The9 Limited Reports Third and Fourth Quarter 2013 Unaudited Financial Results

Mar 25, 2014, 17:30 ET from The9 Limited

SHANGHAI, March 25, 2014 /PRNewswire-FirstCall/ -- The9 Limited (NASDAQ: NCTY) ("The9"), an online game developer and operator, announced its unaudited financial results for the third quarter ended September 30, 2013 and the fourth quarter ended December 31, 2013 today.

Financial Highlights:

  • Net revenues in the third quarter of 2013 amounted to RMB33.9 million (US$5.6 million), representing a 29.5% increase from RMB26.2 million (US$4.3 million) in the second quarter of 2013. Net revenues in the fourth quarter of 2013 amounted to RMB24.8 million (US$4.1 million), representing a 26.8% decrease from RMB33.9 million (US$5.6 million) in the third quarter of 2013
  • In the third quarter of 2013, net loss attributable to holders of ordinary shares was RMB121.5 million (US$20.1 million), representing a 27.6% decrease from a net loss of RMB167.8 million (US$27.7 million) in the second quarter of 2013. In the fourth quarter of 2013, net loss attributable to holders of ordinary shares was RMB122.9  million (US$20.3 million), representing a 1.1% increase from RMB121.5 million (US$20.1 million) in the third quarter of 2013.

Management Comments:

Jun Zhu, Chairman and Chief Executive Officer of The9 said, "We are very excited to introduce Fun Box to the China market. Fun Box is the home entertainment set top box developed by our joint venture ZTE9. Unlike the typical online video and music, Fun Box also enables video conferencing on TV. More importantly, with the gamepad and high-end built-in hardware, Fun Box provides excellent video game experience on TV. We are considering different plans to share the maximum business opportunities of Fun Box to The9 shareholders. For our existing online game business, with the signing of a $23 million investment deal from Shanghai Oriental Pearl (Group) Co., Ltd., Firefall has entered into the last stage of beta testing. We are planning a large-scale commercial launch of Firefall in 2014."

Discussion of The9's Unaudited Third and Fourth Quarter 2013 Results

Net Revenues

Our net revenues in the third quarter of 2013 amounted to RMB33.9 million (US$5.6 million), representing a 29.5% increase from RMB26.2 million (US$4.3 million) in the second quarter of 2013 and a 4.5% increase from RMB32.4 million (US$5.4 million) in the third quarter of 2012. The increase from the previous quarter was primarily due to an increase in net revenues from Planetside 2 and Firefall, which is in limited beta testing.  

Our net revenues in the fourth quarter of 2013 amounted to RMB24.8 million (US$4.1 million), representing an 26.8% decrease from RMB33.9 million (US$5.6 million) in the third quarter of 2013 and a 33.5% increase from RMB18.6 million (US$3.1 million) in the fourth quarter of 2012.  The decrease from the previous quarter was primarily due to a decrease in net revenues from several web games. The increase from the fourth quarter of 2012 was primarily due to an increase in net revenues from Planetside 2 and Firefall, which is in limited beta testing.

Gross Profit (Loss)

Our gross loss in the third quarter of 2013 amounted to RMB8.2 million (US$1.4 million), compared with a RMB3.0 million (US$0.5 million) gross profit in the second quarter of 2013 and a gross profit of RMB14.8 million (US$2.4 million) in the third quarter of 2012. The gross loss in the third quarter of 2013 was primarily due to the impairment of prepaid royalties and deferred cost of Planetside 2 as lower-than-expected revenues were generated.

Our gross profit in the fourth quarter of 2013 amounted to RMB3.0 million (US$0.5 million), compared to gross loss of RMB8.2 million (US$1.4 million) in the third quarter of 2013, and a gross loss of RMB1.3 million (US$0.2 million) in the fourth quarter of 2012. The gross profit in the fourth quarter of 2013 was primarily due to an increase in net revenues from Planetside 2 and Firefall which were sufficient to cover the cost of services.

