Perfect World Announces Second Quarter 2013 Unaudited Financial Results

BEIJING, Aug. 19, 2013 /PRNewswire/ -- Perfect World Co., Ltd. (NASDAQ: PWRD) ("Perfect World" or the "Company"), a leading online game developer and operator based in China, today announced its unaudited financial results for the second quarter ended June 30, 2013.

(Logo: http://photos.prnewswire.com/prnh/20090416/CNTH023LOGO )

Second Quarter 2013 Highlights[1]

  • Total revenues were RMB708.5 million (USD115.4 million), compared with RMB624.5 million in the previous quarter and RMB676.4 million in the same quarter last year.
  • Gross profit was RMB535.0 million (USD87.2 million), compared with RMB477.9 million in the previous quarter and RMB549.8 million in the same quarter last year.
  • Operating profit was RMB67.1 million (USD10.9 million), compared with RMB133.1 million in the previous quarter and RMB155.2 million in the same quarter last year.  Non-GAAP operating profit[2] was RMB84.2 million (USD13.7 million), compared with RMB149.8 million in the previous quarter and RMB172.5 million in the same quarter last year.
  • Net income attributable to the Company's shareholders was RMB80.7 million (USD13.2 million), compared with RMB131.0 million in the previous quarter and RMB158.2 million in the same quarter last year.  Non-GAAP net income attributable to the Company's shareholders[2] was RMB97.8 million (USD15.9 million), compared with RMB147.6 million in the previous quarter and RMB175.5 million in the same quarter last year.
  • Basic and diluted earnings per American Depositary Share ("ADS")[3] were RMB1.66 (USD0.27) and RMB1.65 (USD0.27), respectively, compared with RMB2.70 and RMB2.69, respectively, in the previous quarter, and RMB3.28 and RMB3.25, respectively, in the same quarter last year.  Non-GAAP basic and diluted earnings per ADS[2] were RMB2.01 (USD0.33) and RMB2.00 (USD0.33), respectively, compared with RMB3.05 and RMB3.03, respectively, in the previous quarter, and RMB3.64 and RMB3.60, respectively, in the same quarter last year.
  • Launched open beta testing for "Neverwinter" in North America and Europe in April 2013
  • Launched open beta testing for "Saint Seiya Online" in China in May 2013
  • Launched open beta testing for "Swordsman Online" in China in June 2013

[1] The U.S. dollar (USD) amounts disclosed in this press release, except for those transaction amounts that were actually settled in U.S. dollars, are presented solely for the convenience of the reader. The conversion of Renminbi (RMB) into USD in this release is based on the noon buying rate in The City of New York for cable transfers in RMB per USD as certified for customs purposes by the Federal Reserve Bank of New York as of June 28, 2013, which was RMB6.1374 to USD1.00. The percentages stated in this press release are calculated based on the RMB amounts.


[2] As used in this press release, non-GAAP operating profit, non-GAAP net income attributable to the Company's shareholders and non-GAAP earnings per ADS are defined to exclude share-based compensation charge from operating profit, net income attributable to the Company's shareholders and earnings per ADS, respectively. See "Non-GAAP Financial Measures" and "Reconciliation of GAAP and Non-GAAP Results" at the end of this press release.


[3] Each ADS represents five ordinary shares.

Mr. Robert Xiao, CEO of Perfect World commented, "We are pleased to announce our results for the second quarter of 2013.  Our revenues rose by 13.5% quarter-over-quarter, beating the high end of our expectations.  Our strong second quarter performance was mainly driven by the successful launches of two of our new games, namely 'Saint Seiya Online,' a 3D comic-based MMORPG launched in China in mid-May, and 'Neverwinter,' a widely-acclaimed MMORPG launched in North America and Europe at the end of April.  In addition, we also launched a number of web and mobile games during the quarter and are working on more varied titles which will further diversify our deep game pipeline."

