The9 Limited Reports First and Second Quarter 2013 Unaudited Financial Results

05 Sep, 2013, 17:30 ET from The9 Limited

SHANGHAI, Sept. 5, 2013 /PRNewswire-FirstCall/ -- The9 Limited (NASDAQ: NCTY) ("The9"), an online game developer and operator, announced its unaudited financial results for the first quarter ended March 31, 2013 and the second quarter ended June 30, 2013 today.

Financial Highlights:

  • Net revenues in the first quarter of 2013 amounted to RMB19.9 million (US$3.2 million), representing a 7% increase from RMB18.6 million (US$3.0 million) in the fourth quarter of 2012. Net revenues in the second quarter of 2013 amounted to RMB26.2 million (US$4.3 million), representing a 32% increase from RMB19.9 million (US$3.2 million) in the first quarter of 2013.
  • In the first quarter of 2013, net loss attributable to holders of ordinary shares was RMB114.1 million (US$18.6 million), representing a 2% decrease from a net loss of RMB115.9 million (US$18.9 million) in the fourth quarter of 2012. In the second quarter of 2013, net loss attributable to holders of ordinary shares was RMB167.8 million (US$27.3 million), representing a 47% increase from RMB114.1 million (US$18.6 million) in the first quarter of 2013, including an impairment loss on investments of RMB32.8 million (US$5.3 million) recorded in the second quarter of 2013.

Management Comments:

Jun Zhu, Chairman and Chief Executive Officer of The9 said, "Our net losses in the first and second quarters of 2013 in part reflected our ongoing investments related to the development and upcoming launch of our widely anticipated new games, Firefall and Qiji2. In the second half of 2013, we expect to commence the marketing campaign for Firefall in the U.S. and Europe. We also plan to launch Qiji2 in China in the second half of 2013. We have great expectation for these two games on which we have invested more than $100 million in the past three years."

Discussion of The9's Unaudited First and Second Quarter 2013 Results

Net Revenues

Our net revenues in the first quarter of 2013 amounted to RMB19.9 million (US$3.2 million), representing a 7% increase from RMB18.6 million (US$3.0 million) in the fourth quarter of 2012 and a 59% decrease from RMB48.6 million (US$7.9 million) in the first quarter of 2012. The increase from the previous quarter was primarily due to an increase in net revenues from Firefall close beta testing. The decrease from the first quarter of 2012 was primarily due to a decrease in net revenues from ShenXianZhuan.

Our net revenues in the second quarter of 2013 amounted to RMB26.2 million (US$4.3 million), representing a 32% increase from RMB19.9 million (US$3.2 million) in the first quarter of 2013 and a 52% decrease from RMB54.8 million (US$8.9 million) in the second quarter of 2012. The increase from the previous quarter was primarily due to an increase in net revenues from the games newly launched in the first quarter, including Firefall close beta testing, Planetside2 and ReXueWuShuang (a new web game). The decrease from the first quarter of 2012 was primarily due to a decrease in net revenues from ShenXianZhuan, partially offset by the net revenues from our newly launched games.

Gross Profit (Loss)

Our gross loss in the first quarter of 2013 amounted to RMB0.8 million (US$0.1 million), representing a 38% decrease from RMB1.3 million (US$0.2 million) in the fourth quarter of 2012. We recorded a gross profit of RMB32.8 million (US$5.3 million) in the first quarter of 2012. The decrease from the fourth quarter of 2012 was primarily due to the increase in net revenues from the games newly launched in the first quarter of 2013. We had a gross loss in the first quarter of 2013 compared to a gross profit in the same quarter in 2012, primarily reflected a decrease in net revenues from ShenXianZhuan and an increase of amortization costs related to Firefall in the first quarter of 2013.

Our gross profit in the second quarter of 2013 amounted to RMB3.0 million (US$0.5 million), compared to gross loss of RMB0.8 million (US$0.1 million) in the first quarter of 2013. Such gross profit in the second quarter of 2013 represented a 92% decrease from a gross profit of RMB38.8 million (US$6.3 million) in the second quarter of 2012. The difference between the first two quarters in 2013 reflected the increase in net revenues from the newly launched games. The year-over-year decrease was primarily due to a decrease in net revenues from ShenXianZhuan and an increase of amortization costs related to Firefall.

