in the third quarter of 2008 compared to 54.6% in the year-ago period and 55.4% in the previous quarter. The Company noted that gross margin of net revenue (non- GAAP) has remained relatively stable for the last several quarters. In the third quarter of 2008, the AsiaInfo Technologies business unit contributed 81.0% to total revenue and 81.9% to net revenue (Non-GAAP). Total revenue for the AsiaInfo Technologies business unit increased 32.8% year over year and decreased 1.3% sequentially to US$36.3 million. Net revenue (Non- GAAP) for the AsiaInfo Technologies business unit increased 42.4% year over year and 15.6% sequentially to US$35.0 million. The increases in net revenue (Non-GAAP) reflect strong uptake for the Company's software and service solutions, most notably in the China Telecom account. In the third quarter of 2008, the Lenovo-AsiaInfo business unit contributed 19.0% to total revenue and 18.1% to net revenue (Non-GAAP). Total revenue for the Lenovo-AsiaInfo business unit increased 68.8% year over year and 60.3% sequentially to US$8.5 million. Net revenue (Non-GAAP) for the Lenovo-AsiaInfo business unit increased 55.2% year over year and 86.6% sequentially to US$7.8 million. The year-over-year increases reflect a concerted effort to improve operations in this division. Sequentially, the notable increases are mainly due to seasonality, as sales in the Lenovo-AsiaInfo business unit are typically stronger during the second half of the year. Please refer to the end of this press release for condensed segmented financial results for AsiaInfo's two business units. Income from operations for the third quarter of 2008 was US$5.3 million, an increase of 68.9% year over year and 48.6% sequentially, primarily as a result of improving economies of scale and the Company's efforts to improve operational efficiency. Total operating expenses increased 37.5% year over year and 15.5% sequentially to US$17.9 million, including non-cash stock based compensation of US$1.1 million, which was allocated to each expense line. Sales and marketing expenses increased 38.2% year over year and 16.4% sequentially to US$9.6 million, mainly due to higher sales commission expenses accrued upon successfully breaking into new accounts. General and administrative expenses increased 29.5% year over year and decreased 7.3% sequentially to US$2.1 million. The year over year increase was mainly due to the aforementioned allocated non-cash stock based compensation in this quarter and government incentive funds the Company received in the third quarter of 2007. The sequential decrease was mainly the result of lower bad debt provisions as a result of improving accounts receivable collection. Research and development expenses increased 39.4% year over year and 24.3% sequentially to US$6.3 million, mainly reflecting an increase in headcount in line with the Company's strategy of continuing to invest in research and development capabilities to take advantage of future market opportunities. Operating margin of total revenue was 11.8% for the third quarter of 2008, compared to 9.7% in the year-ago period and 8.5% in the previous quarter. Operating margin of net revenue (Non-GAAP) was 12.4% for the third quarter of 2008, compared to 10.6% in the year-ago period and 10.3% in the previous quarter. The year-over-year and sequential increases were mainly the result of the Company's efforts to improve operational efficiency as well as seasonally strong sales from the Lenovo-AsiaInfo business unit in the second half of the year. Other income for the third quarter of 2008 was US$2.3 million, a decrease of 49.6% year over year and 29.6% sequentially. The year-over-year and sequential decreases were mainly due to decreased dividend income and gain on investments, which are based on the market performance. As of September 2008, AsiaInfo's total short-term investments amounted to US$34.8 million, which are recorded at market value. Changes in market value are reflected in other comprehensive income. As of September 30, 2008, AsiaInfo had unrecognized gains and unrecognized losses of US$0.6 million and US$4.0 million, respectively. Due to its strong cash position, AsiaInfo has no plans to liquidate its short-term investments in the near term. Given the various fiscal and monetary initiatives that have been enacted or indicated by governments worldwide, AsiaInfo does not consider the decline in fair value to be other than temporary at this time. The Company will continue to evaluate the condition of its short-term investments going forward. In the third quarter of 