"As our results from this quarter show, our deep and diversified portfolio continues to be one of our main strengths and we have made steady progress on providing new content to players with multiple launches of new games and releases of expansion packs for existing games.  In addition to the successful debut of 'Saint Seiya Online' and 'Neverwinter,' we also launched the highly-anticipated 3D MMORPG 'Swordsman Online,' which is adapted from one of Louis Cha's most famous martial arts novels, in China at the end of the second quarter.  This game has generated positive feedback from gamers and we are optimistic about its prospects to turn into another strong growth driver for us.  We are also excited about a variety of titles in our pipeline, including the highly-anticipated 'Dota 2,' our 3D MMORPGs 'Holy King' and 'Legend of the Condor Heroes,' as well as a number of web games and mobile games.  Additionally, we are also working on localizing 'Neverwinter,' which has gained popularity among players in North America and Europe, for its launch in China soon."

"As a hit title developed by our U.S. subsidiary Cryptic Studios, 'Neverwinter' clearly demonstrates our strong overseas R&D capabilities, which, along with our experienced R&D teams in China, is an important aspect of our effective globalization strategy.  Meanwhile, we also focus on continuously enhancing our extensive overseas operating network, which is the other important component of our strong globalization strategy.  Contributing more than one-fourth of our total revenue, our well-established global operating network covers over 100 countries and regions worldwide and consists of both our own overseas subsidiaries and our overseas partners.  This bolsters our position as a leading Chinese online gaming company in the overseas market.  Lately, we continued to deepen our global presence by launching more games through our overseas subsidiaries in North America, Europe, Korea and Southeast Asia, and also by launching our games through overseas partners in various overseas markets.  Our proven track record and our commitment to continuously enhance and develop our business in China and overseas have enabled us to provide high-quality gaming experiences and deliver world-class services to players around the world."

"While we experienced additional pressure on our margins in the short term from promoting several recently-launched major new games, we are confident in our long-term outlook given the strong performance of our new games as well as the varied line-up of titles in our pipeline.  We have built a solid foundation with our diversified portfolio, strong global R&D capabilities and extensive operating network worldwide, and we will continue to leverage our core strengths and resources to further bolster our position in the global gaming market in an effort to maximize shareholder value over the long term."

Second Quarter 2013 Financial Results

Total Revenues

Total revenues were RMB708.5 million (USD115.4 million), compared with RMB624.5 million in the previous quarter and RMB676.4 million in the same quarter last year. 

Online game operation revenues, which include both domestic and overseas online game operations, were RMB650.1 million (USD105.9 million), compared with RMB556.2 million in the previous quarter and RMB626.4 million in the same quarter last year.  The sequential growth in online game operation revenues was primarily attributable to the strong performance of the Company's new games including "Saint Seiya Online" launched in China and "Neverwinter" launched in North America and Europe.

The aggregate average concurrent users (ACU) for games under operation in mainland China was approximately 742,000, compared with 554,000 in the previous quarter and 739,000 in the same quarter last year.  The increase from the previous quarter was mainly attributable to the strong performance of a couple of the Company's major new games.

Licensing revenues were RMB31.5 million (USD5.1 million), compared with RMB30.1 million in the previous quarter and RMB46.9 million in the same quarter last year. 

Other revenues were RMB26.9 million (USD4.4 million), compared with RMB38.2 million in the previous quarter and RMB3.0 million in the same quarter last year.  The decrease from the previous quarter was primarily associated with less installation of "Torchlight 2" in 2Q13.  "Torchlight 2" is a popular pay-per-install game developed by Runic Games, the Company's majority-owned subsidiary based in the U.S.

Cost of Revenues

The cost of revenues was RMB173.5 million (USD28.3 million), compared with RMB146.6 million in the previous quarter and RMB126.6 million in the same quarter last year.  The increase from the previous quarter was mainly due to increases in staff cost, royalty cost, sales-related taxes and internet data center cost in connection with several new games launched in 2Q13.

Gross Profit and Gross Margin

Gross profit was RMB535.0 million (USD87.2 million), compared with RMB477.9 million in the previous quarter and RMB549.8 million in the same quarter last year.  Gross margin was 75.5%, compared with 76.5% in the previous quarter and 81.3% in the same quarter last year.  