Operating Expenses

In the first quarter of 2013, our operating expenses were RMB125.4 million (US$20.4 million), representing a 16% decrease from RMB148.9 million (US$24.3 million) in the fourth quarter of 2012 and a 19% decrease from RMB154.9 million (US$25.2 million) in the first quarter of 2012. The decrease from the fourth quarter of 2012 was primarily due to a decrease in marketing expenses related to Firefall and Planetside 2, as well as a decrease in product development expenses related to Firefall, Qiji2 and mobile games. The decrease from the first quarter of 2012 was primarily due to a decrease in marketing expenses related to ShenXianZhuan, as well as a decrease in product development expenses as a result of our disposal of certain research and development entities in the third quarter of 2012. In the first quarter of 2013, our share-based compensation was RMB7.9 million (US$1.3 million), compared to RMB8.2 million (US$1.3 million) in the fourth quarter of 2012 and RMB9.0 million (US$1.5 million) in the first quarter of 2012.

In the second quarter of 2013, our operating expenses were RMB149.4 million (US$24.3 million), representing a 19% increase from RMB125.4 million (US$20.4 million) in the first quarter of 2013 and a 12% decrease from RMB168.8 million (US$27.5 million) in the second quarter of 2012. The increase from the first quarter of 2013 was primarily due to an increase in marketing expenses related to Planetside 2, an increase in product development expenses related to Firefall, Qiji2 and web games, and an increase in share-based compensation. The decrease from the second quarter of 2012 was primarily due to a decrease in marketing expenses related to ShenXianZhuan, as well as a decrease in product development expenses as a result of our disposal of certain research and development entities in the third quarter of 2012. In the second quarter of 2013, our share-based compensation was RMB11.8 million (US$1.9 million), compared to RMB7.9 million (US$1.3 million) in the first quarter of 2013 and RMB8.9 million (US$1.5 million) in the second quarter of 2012.

Interest Income

Our interest income in the first quarter of 2013 was RMB3.6 million (US$0.6 million), compared to RMB3.6 million (US$0.6 million) in the fourth quarter of 2012 and RMB6.8 million (US$1.1 million) in the first quarter of 2012. The decrease from the first quarter of 2012 was primarily due to a decrease in our cash balance.

Our interest income in the second quarter of 2013 was RMB2.2 million (US$0.4 million), compared to RMB3.6 million (US$0.6 million) in the first quarter of 2013 and RMB6.5 million (US$1.1 million) in the second quarter of 2012. Such decreases were primarily due to decreases in our cash balance.

Impairment Loss on Investments

In the second quarter of 2013, we recognized an impairment loss of RMB32.8 million (US$5.3 million) in relation to our investments in several early–stage mobile game and application development companies in the U.S and China.

Net Loss Attributable to Holders of Ordinary Shares

As a result of the foregoing, in the first quarter of 2013, our net loss attributable to holders of ordinary shares was RMB114.1 million (US$18.6 million), representing a 2% decrease from RMB115.9 million (US$18.9 million) in the fourth quarter of 2012 and a 3% increase from RMB111.4 million (US$18.1 million) in the first quarter of 2012. Our fully diluted loss per share and per ADS in the first quarter of 2013 was RMB4.79 (US$0.78), compared to RMB4.73 (US$0.77) in the fourth quarter of 2012 and RMB4.55 (US$0.74) in the first quarter of 2012.

In the second quarter of 2013, our net loss attributable to holders of ordinary shares was RMB167.8 million (US$27.3 million), representing a 47% increase from RMB114.1 million (US$18.6 million) in the first quarter of 2013 and a 42% increase from RMB118.0 million (US$19.2 million) in the second quarter of 2012. Our fully diluted loss per share and per ADS in the second quarter of 2013 was RMB7.34 (US$1.20), compared to RMB4.79 (US$0.78) in the first quarter of 2013 and RMB4.82 (US$0.79) in the second quarter of 2012.