2008, AsiaInfo recorded net income of US$6.1 million or US$0.13 per basic share, compared to US$6.3 million or US$0.14 per basic share in the year-ago period, which included a higher-than-normal dividend income of US$3.3 million or US$0.08 per basic share, and US$5.2 million or US$0.12 per basic share in the previous quarter. Net income excluding share-based compensation expense, amortization, after-tax dividend income and gain on discontinued operations (net income (Non-GAAP))(Note 5) was US$7.6 million in the third quarter of 2008 or US$0.16 per basic share. Net income (Non-GAAP) in the year-ago period was US$4.8 million or US$0.11 per basic share. Net income (Non-GAAP) in the previous quarter was US$6.2 million or US$0.14 per basic share. Net income (Non-GAAP) increased 58.0% year over year and 22.2% sequentially. As of September 30, 2008, AsiaInfo had cash and cash equivalents and restricted cash totaling US$175.8 million and short-term investments totaling US$34.8 million. Operating cash flow in the third quarter of 2008 was a net inflow of approximately US$0.72 million. Fourth Quarter 2008 Guidance AsiaInfo expects fourth quarter 2008 net income from continuing operations per basic share to be in the range of US$0.14 to US$0.16. AsiaInfo expects net revenue (Non-GAAP) to be in the range of US$47 million to US$48 million, an increase of 34% to 37% year over year. Due to the current global market conditions, fourth quarter 2008 guidance includes assumptions of lower investment income. The Company also noted that its effective tax rate in the fourth quarter of 2007 was -1.4% due to a tax refund recognized in that period. The Company noted that it has not yet received approval for our "New Technology Enterprise" and "Advanced Technology Enterprise" status, but that it expects to receive these statuses and to recognize a tax benefit at that time. Notes: (1) Compared to the same time period in the previous year. (2) Net revenue (Non-GAAP), a non-GAAP measure, represents total revenue net of third-party hardware costs. A reconciliation of net revenue (Non-GAAP) to GAAP revenue is provided at the end of this press release. (3) Operating margin of total revenue is operating income divided by total revenue. (4) Operating margin of net revenue (Non-GAAP) is operating margin divided by net revenue (Non-GAAP). (5) Net income (Non-GAAP) and net income (Non-GAAP) per share measures exclude share-based compensation expenses, amortization expenses of acquired intangible assets, after-tax dividend income, gain on discontinued operations, and gain on settlement of escrow. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is provided at the end of the press release. ASIAINFO HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands of US$, except shares and per share amounts) Three Months Ended Nine Months September 30, Ended September 30, 2008 2007 2008 2007 Revenues: Software products and solutions $37,479 $25,173 $94,631 $67,179 Service 4,754 4,247 12,304 11,827 Third party hardware 2,562 2,945 14,924 12,984 Total revenues 44,795 32,365 121,859 91,990 Cost of revenues: Software products and solutions 17,890 11,510 42,706 30,599 Service 1,667 1,912 5,085 5,588 Third party hardware 2,052 2,798 13,992 12,335 Total cost of revenues 21,609 16,220 61,783 48,522 Gross profit 23,186 16,145 60,076 43,468 Operating expenses: Sales and marketing 9,556 6,916 25,663 19,639 General and administrative 2,084 1,609 6,941 6,027 Research and development 6,253 4,486 15,940 12,733 Total operating expenses 17,893 13,011 48,544 38,399 Gain on settlement of escrow -- -- -- 2,734 Income from operations 5,293 3,134 11,532 7,803 Other income (expenses): Interest income 1,151 1,091 3,433 3,369 Dividend income 230 3,348 533 3,876 Gain on investments 954 123 4,487 704 Other (expenses) net (43) (12) (573) (32) Total other income, net 2,292 4,550 7,880 7,917 Income before provision for income taxes and discontinued operations 7,585 7,684 19,412 15,720 Minority interests (4) -- (4) -- Provision for income taxes 1,490 1,412 3,817 1,999 Income from continuing operations 6,099 6,272 15,599 13,721 Income from discontinued operations -- -- 980 1,445 Net income $6,099 $6,272 $16,579 $15,166 Income from continuing operations per share: Basic $0.13 $0.14 $0.35 $0.32 Diluted $0.13 $0.14 $0.33 $0.31 Income from discontinued operations per share: Basic -- -- $0.02 $0.03 Diluted -- -- $0.02 $0.03 Net income per share Basic $0.13 $0.14 $0.37 $0.35 Diluted $0.13 $0.14 $0.35 $0.34 Weighted average shares used in computation: Basic 45,731,067 43,735,575 45,208,453 