Operating Expenses

Operating expenses were RMB468.0 million (USD76.2 million), compared with RMB344.9 million in the previous quarter and RMB394.6 million in the same quarter last year.  The increase in operating expenses from the previous quarter was mainly due to increases in sales and marketing expenses and R&D expenses in 2Q13.

R&D expenses were RMB199.4 million (USD32.5 million), compared with RMB181.0 million in the previous quarter and RMB189.7 million in the same quarter last year.  The increase from the previous quarter was primarily due to an increase in staff cost.

Sales and marketing expenses were RMB194.9 million (USD31.8 million), compared with RMB96.6 million in the previous quarter and RMB121.8 million in the same quarter last year.  The increase from the previous quarter was primarily due to an increase in advertising and promotional expenses associated with several new games launched in 2Q13.

General and administrative expenses were RMB73.6 million (USD12.0 million), compared with RMB67.3 million in the previous quarter and RMB83.1 million in the same quarter last year.

Operating Profit

Operating profit was RMB67.1 million (USD10.9 million), compared with RMB133.1 million in the previous quarter and RMB155.2 million in the same quarter last year.  Non-GAAP operating profit was RMB84.2 million (USD13.7 million), compared with RMB149.8 million in the previous quarter and RMB172.5 million in the same quarter last year.

Total Other Income

Total other income was RMB33.5 million (USD5.5 million), compared with RMB34.2 million in the previous quarter and RMB38.9 million in the same quarter last year.

Income Tax Expense

Income tax expense was RMB20.2 million (USD3.3 million), compared with RMB33.5 million in the previous quarter and RMB38.1 million in the same quarter last year.  The decrease from the previous quarter was primarily due to the decrease in the operating profit in 2Q13.

Net Income Attributable to the Company's Shareholders

Net income attributable to the Company's shareholders was RMB80.7 million (USD13.2 million), compared with RMB131.0 million in the previous quarter and RMB158.2 million in the same quarter last year.  Non-GAAP net income attributable to the Company's shareholders was RMB97.8 million (USD15.9 million), compared with RMB147.6 million in the previous quarter and RMB175.5 million in the same quarter last year.

Basic and diluted earnings per ADS were RMB1.66 (USD0.27) and RMB1.65 (USD0.27), respectively, compared with RMB2.70 and RMB2.69, respectively, in the previous quarter, and RMB3.28 and RMB3.25, respectively, in the same quarter last year.  Non-GAAP basic and diluted earnings per ADS were RMB2.01 (USD0.33) and RMB2.00 (USD0.33), respectively, compared with RMB3.05 and RMB3.03, respectively, in the previous quarter, and RMB3.64 and RMB3.60, respectively, in the same quarter last year.

Cash and Cash Equivalents

As of June 30, 2013, the Company had RMB1.0 billion (USD168.1 million) of cash and cash equivalents, compared with RMB904.8 million as of March 31, 2013.  The increase was mainly due to the net cash inflow generated from the Company's online game operations.

Business Outlook

Based on the Company's current operations, total revenues for the third quarter of 2013 are expected to be between RMB779 million and RMB815 million, representing an increase of 10% to 15% on a sequential basis.  This takes into consideration the anticipated additional revenue contribution from "Swordsman Online" and "Saint Seiya Online" recently launched in China.

Non-GAAP Financial Measures

To supplement the financial measures prepared in accordance with generally accepted accounting principles in the United States, or GAAP, this press release presents non-GAAP operating profit, non-GAAP net income attributable to the Company's shareholders and non-GAAP earnings per ADS by excluding share-based compensation charge from operating profit, net income attributable to the Company's shareholders and earnings per ADS, respectively.  The Company believes these non-GAAP financial measures are important to help investors understand the Company's operating and financial performance, compare business trends among different reporting periods on a consistent basis and assess the Company's core operating results, as they exclude certain expenses that are not expected to result in cash payments.  The use of the above non-GAAP financial measures has certain limitations.  Share-based compensation charge has been and will continue to be incurred in the future and is not reflected in the presentation of the non-GAAP financial measures, but should be considered in the overall evaluation of the Company's results.  None of the non-GAAP measures is a measure of net income attributable to the Company's shareholders, operating profit, operating performance or liquidity presented in accordance with GAAP.  The Company compensates for these limitations by providing the relevant disclosure of its share-based compensation charge in the reconciliations to the most directly comparable GAAP financial measures, which should be considered when evaluating the Company's performance.  These non-GAAP financial measures should be considered in addition to financial measures prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, financial measures prepared in accordance with GAAP.  Reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure are set forth at the end of this release.