Convenience Currency Translation

The translation of Renminbi (RMB) into US dollars (US$) in this press release is presented solely for the convenience of readers. The translation was made based on the noon buying rate for U.S. dollars in the City of New York for cable transfers in Renminbi as certified for customs purposes by the H.10 weekly statistical release of the Federal Reserve Board as of June 30, 2013, which was RMB 6.1374 to US$1.00. Such translations should not be construed as any representation that the related RMB amounts represent, have been or could be converted into U.S. dollars at that or any other exchange rate. The percentages stated in this press release are calculated based on the RMB amounts.

Conference Call / Webcast Information

The9's management team will host a conference call on Thursday, September 5, 2013 at 9:00 PM, U.S. Eastern Time, corresponding to Friday, September 6, 2013 at 9:00 AM, Beijing Time, to present an overview of The9's financial performance and business operations.

Investors, analysts and other interested parties will be able to access the live conference by calling:

US Toll Free:

+1-866-519-4004

Mainland China (mobile users):

400-620-8038

Mainland China (fixed line users):

800-819-0121

Hong Kong Toll:

+852-2475-0994

International Toll:

+65-6723-9381   

Passcode:

32285426

A digital recording of the conference will be available for replay from 12:00 AM ET on September 6, 2013 for 7 days.

The dial-in details for the replay are:

U.S. Toll Free:

+1-855-452-5696

International Toll:

+1-646-254-3697

Passcode:

32285426

The9 will also provide a live webcast of the earnings call. Participants in the webcast may log onto the Company's Investor Relations website http://www.corp.the9.com 15 minutes prior to the call, then click on the icon for "The9 Limited 1Q & 2Q 2013 Earnings Conference Call" and follow the instructions.

About The9

The9 Limited is an online game developer and operator. The9 develops and operates, directly or through its affiliates, its proprietary MMO games including Firefall and Qiji2. The9 also develops and operates web games and social games including ReXueWuShuang and Winning Dunk. The9 has also obtained exclusive licenses to operate other MMO games in mainland China such as Planetside 2. In 2010, The9 established its Mobile Internet Unit to focus on mobile internet business.

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 and quotations from management in this press release contain forward-looking statements. The9 may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on Forms 20-F and 6-K, etc., in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about The9's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, political and economic policies of the Chinese government, the laws and regulations governing the online game industry, information disseminated over the Internet and Internet content providers in China, intensified government regulation of Internet cafes, The9's ability to retain existing players and attract new players, license, develop or acquire additional online games that are appealing to users, anticipate and adapt to changing consumer preferences and respond to competitive market conditions, and other risks and uncertainties outlined in The9's filings with the U.S. Securities and Exchange Commission, including its annual reports on Form 20-F. The9 does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

For further information, please contact:

Ms. Phyllis Sai Manager, Investor Relations The9 Limited Tel: +86 (21) 5172-9990 Email: IR@corp.the9.com Website: http://www.corp.the9.com/

- Tables follow -

THE9 LIMITED

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Expressed in Renminbi - RMB and US Dollars - US$, except share data)

 Quarter ended 

March 31,

2012

June 30,

2012

December 31,

2012

March 31,

2013

June 30,

2013

March 31,

2013

June 30, 

2013

RMB

RMB

RMB

RMB

RMB

US$

US$

Revenues: 

   Online game services 

51,591,154

57,422,981

15,480,802

18,853,262

23,862,119

3,071,865

3,887,985

   Other revenues 

527,388

716,506

3,813,959

1,530,828

2,895,626

249,426

471,800

52,118,542

58,139,487

19,294,761

20,384,090

26,757,745

3,321,291

4,359,785

Sales Taxes 

(3,510,585)

(3,343,719)

(706,456)

(492,703)

(583,489)

(80,279)

(95,071)

Net Revenues 

48,607,957

54,795,768

18,588,305

19,891,387

26,174,256

3,241,012

4,264,714

Cost of Services 

(15,817,867)

(16,045,323)

(19,921,262)

(20,720,433)

(23,169,282)

(3,376,093)