Operating Expenses

In the third quarter of 2013, our operating expenses were RMB126.1 million (US$20.8 million), representing a 15.6% decrease from RMB149.4 million (US$24.7 million) in the second quarter of 2013 and a 38.5% decrease from RMB205.0 million (US$33.9 million) in the third quarter of 2012. The decrease from the second quarter of 2013 was primarily due to a decrease in general and administrative expense as a result of the decrease in share-based compensation. The decrease from the third quarter of 2012 was primarily due to a decrease in product development expenses as a result of our restructuring of investments in and termination of certain contractual arrangements with certain game development variable interest entities in the third quarter of 2012, a decrease in marketing expenses related to Firefall, as well as a decrease in general and administrative expense as a result of our cost cutting efforts. In the third quarter of 2013, our share-based compensation was RMB4.6 million (US$0.8 million), compared to RMB11.8 million (US$2.0 million) in the second quarter of 2013 and RMB11.4 million (US$1.9 million) in the third quarter of 2012.

In the fourth quarter of 2013, our operating expenses were RMB126.5 million (US$20.9 million), representing a 0.3% increase from RMB126.1 million (US$20.8 million) in the third quarter of 2013 and a 15.0% decrease from RMB148.9 million (US$24.6 million) in the fourth quarter of 2012. The increase from the third quarter of 2013 was primarily due to the increase in impairment loss on certain equipment, intangible assets and other long-lived assets and the increase in general and administration expenses, offset by the decrease in marketing expenses and product development expenses. The decrease from the fourth quarter of 2012 was primarily due to decrease in marketing expenses, product development expenses and general and administrative expenses, offset by the increase in impairment loss on certain equipment, intangible assets and other long-lived assets. In the fourth quarter of 2013, our share-based compensation was RMB4.9 million (US$0.8 million), compared to RMB4.6 million (US$0.8 million) in the third quarter of 2013 and RMB8.2 million (US$1.3 million) in the fourth quarter of 2012.

Impairment Loss on Investments

In the fourth quarter of 2013, we recognized an impairment loss of RMB15.2 million (US$2.5 million) in relation to our investment in an app development company based in Beijing.

Net Loss Attributable to Holders of Ordinary Shares

As a result of the foregoing, in the third quarter of 2013, our net loss attributable to holders of ordinary shares was RMB121.5 million (US$20.1 million), representing a 27.6% decrease from RMB167.8 million (US$27.7 million) in the second quarter of 2013 and a 28.0% decrease from RMB168.7 million (US$27.9 million) in the third quarter of 2012. Our fully diluted loss per share and per ADS in the third quarter of 2013 was RMB5.31 (US$0.88), compared to RMB7.34 (US$1.21) in the second quarter of 2013 and RMB6.88 (US$1.14) in the third quarter of 2012.

In the fourth quarter of 2013, our net loss attributable to holders of ordinary shares was RMB122.9 million (US$20.3 million), representing a 1.1% increase from RMB121.5 million (US$20.1 million) in the third quarter of 2013 and a 6.0% increase from RMB115.9 million (US$19.1 million) in the fourth quarter of 2012. Our fully diluted loss per share and per ADS in the fourth quarter of 2013 was RMB5.33 (US$0.88), compared to RMB5.31 (US$0.88) in the third quarter of 2013 and RMB4.73 (US$0.78) in the fourth 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 December 31, 2013, which was RMB 6.0537 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 Tuesday, March 25, 2014 at 9:00 PM, U.S. Eastern Time, corresponding to Wednesday, March 26, 2014 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: 11482832

A digital recording of the conference will be available for replay from 12:00am ET on March 26, 2014 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: 11482832

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 3Q & 4Q 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, web and mobile games including Firefall, QijiGuiLai, ReXue NBA and TianTianWenXiYou. In 2010, The9 established its Wireless Business Unit to focus on mobile internet business including mobile advertising platform Juzi and mobile reading platform KingReader. In 2013, The9 formed a joint venture with Shanghai ZTE to develop and operate home entertainment set top box 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 INCOME STATEMENTS INFORMATION

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

 Quarter ended 

September 30, 2012

December 31,  2012

June 30, 2013

September 30, 2013

December 31, 2013

September 30, 2013

December 31, 2013

RMB

RMB

RMB

RMB

RMB

US$

US$

 Revenues: 

   Online game services 

32,895,665

15,480,802

23,862,119

30,889,002

21,526,964

5,102,500

3,556,001

   Other revenues 

1,132,709

3,813,959

2,895,626

3,472,485

3,596,691

573,614

594,131

34,028,374

19,294,761

26,757,745

34,361,487

25,123,655

5,676,114

4,150,132

 Sales Taxes 

(1,586,589)

(706,456)