43,374,659 Diluted 47,850,187 45,272,832 47,095,515 45,006,094 ASIAINFO HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands of US$, except share and per share amounts) As at September 30, December 31, 2008 2007(1) ASSETS: Current Assets: Cash and cash equivalents $162,293 $148,834 Restricted cash 13,505 16,026 Short term investments 34,817 49,735 Accounts receivable, net (net of allowances of $2,590 and $2,427 as of September 30, 2008 and December 31, 2007, respectively) 57,708 45,233 Inventories 11,220 8,023 Other receivable 3,386 3,426 Deferred income taxes-current 3,227 1,693 Prepaid expenses and other current assets 7,797 6,526 Total current assets $293,953 $279,496 Long term investment 6,743 1,911 Property and equipment, net 2,730 2,344 Other acquired intangible assets, net 3,374 3,979 Deferred income tax assets- non-current 1,032 1,032 Goodwill 20,743 19,707 Total Assets $328,575 $308,469 LIABILITY AND STOCKHOLDERS EQUITY Current Liabilities: Accounts payable $18,799 $23,095 Accrued expenses 13,682 12,671 Deferred revenue 37,871 29,093 Accrued employee benefits 22,457 20,724 Other payables 4,291 5,651 Income taxes payable 449 2,310 Other taxes payable 5,694 4,218 Deferred income tax liability-current -- 1,977 Total current liabilities $103,243 $99,739 Unrecognized tax benefits -- non-current 1,390 943 Total liabilities $104,633 $100,682 Minority interests 69 -- Stockholders' equity: Common stock $462 $450 Additional paid-in capital 214,292 207,865 Treasury stock, at cost (4,561) (1,953) Statutory reserve 14,820 14,820 Accumulated deficit (15,386) (31,965) Accumulated other comprehensive income 14,246 18,570 Total stockholders' equity $223,873 $207,787 Total Liabilities and Stockholders' Equity $328,575 $308,469 (1) December 31, 2007 balances were extracted from audited financial statements. ASIAINFO HOLDINGS, INC. CONDENSED INFORMATION FOR REPORTABLE SEGMENTS (UNAUDITED) (Amounts in thousands of US$) Three Months Ended September 30, 2008 September 30, 2007 AsiaInfo Lenovo- AsiaInfo Lenovo- Techno- AsiaInfo Techno- AsiaInfo logies Total logies Total Revenues: Software products and solutions $30,297 $7,182 $37,479 $20,282 $4,891 $25,173 Service 4,624 130 4,754 4,144 103 4,247 Third party hardware 1,367 1,195 2,562 2,900 45 2,945 Total revenues 36,288 8,507 44,795 27,326 5,039 32,365 Cost of revenues: Software products and solutions 15,223 2,667 17,890 9,752 1,758 11,510 Service 1,629 38 1,667 1,706 206 1,912 Third party hardware 1,298 754 2,052 2,755 43 2,798 Total cost of revenues 18,150 3,459 21,609 14,213 2,007 16,220 Gross profit 18,138 5,048 23,186 13,113 3,032 16,145 Business unit expenses: Sales and marketing 6,224 3,332 9,556 4,592 2,324 6,916 General and administrative (265) 119 (146) 388 (10) 378 Research and development 5,351 902 6,253 3,988 498 4,486 Total business unit expenses 11,310 4,353 15,663 8,968 2,812 11,780 Contribution profit (loss) $6,828 $695 $7,523 $4,145 $220 $4,365 Corporate general and administration 2,230 1,231 Operating profit $5,293 $3,134 (cont.) Three Months Ended June 30 2008 AsiaInfo Lenovo Technologies -AsiaInfo Total Revenues: Software products and solutions $25,875 $4,138 $30,013 Service 4,042 167 4,209 Third party hardware 6,834 1,002 7,836 Total revenues 36,751 5,307 42,058 Cost of revenues: Software products and solutions 12,230 1,430 13,660 Service 1,636 68 1,704 Third party hardware 6,492 1,152 7,644 Total cost of revenues 20,358 2,650 23,008 Gross profit 16,393 2,657 19,050 Business unit expenses: Sales and marketing 5,956 2,256 8,212 General and administrative 101 34 135 Research and development 4,465 564 5,029 Total business unit expenses 10,522 2,854 13,376 Contribution profit (loss) $5,871 $(197) $5,674 Corporate general and administration 2,113 Operating profit $3,561 Third Quarter 2008 Conference Call Details AsiaInfo management will hold a conference call at 5:00 p.m. Pacific Time / 8:00 p.m. Eastern Time on October 30, 2008 (8:00 a.m. Beijing/Hong Kong Time on October 31, 2008). On the call, management will discuss results and highlights from the quarter and answer questions. The dial-in numbers for the conference call are as follows: US Toll Free: +1-866-549-1292 China Toll Free: 8007-011-223 Hong Kong and International: +852-3005-2050 The passcode for the call is 408313. A replay will be available until 8:00 p.m. Pacific Time on November 30, 2008 by dialing one of the following numbers: U.S Toll Free: +1-866-753-0743 China Toll Free: 8008-697-680 Hong Kong and International: +852-3005-2020 The passcode for the replay is 134936. Additionally, a live and