Conference Call

Perfect World will host a conference call and live webcast at 9:00pm Eastern Daylight Time on Monday, August 19, 2013 (9:00am Beijing time on Tuesday, August 20, 2013).

Dial-in numbers for the live conference call are as follows:

    - U.S. Toll Free Number

1-855-298-3404

    - International Dial-in Number

+61-2-8524-5042

    - Mainland China Toll Free Number

4001-200-539

    - Hong Kong Toll Free Number

800-905-927

    - U.K. Toll Free Number

0800-015-9725

Conference ID: PWRD


A live and archived webcast of the conference call will be available on the Investor Relations section of Perfect World's website at http://www.pwrd.com.

A telephone replay of the call will be available beginning two hours after the conclusion of the conference call through 11:59pm Eastern Time, August 26, 2013.

Dial-in numbers for the replay are as follows:

    - U.S. Toll Free Number

1-866-846-0868

    - International Dial-in Number

+61-2-9641-7900

Conference ID: 1188020


About Perfect World Co., Ltd. (http://www.pwrd.com)

Perfect World Co., Ltd. (NASDAQ: PWRD) is a leading online game developer and operator based in China.  Perfect World primarily develops online games based on proprietary game engines and game development platforms.  Perfect World's strong technology and creative game design capabilities, combined with extensive knowledge and experiences in the online game market, enable it to frequently and promptly introduce popular games designed to cater changing customer preferences and market trends.  Perfect World's current portfolio of self-developed online games includes massively multiplayer online role playing games ("MMORPGs"): "Perfect World," "Legend of Martial Arts," "Perfect World II," "Zhu Xian," "Chi Bi," "Pocketpet Journey West," "Battle of the Immortals," "Fantasy Zhu Xian," "Forsaken World," "Dragon Excalibur," "Empire of the Immortals," "Return of the Condor Heroes," "Saint Seiya Online" and "Swordsman Online;" an online casual game: "Hot Dance Party;" and a number of web games and mobile games.  While a majority of the revenues are generated in China, Perfect World operates its games in North America, Europe, Japan, Korea and Southeast Asia through its own subsidiaries.  Perfect World's games have also been licensed to leading game operators in a number of countries and regions in Asia, Latin America, Australia, New Zealand, and the Russian Federation and other Russian speaking territories.  Perfect World intends to continue to explore new and innovative business models and is committed to maximizing shareholder value over time.


Safe Harbor Statements

This press release contains forward-looking statements.  These statements constitute forward-looking statements under 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 management's quotations and "Business Outlook" contain forward-looking statements.  Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.  Potential risks and uncertainties include, but are not limited to, Perfect World's limited operating history, its ability to develop and operate new games that are commercially successful, the growth of the online game market and the continuing market acceptance of its games and in-game items in China and elsewhere, its ability to protect intellectual property rights, its ability to respond to competitive pressure, its ability to maintain an effective system of internal control over financial reporting, changes of the regulatory environment in China, and economic slowdown in China and/or elsewhere.  Further information regarding these and other risks is included in Perfect World's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F.  All information provided in this press release and in the attachments is as of August 19, 2013, and Perfect World does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

For further information, please contact

Perfect World Co., Ltd.
Vivien Wang -- Vice President, Investor Relations & Corporate Communications
Joanne Deng -- Investor Relations Manager 
Tel: +86-10-5780-5700 
Fax: +86-10-5780-5713
Email: ir@pwrd.com
http://www.pwrd.com

Christensen Investor Relations
Patty Bruner
Tel: +1-480-614-3036
Fax: +1-480-614-3033
Email: pbruner@christensenir.com

Jung Chang
Tel: +852-2117-0861
Fax: +852-2117-0869
Email: jchang@christensenir.com


 