(583,489)

(463,164)

(311,552)

(76,509)

(51,465)

 Net Revenues 

32,441,785

18,588,305

26,174,256

33,898,323

24,812,103

5,599,605

4,098,667

 Cost of Services 

(17,631,179)

(19,921,262)

(23,169,282)

(42,098,229)

(21,815,416)

(6,954,132)

(3,603,650)

 Gross Profit (loss) 

14,810,606

(1,332,957)

3,004,974

(8,199,906)

2,996,687

(1,354,527)

495,017

 Operating Expenses: 

   Product development 

(85,253,568)

(68,702,039)

(59,174,437)

(58,405,705)

(42,152,619)

(9,647,935)

(6,963,117)

   Sales and marketing 

(52,428,230)

(41,084,956)

(37,689,001)

(33,076,093)

(16,587,324)

(5,463,781)

(2,740,031)

   General and administrative 

(49,204,837)

(39,068,639)

(52,504,655)

(32,737,711)

(34,185,598)

(5,407,885)

(5,647,058)

   Impairment of equipment, intangible assets and     other long-lived assets  

-

-

-

(1,899,803)

(33,566,319)

(313,825)

(5,544,761)

   Loss on temination of R&D VIE arrangements 

(18,093,999)

-

-

-

-

-

 Total operating expenses 

(204,980,634)

(148,855,634)

(149,368,093)

(126,119,312)

(126,491,860)

(20,833,426)

(20,894,967)

 Other operating Income 

30,000

30,000

34,628

25,372

30,000

4,191

4,956

 Loss from operations 

(190,140,028)

(150,158,591)

(146,328,491)

(134,293,846)

(123,465,173)

(22,183,762)

(20,394,994)

 Impairment on available-for-sale investment 

-

-

(6,268,900)

-

-

-

-

 Interest income, net 

4,948,853

3,548,297

2,209,606

1,417,694

1,187,698

234,186

196,194

 Other (expenses) income , net 

(112,671)

2,258,930

2,171,902

2,882,008

4,103,088

476,074

677,782

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

(185,303,846)

(144,351,364)

(148,215,883)

(129,994,144)

(118,174,387)

(21,473,502)

(19,521,018)

 Gain on investment disposal 

-

15,725,792

-

-

-

-

-

 Impairment loss on investments 

(3,243,744)

-

(26,520,419)

-

(15,181,566)

-

(2,507,816)

 Share of (loss) gain in equity investments 

(1,938,020)

(31,544)

(1,043,738)

(738,523)

326,976

(121,995)

54,012

 Net loss 

(190,485,610)

(128,657,116)

(175,780,040)

(130,732,667)

(133,028,977)

(21,595,497)

(21,974,822)

 Less:Net loss attributable to noncontrolling    interest 

(21,746,468)

(12,766,951)

(7,973,642)

(9,227,196)

(10,173,850)

(1,524,224)

(1,680,600)

 Net loss attributable to    holders of ordinary shares 

(168,739,142)

(115,890,165)

(167,806,398)

(121,505,471)

(122,855,127)

(20,071,273)

(20,294,222)

 Net loss 

(190,485,610)

(128,657,116)

(175,780,040)

(130,732,667)

(133,028,977)

(21,595,497)

(21,974,822)

 Other Comprehensive loss: 

   Unrealized loss on available-for-sale investments 

-

(56,600)

-

-

-

-

-

   Currency translation adjustments 

1,003,992

(1,830,684)

(1,727,211)

(1,066,811)

1,984,049

(176,225)

327,742

 Comprehensive loss 

(189,481,618)

(130,544,400)

(177,507,251)

(131,799,478)

(131,044,928)

(21,771,722)

(21,647,080)

 Less: Comprehensive loss attributable to    noncontrolling interest 

(22,168,887)

(12,621,017)

(7,356,438)

(8,915,850)

(9,616,090)

(1,472,793)

(1,588,465)

 Comprehensive loss attributable to holders of    ordinary shares 

(167,312,731)

(117,923,383)

(170,150,813)

(122,883,628)

(121,428,838)

(20,298,929)

(20,058,615)

 Net loss attributable to holders of ordinary   shares per share 

   - Basic and diluted 

(6.88)

(4.73)

(7.34)

(5.31)

(5.33)

(0.88)

(0.88)