archived web cast of this call will be available on the Investor Relations section of the AsiaInfo web site at http://www.asiainfo.com/ . About AsiaInfo Holdings, Inc. AsiaInfo Holdings, Inc. (NASDAQ:ASIA) is a leading provider of high- quality software and customer solutions to many of China's largest enterprises. In addition to providing software and customer solutions to China's telecom carriers, the Company also offers a wide range of security products and services to small, medium and large sized Chinese enterprises across multiple vertical industries. Organized as a Delaware corporation, AsiaInfo began operations in the United States in 1993. The Company moved its major operations to China in 1995 and played a significant role in the construction of the national Internet backbones and provincial access networks for all of China's major national telecom carriers, including China Telecom, China Mobile, China Unicom and China Netcom. Since 1998, AsiaInfo has continued to diversify its product offerings and is now a major provider of enterprise software solutions in China. For more information about AsiaInfo, please visit http://www.asiainfo.com/ . Reconciliation of Non-GAAP Measures This earnings release contains presentations of the following "Non-GAAP financial measures" as defined by applicable U.S. securities regulations. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. The Non-GAAP financial measures are provided as additional information to help both management and investors compare business trends among different reporting periods on a consistent and more meaningful basis and enhance investors' overall understanding of the Company's current financial performance and prospects for the future. These non-GAAP measures have limitations, however, because they do not include all items of income and expenses that impact the Company's operations. Management compensates for these limitations by also considering the Company's GAAP results. The non- GAAP financial measures the Company uses are not prepared in accordance with, and should not be considered an alternative to, measurement required by GAAP and should not be considered measures of the Company's liquidity. Pursuant to relevant regulatory requirements, we are providing the following reconciliations of the Non-GAAP financial measures to the nearest comparable GAAP measures. (1) Net revenue (Non-GAAP) AsiaInfo's net revenue (Non-GAAP) represents total revenue net of hardware costs that are passed through to our customers. We believe total revenues net of hardware costs more accurately reflects our core business, which is the provision of software solutions and services, and provides transparency to our investors. It is also the same measure used by our management to evaluate the competitiveness and development of our business. Reconciliation of net revenues (Non-GAAP) to GAAP total revenues 2008 Q3 2007 Q3 AsiaInfo Lenovo AsiaInfo Lenovo Technologies AsiaInfo Total Technologies AsiaInfo Total (in US dollar thousands) Net Revenue (Non-GAAP) 34,990 7,753 42,743 24,571 4,996 29,567 Third Party Hardware Costs 1,298 754 2,052 2,755 43 2,798 Total Revenues 36,288 8,507 44,795 27,326 5,039 32,365 2008 Q2 AsiaInfo Lenovo Technologies AsiaInfo Total (in US dollar thousands) Net Revenue (Non-GAAP) 30,259 4,155 34,414 Third Party Hardware Costs 6,492 1,152 7,644 Total Revenues 36,751 5,307 42,058 (2) Net income (Non-GAAP) Net income (Non-GAAP) excludes share-based compensation expenses, amortization of acquired intangible assets, after-tax dividend income, gain on discontinued operations, and gain on settlement of escrow. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our performance by excluding certain expenses and income that may not be indicative of our operating performance. Management uses the net income (Non-GAAP) measure to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis of planning and forecasting future periods. Management believes net income (Non-GAAP) measure, when read in conjunction with the Company's GAAP net income measure and other GAAP financials, provides useful information to investors by offering: a) the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; b) the ability to better identify trends in the Company's underlying business and perform related trend analysis; c) a better understanding of how management plans and measures the Company's underlying business; and d) an easier way to compare the Company's most recent results of operations against investor and analyst financial models. Reconciliation of net income (Non-GAAP) to