(3,775,097)

Gross Profit (loss) 

32,790,090

38,750,445

(1,332,957)

(829,046)

3,004,974

(135,081)

489,617

Operating Expenses: 

   Product development 

(69,261,659)

(78,253,825)

(68,702,039)

(53,510,806)

(59,174,437)

(8,718,806)

(9,641,614)

   Sales and marketing 

(48,703,335)

(44,795,100)

(41,084,956)

(29,319,993)

(37,689,001)

(4,777,266)

(6,140,875)

   General and administrative

(36,952,477)

(45,156,943)

(39,068,639)

(42,530,459)

(52,504,655)

(6,929,719)

(8,554,869)

   Impairment of equipment and intangible assets 

-

(569,139)

-

-

-

-

-

-

Total operating expenses 

(154,917,471)

(168,775,007)

(148,855,634)

(125,361,258)

(149,368,093)

(20,425,791)

(24,337,358)

Other operating Income 

30,000

30,000

30,000

30,000

34,628

4,888

5,642

Loss from operations 

(122,097,381)

(129,994,562)

(150,158,591)

(126,160,304)

(146,328,491)

(20,555,984)

(23,842,099)

Interest income, net 

6,771,491

6,517,258

3,548,297

3,561,357

2,209,606

580,271

360,023

Other (expenses) income, net 

875,783

1,621,895

2,258,930

144,567

2,171,902

23,555

353,880

Loss before gain on investment disposal,    impairment loss on investments and       share of loss in equity investments 

(114,450,107)

(121,855,409)

(144,351,364)

(122,454,380)

(141,946,983)

(19,952,158)

(23,128,196)

Gain on investment disposal 

-

-

15,725,792

-

-

-

-

Impairment loss on investments 

-

-

-

-

(32,789,319)

-

(5,342,542)

Share of loss in equity investments 

(1,856,783)

(2,521,100)

(31,544)

(920,541)

(1,043,738)

(149,989)

(170,062)

Net loss 

(116,306,890)

(124,376,509)

(128,657,116)

(123,374,921)

(175,780,040)

(20,102,147)

(28,640,800)

Less: Net loss attributable to noncontrolling 

interest 

(4,953,916)

(6,356,698)

(12,766,951)

(9,280,345)

(7,973,642)

(1,512,097)

(1,299,189)

Net loss attributable to     holders of ordinary shares 

(111,352,974)

(118,019,811)

(115,890,165)

(114,094,576)

(167,806,398)

(18,590,050)

(27,341,611)

Net loss 

(116,306,890)

(124,376,509)

(128,657,116)

(123,374,921)

(175,780,040)

(20,102,147)

(28,640,800)

Other Comprehensive loss: 

   Unrealized loss on available-for-sale investments 

-

-

(56,600)

(16,600)

-

(2,705)

-

   Currency translation adjustments 

(41,316)

(111,701)

(1,830,684)

121,010

(1,727,211)

19,717

(281,424)

Comprehensive loss 

(116,348,206)

(124,488,210)

(130,544,400)

(123,270,511)

(177,507,251)

(20,085,135)

(28,922,224)

Less: Comprehensive loss attributable to    noncontrolling interest 

(4,953,109)

(6,374,414)

(12,621,017)

(9,196,148)

(7,356,438)

(1,498,378)

(1,198,625)

Comprehensive loss attributable to holders of   ordinary shares 

(111,395,097)

(118,113,796)

(117,923,383)

(114,074,363)

(170,150,813)

(18,586,757)

(27,723,599)

Net loss attributable to holders of ordinary   shares per share 

   - Basic and diluted 

(4.55)

(4.82)

(4.73)

(4.79)

(7.34)

(0.78)

(1.20)

 Weighted average number of shares outstanding 

   - Basic and diluted 

24,459,891

24,474,211

24,518,298

23,838,496

22,850,083

23,838,496

22,850,083

 

THE9 LIMITED

UNAUDITED CONSOLIDATED BALANCE SHEETS INFORMATION

(Expressed in Renminbi - RMB and US Dollars - US$)