Perfect World Co., Ltd.
Unaudited Condensed Consolidated Balance Sheets









December 31,


June 30,


June 30,


2012


2013


2013


RMB


RMB


USD

Assets






Current assets






    Cash and cash equivalents 

799,632,647


1,031,837,328


168,122,874

    Restricted cash and time deposits

891,462,180


338,688,627


55,184,382

    Short-term investments

1,508,884,886


1,165,689,384


189,932,118

    Accounts receivable, net

110,286,428


144,604,898


23,561,263

    Due from related parties

7,542,600


3,866,000


629,908

    Prepayment and other assets

156,083,903


218,943,125


35,673,595

    Deferred tax assets

41,585,847


32,587,317


5,309,629

Total current assets

3,515,478,491


2,936,216,679


478,413,769

Non current assets






    Equity investments

227,832,057


410,494,058


66,884,032

    Time deposits

51,465,395


52,715,495


8,589,223

    Restricted time deposits

7,814,450


7,690,788


1,253,102

    Property, equipment, and software, net

1,206,485,419


1,313,321,263


213,986,584

    Construction in progress

20,326,428


12,212,837


1,989,904

    Intangible assets, net

229,013,555


262,073,918


42,701,130

    Goodwill

408,829,417


410,523,513


66,888,831

    Prepayments and other assets

87,332,624


113,958,523


18,567,883

    Deferred tax assets

42,427,797


43,361,393


7,065,108

Total assets

5,797,005,633


5,562,568,467


906,339,566







Liabilities and Shareholders' Equity






Current liabilities






    Accounts payable

70,696,803


140,653,417


22,917,425

    Short-term bank loans

747,974,500


302,756,300


49,329,732

    Advances from customers

133,949,512


84,098,405


13,702,611

    Salary and welfare payable

232,137,936


155,716,345


25,371,712

    Taxes payable

49,898,625


61,965,304


10,096,344

    Accrued expenses and other liabilities

58,016,741


69,169,675


11,270,192

    Due to related parties

150,000


830,460


135,311

    Deferred revenues

365,705,044


504,369,781


82,179,715

    Deferred tax liabilities

61,219,290


66,571,670


10,846,885

    Deferred government grants

458,287


5,100,000


830,971

Total current liabilities

1,720,206,738


1,391,231,357


226,680,898

Non current liabilities






    Deferred revenues

56,503,584


56,749,333


9,246,478

    Deferred tax liabilities

6,875,864


8,066,681


1,314,348

    Other long-term liabilities

1,619,438


1,620,948


264,110

Total liabilities

1,785,205,624


1,457,668,319


237,505,834







Shareholders' Equity






Ordinary shares (US$0.0001 par value, 10,000,000,000 
           shares authorized, 29,671,195 Class A ordinary shares 
           issued and outstanding, 212,376,660 Class B ordinary 
           shares issued and outstanding as of December 31, 2012; 
           10,000,000,000 shares authorized, 29,671,195 Class A 
           ordinary shares issued and outstanding, 213,991,700 Class 
           B ordinary shares issued and outstanding as of June 30, 
           2013)

193,960


194,963


31,766

Additional paid-in capital

329,804,508


376,261,640


61,306,358

Statutory reserves

272,938,726


287,775,726


46,888,866

Accumulated other comprehensive loss

(80,543,186)


(123,442,575)


(20,113,171)

Retained earnings

3,466,189,747


3,526,143,464


574,533,754

Total Perfect World Shareholders' Equity

3,988,583,755


4,066,933,218


662,647,573

Non-controlling interests

23,216,254


37,966,930


6,186,159

Total Shareholders' Equity

4,011,800,009


4,104,900,148


668,833,732

Total Liabilities and Shareholders' Equity

5,797,005,633


5,562,568,467


906,339,566


 

Perfect World Co., Ltd.
Unaudited Condensed Consolidated Statements of Operations




Three months ended


June 30,


March 31,


June 30,


June 30,


2012


2013


2013


2013


RMB


RMB


RMB


USD

Revenues








Online game operation revenues

626,444,057


556,192,368


650,106,240


105,925,349

Licensing revenues

46,923,638


30,131,068


31,489,188


5,130,705

Other revenues

3,042,555


38,186,260


26,931,191


4,388,046

Total Revenues

676,410,250


624,509,696


708,526,619


115,444,100

Cost of revenues

(126,649,248)