GAAP net income Three Months 2008 Nine Months Ended Sept. 30 Q2 Ended Sept.30 2008 2007 2008 2007 (in US dollar thousands) GAAP net income 6,099 6,272 5,221 16,579 15,166 Adjustments: -- Share based compensation 1,303 741 649 2,643 2,592 -- Amortization of acquired intangible assets 385 296 400 1,231 1,371 -- Gain on discontinued operations -- -- -- (980)(1,445) -- Gain on settlement of escrow -- -- -- -- (2,734) -- Dividend income, net of tax (230)(2,526) (84) (533)(3,054) Non-GAAP net income 7,557 4,783 6,186 18,940 11,896 (3) Net Income (Non-GAAP) Per Basic Share Net income (Non-GAAP) per share is calculated based on net income (Non- GAAP). Like net income (Non-GAAP), net income (Non-GAAP) per share excludes share-based compensation expenses, amortization of acquired intangible assets, after-tax dividend income, gain on discontinued operations, and gain on settlement of escrow. Shares outstanding used in the computation of net income per share were the same as those used in the computation of net income (Non- GAAP) per share. Management believes that net income (Non-GAAP) per share, when used in conjunction with the Company's GAAP net income per share, provides useful information to investors for the same reasons discussed above regarding net income (Non-GAAP). In addition, net income (Non-GAAP) per share allows investors to evaluate the Company's operating performance from period to period on a per share basis, thus providing a useful basis for assessing the Company's value on a per share basis. Reconciliation of net income (Non-GAAP) per share to GAAP net income per share Three Months 2008 Nine Months Ended Sept. 30 Q2 Ended Sept.30 2008 2007 2008 2007 (in US dollar thousands) GAAP net income Per Basic Share 0.13 0.14 0.12 0.37 0.35 Adjustments: -- Share based compensation 0.03 0.02 0.01 0.06 0.06 -- Amortization of acquired intangible assets 0.01 0.01 0.01 0.03 0.03 -- Gain on discontinued operations -- -- -- (0.02) (0.03) -- Gain on settlement of escrow -- -- -- -- (0.06) -- Dividend income, net of tax (0.01) (0.06) -- (0.01) (0.07) Non-GAAP net income Per Basic Share 0.16 0.11 0.14 0.43 0.28 Cautionary Note Regarding Forward-Looking Statements The information contained in this document is as of October 30, 2008. AsiaInfo assumes no obligation to update any forward-looking statements contained in this document as a result of new information or future events or developments. This document contains forward-looking information about AsiaInfo's operating results and business prospects that involve substantial risks and uncertainties. You can identify these statements by the fact that they use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are the following: government telecommunications infrastructure and budgetary policy in China; our ability to maintain our concentrated customer base; the long and variable billing cycles for our products and services that can cause our revenues and operating results to vary significantly from period to period; our ability to meet our working capital requirements; our ability to retain our executive officers; our ability to attract and retain skilled personnel; potential liabilities we are exposed to because we extend warranties to our customers; risks associated with cost overruns and delays; our ability to develop or acquire new products or enhancements to our software products that are marketable on a timely and cost-effective basis; our ability to adequately protect our proprietary rights; the competitive nature of the markets we operate in; and political and economic policies of the Chinese government. A further list and description of these risks, uncertainties, and other matters can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and in our periodic reports on Forms 10-Q and 8-K filed with the United States Securities and Exchange Commission and available at http://www.sec.gov/ . For investor and media inquiries, please contact: In China: Sheryl Zhang AsiaInfo Holdings, Inc. Tel: +86-10-8216-6039 Email: Andrew Keller Ogilvy Financial, Beijing Tel: +86-10-8520-3112 Email: In the United States: Mr. Thomas Smith Ogilvy Financial, New York Tel: +1-212-880-5269 Email: DATASOURCE: AsiaInfo Holdings, Inc. CONTACT: In China, Sheryl Zhang of AsiaInfo Holdings, Inc., or +86-10-8216-6039, or ; or Andrew Keller of Ogilvy Financial, Beijing, +86-10-8520-3112, or , or in the United States, Mr. Thomas Smith, Ogilvy Financial, New York, or +1-212-880-5269, or , for AsiaInfo Holdings, Inc. Web site: http://www.asiainfo.com/

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