 As at 

December 31, 2012

March 31, 2013

June 30, 2013

March 31, 2013

June 30, 2013

RMB

RMB

RMB

US$

US$

Assets

Current Assets

   Cash and cash equivalents

554,278,809

432,629,134

321,210,487

70,490,621

52,336,574

   Short term investment

877,350

279,150

55,830

45,483

9,097

   Accounts receivable

15,621,678

19,437,139

19,990,552

3,166,999

3,257,169

   Due from related parties

-

-

163,863

-

26,699

   Advances to suppliers

2,094,525

3,079,581

6,364,475

501,773

1,036,999

   Prepayments and other current assets

76,022,204

49,836,458

55,009,071

8,120,125

8,962,927

   Prepaid royalties

14,820,331

14,781,163

12,051,430

2,408,375

1,963,605

   Deferred costs

900,961

834,692

2,493,128

136,001

406,219

Total current assets

664,615,858

520,877,317

417,338,836

84,869,377

67,999,289

Restricted cash

737,959

737,959

700,000

120,240

114,055

Investments in equity investees

76,017,792

80,245,745

52,674,765

13,074,876

8,582,586

Available-for-sale investments

6,285,500

6,268,900

-

1,021,426

-

Property, equipment and software

64,575,315

62,002,915

60,630,081

10,102,473

9,878,789

Goodwill

10,011,247

9,984,807

9,841,141

1,626,879

1,603,471

Intangible assets

155,049,811

149,080,004

143,147,821

24,290,417

23,323,854

Land use right

74,115,115

73,634,888

73,154,660

11,997,733

11,919,487

Other long-term assets

60,936,775

51,305,441

50,207,883

8,359,475

8,180,644

Total Assets

1,112,345,372

954,137,976

807,695,187

155,462,896

131,602,175

Liabilities and Shareholders' Equity

Current Liabilities

   Accounts payable

54,947,197

41,236,041

55,715,695

6,718,813

9,078,062

   Other taxes payable

4,148,647

2,681,563

4,369,145

436,922

711,889

   Advances from customers

17,878,053

19,502,390

17,813,636

3,177,631

2,902,473

   Deferred revenue

20,255,327

23,711,065

30,035,379

3,863,373

4,893,828

   Refund of game points

169,998,682

169,998,682

169,998,682

27,698,811

27,698,811

   Other payables and accruals

50,484,656

42,607,932

45,814,808

6,942,342

7,464,856

Total current liabilities

317,712,562

299,737,673

323,747,345

48,837,892

52,749,919

Long-term accounts payable

39,912,925

39,807,515

39,234,745

6,486,055

6,392,731

Deferred tax liabilities, non-current

5,508,341

5,493,793

5,414,746

895,134

882,254

Total Liabilities

363,133,828

345,038,981

368,396,836

56,219,081

60,024,904

Equity

   Common shares (US$0.01 par value; 24,484,634

shares issued and outstanding as of December 31, 2012,

23,080,797 shares issued and outstanding as of March

31, 2013, 22,830,431 shares issued and outstanding as

of June 30, 2013)

1,997,390

1,882,919

1,862,254

306,794

303,427

   Additional paid-in capital

2,148,416,134

2,131,822,657

2,139,927,380

347,349,473

348,670,020

   Statutory reserves

28,071,982

28,071,982

28,071,982

4,573,921

4,573,921

   Accumulated other comprehensive loss

(6,710,971)

(6,690,758)

(9,035,173)

(1,090,162)

(1,472,150)

   Accumulated deficit

(1,386,308,302)

(1,500,402,878)

(1,668,209,276)

(244,468,811)

(271,810,422)

The9 Limited shareholders' equity

785,466,233

654,683,922

492,617,167

106,671,215

80,264,796

Noncontrolling interests

(36,254,689)

(45,584,927)

(53,318,816)

(7,427,400)

(8,687,525)

Total equity

749,211,544

609,098,995

439,298,351

99,243,815

71,577,271

Total liabilities and equity

1,112,345,372

954,137,976

807,695,187

155,462,896

131,602,175

SOURCE The9 Limited



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