(146,560,852)


(173,504,663)


(28,270,059)

Gross profit

549,761,002


477,948,844


535,021,956


87,174,041

Operating expenses








Research and development expenses

(189,673,612)


(180,992,409)


(199,392,117)


(32,488,043)

Sales and marketing expenses

(121,773,658)


(96,574,651)


(194,941,687)


(31,762,911)

General and administrative expenses

(83,138,145)


(67,311,606)


(73,620,386)


(11,995,370)

Total operating expenses

(394,585,415)


(344,878,666)


(467,954,190)


(76,246,324)

Operating  profit

155,175,587


133,070,178


67,067,766


10,927,717

Other income / (expenses)








Share of loss from equity investments

(2,425,763)


(1,026,975)


(3,308,864)


(539,131)

Interest income

27,861,314


24,029,715


21,266,383


3,465,048

Interest expense

(7,847,932)


(4,300,530)


(1,645,346)


(268,085)

Others, net

21,309,632


15,496,975


17,198,395


2,802,228

Total other income

38,897,251


34,199,185


33,510,568


5,460,060

Profit before tax

194,072,838


167,269,363


100,578,334


16,387,777

Income tax expense

(38,113,968)


(33,456,058)


(20,201,537)


(3,291,546)

Net Income

155,958,870


133,813,305


80,376,797


13,096,231

Net loss / (income) attributable to the non-controlling interests

2,248,890


(2,851,834)


365,981


59,631

Net income attributable to the Company's shareholders

158,207,760


130,961,471


80,742,778


13,155,862









Net earnings per ordinary share, basic

0.66


0.54


0.33


0.05

Net earnings per ordinary share, diluted

0.65


0.54


0.33


0.05

Net earnings per ADS, basic

3.28


2.70


1.66


0.27

Net earnings per ADS, diluted

3.25


2.69


1.65


0.27









Shares used in calculating basic net earnings per ordinary share

241,209,046


242,089,199


243,080,784


243,080,784

Shares used in calculating diluted net earnings per ordinary share

243,529,117


243,852,774


245,014,367


245,014,367









Total share-based compensation cost included in:








Cost of revenues

(1,089,992)


(1,041,128)


(820,454)


(133,681)

Research and development expenses

(8,345,586)


(7,807,043)


(7,737,877)


(1,260,774)

Sales and marketing expenses

(2,654,574)


(2,673,345)


(2,748,356)


(447,805)

General and administrative expenses

(5,216,569)


(5,164,597)


(5,792,385)


(943,785)

 



Perfect World Co., Ltd.

Reconciliation of GAAP and Non-GAAP Results




Three months ended


June 30,


March 31,


June 30,


June 30,


2012


2013


2013


2013


RMB


RMB


RMB


USD









GAAP operating profit

155,175,587


133,070,178


67,067,766


10,927,717

Share-based compensation charge

17,306,721


16,686,113


17,099,072


2,786,045

Non-GAAP operating profit

172,482,308


149,756,291


84,166,838


13,713,762









GAAP net income attributable to the 
      Company's shareholders

158,207,760


130,961,471


80,742,778


13,155,862

Share-based compensation charge

17,306,721


16,686,113


17,099,072


2,786,045

Non-GAAP net income attributable to the
      Company's shareholders

175,514,481


147,647,584


97,841,850


15,941,907









GAAP net earnings per ADS








      - Basic

3.28


2.70


1.66


0.27

      - Diluted

3.25


2.69


1.65


0.27









Non-GAAP net earnings per ADS








      - Basic

3.64


3.05


2.01


0.33

      - Diluted

3.60


3.03


2.00


0.33









ADSs used in calculating net earnings per ADS








      - Basic

48,241,809


48,417,840


48,616,157


48,616,157

      - Diluted

48,705,823


48,770,555


49,002,873


49,002,873









SOURCE Perfect World Co., Ltd.



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