 Weighted average number of shares outstanding 

   - Basic and diluted 

24,525,126

24,518,298

22,850,083

22,868,108

23,070,802

22,868,108

23,070,802

THE9 LIMITED

UNAUDITED CONSOLIDATED BALANCE SHEETS INFORMATION

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

 As at 

December 31, 2012

September 30, 2013

December 31, 2013

September 30, 2013

December 31, 2013

RMB

RMB

RMB

US$

US$

Assets

Current Assets

  Cash and cash equivalents

554,278,809

232,559,793

156,987,201

38,416,141

25,932,438

  Short term investment

877,350

-

-

-

-

  Accounts receivable

15,621,678

21,047,544

19,138,096

3,476,807

3,161,388

  Due from related parties

-

1,295,652

-

214,026

-

  Advances to suppliers

2,094,525

3,141,358

4,525,549

518,915

747,567

  Prepayments and other current assets

76,022,204

47,701,618

32,464,598

7,879,746

5,362,770

  Prepaid royalties

14,820,331

-

4,878,579

-

805,884

  Deferred costs

900,961

82,910

68,217

13,696

11,269

Total current assets

664,615,858

305,828,875

218,062,240

50,519,331

36,021,316

Restricted cash

737,959

700,000

700,000

115,632

115,632

Investments in equity investees

76,017,792

51,936,241

50,848,141

8,579,256

8,399,515

Available-for-sale investments

6,285,500

-

-

-

-

Property, equipment and software

64,575,315

55,129,955

50,439,400

9,106,820

8,331,995

Goodwill

10,011,247

9,792,243

9,710,854

1,617,563

1,604,119

Intangible assets

155,049,811

137,514,269

128,643,824

22,715,739

21,250,446

Land use right

74,115,115

72,674,433

72,194,206

12,004,961

11,925,633

Other long-term assets

60,936,775

49,281,561

16,080,483

8,140,734

2,656,307

Total Assets

1,112,345,372

682,857,577

546,679,148

112,800,036

90,304,963

Liabilities and Shareholders' Equity

Current Liabilities

  Accounts payable

54,947,197

57,380,947

69,376,348

9,478,657

11,460,156

  Other taxes payable

4,148,647

4,411,293

1,238,852

728,694

204,644

  Advances from customers

17,878,053

17,903,380

18,896,049

2,957,428

3,121,405

  Amounts due to related parties                 

-

-

4,799,753

-

792,863

  Deferred revenue

20,255,327

29,656,153

20,113,256

4,898,847

3,322,473

  Refund of game points

169,998,682

169,998,682

169,998,682

28,081,782

28,081,782

  Other payables and accruals

50,484,656

46,950,013

45,669,488

7,755,590

7,544,062

Total current liabilities

317,712,562

326,300,468

330,092,428

53,900,998

54,527,385

Long-term accounts payable

39,912,925

39,039,800

21,110,517

6,448,916

3,487,209

Deferred tax liabilities, non-current

5,508,341

5,387,842

5,343,060

890,008

882,611

Total Liabilities

363,133,828

370,728,110

356,546,005

61,239,922

58,897,205

Equity

  Common shares (US$0.01 par value; 24,484,634     shares issued and outstanding as of December 31, 2012,     22,868,945 shares issued and outstanding as of     September 30, 2013, 23,146,859 shares issued and     outstanding as of December 31, 2013)

1,997,390

1,864,713

1,881,784

308,029

310,849

  Additional paid-in capital

2,148,416,134

2,144,997,970

2,152,320,786

354,328,422

355,538,065

  Statutory reserves

28,071,982

28,071,982

28,071,982

4,637,161

4,637,161

  Accumulated other comprehensive loss

(6,710,971)

(10,413,330)

(8,987,041)

(1,720,160)

(1,484,553)

  Accumulated deficit

(1,386,308,302)

(1,789,714,747)

(1,912,569,874)

(295,639,815)

(315,934,036)

The9 Limited shareholders' equity

785,466,233

374,806,588

260,717,637

61,913,637

43,067,486

Noncontrolling interests

(36,254,689)

(62,677,121)

(70,584,494)

(10,353,523)

(11,659,728)

Total equity

749,211,544

312,129,467

190,133,143

51,560,114

31,407,758

Total liabilities and equity

1,112,345,372

682,857,577

546,679,148

112,800,036

90,304,963

SOURCE The9 Limited



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