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CDC Software Reports Record Fourth Quarter 2009 Non-GAAP Earnings Per Share of $0.40 Compared to $0.11 in the Fourth Quarter of 2008

Announcement posted by CDC Software Australia 26 Feb 2010

Record Non-GAAP Earnings Per Share of $1.31 and Record Cash Flow of $53.0 Million for the Full Year 2009

SHANGHAI, ATLANTA, SYDNEY 24 February 24 2010—CDC Software Corporation (NASDAQ: CDCS), a global provider of enterprise software solutions and services, today announced financial results for the fourth quarter and year ended 31 December, 2009. For the fourth quarter of 2009, Adjusted EBITDA(a) nearly doubled to $14.8 million, from $7.8 million in the fourth quarter of 2008 and non-GAAP earnings per share(a) almost quadrupled to $0.40 compared to $0.11 in the fourth quarter of 2008. For the year ended 31 December, 2009, CDC Software reported non-GAAP earnings per share of $1.31 compared to non-GAAP earnings per share of $0.66 for the year ended 31 December, 2008.

For the fourth quarter of 2009, Adjusted EBITDA margin was 27 percent compared to 14 percent in the fourth quarter of 2008. For the full year 2009, Adjusted EBITDA increased 37 percent to $54.3 million compared to $39.6 million in 2008.

For the fourth quarter of 2009, CDC Software posted revenue of $54.3 million and net income attributable to controlling interest of $7.0 million. This compares to revenue of $54.3 million, and a net loss attributable to controlling interest of ($4.9) million for the fourth quarter of 2008.

Fourth quarter 2009 earnings per share of $0.40 exceeded the First Call consensus estimate, which was $0.35 per share. In addition, during the fourth quarter, CDC Software generated license revenue of $10.5 million, compared to $7.6 million in the third quarter of 2009 and a 40 percent increase from $7.5 million for the average of the first three quarters of 2009. First Call consensus analyst estimates for license revenue in the fourth quarter of 2009 were $7.9 million. Organic license revenue in the fourth quarter, which does not include revenue from the company's recent acquisitions, was $9.7 million, a 29 percent increase from $7.5 million, the average of the first three quarters of 2009.

Operating cash flow for the full year ended 31 December, 2009 increased by 56 percent to $53.0 million compared to $33.9 million for the full year ended 31 December, 2008. In the fourth quarter of 2009, CDC Software's operating cash flow was $6.1 million due primarily to increased working capital requirements resulting from organic growth in revenue.

For the year ended 31 December, 2009, the company reported revenue of $203.9 million, and net income attributable to controlling interest of $23.2 million. This compared to revenue of $240.8 million and a net loss attributable to controlling interest of $0.9 million in the year ended December 31, 2008.

"We are pleased with our fourth quarter results, which again exceeded Wall Street consensus estimates in many of our key financial metrics including non-GAAP earnings per share and license revenue," said Peter Yip, CEO of CDC Software. "Our cash flow from operations for 2009 of $53.0 million represents a record for CDC Software.

"Our robust performance in the fourth quarter, especially our improvements in Adjusted EBITDA margin and license revenue, primarily resulted from our strategies executed last year, which focused on disciplined cost controls while still pursuing growth. The company's organic license revenue in the fourth quarter is attributed in significant part to growth from our core vertical markets, a shortened sales cycle and improved cross selling. Our disciplined acquisition strategy, along with our other growth initiatives that include geographic expansion through resellers and partners, as well as our ongoing programs to drive operational cost efficiencies, are part of our continuing plans to promote long-term growth and profitability for CDC Software."

During the fourth quarter, license revenue, recurring revenue, services revenue and hardware revenue were, 19 percent, 48 percent, 29 percent and 4 percent, respectively, of total revenue. Maintenance revenue in the fourth quarter was $25.3 million compared to $24.9 million in the fourth quarter of 2008. CDC Software also continued to achieve a high maintenance retention rate of approximately 90 percent. Professional services revenue in the fourth quarter of 2009 was $15.8 million, up from $14.9 million in the third quarter of 2009.

CDC Software's balance sheet continued to be solid with cash on hand of $40.3 million at the end of 31 December, 2009. DSOs (days sales outstanding) in the fourth quarter of 2009 improved to 73 days, compared to 79 days for third quarter 2009 and 101 days for the fourth quarter of 2008. Accounts receivable as of 31 Dec, 2009 was $45.4 million, compared to $53.0 million as of 31 December, 2008. Deferred revenue as of 31 December, 2009 was $53.2 million, compared to $54.5 million as of 31 December, 2008.

GAAP net income margin improved to 13 percent in the fourth quarter of 2009, compared to a negative 9 percent in the fourth quarter of 2008. Gross margin improved to 56 percent during the fourth quarter of 2009 compared to 50 percent the same quarter of 2008.

SaaS Strategy

In the fourth quarter of 2009, CDC Software acquired two Software as a Service (SaaS) companies, gomembers, a provider of SaaS and on-premise enterprise solutions for the Not-For-Profit (NFP) and Non-Governmental Organisations (NGO) market, and Truition, an on-demand e-Commerce platform provider for retailers and brand manufacturers, as part of CDC Software's previously announced strategy to expand its offering in the growing on-demand software market. For the fourth quarter 2009, CDC Software reported $616,000 in SaaS revenue, and closed $1 million in SaaS business. The SaaS revenue includes sales from CDC MarketFirst, as well as approximately one month of revenue from CDC gomembers and CDC eCommerce (Truition) since those acquisitions closed late in the fourth quarter. SaaS revenue is a new line item appearing in the company's financial results this quarter and going forward. With an average maintenance retention rate of 90 percent, CDC Software strives to develop recurring revenue streams, which includes SaaS revenue plus maintenance revenue, to reach closer to 70 percent of total revenue over the next few years.

Acquire, Integrate, Innovate and Grow

At the core of CDC Software's financial results has been the execution of its "acquire, integrate, innovate and grow" strategy. CDC Software believes this strategy positions the company well for long-term growth and profitability.

Acquire

CDC Software completed four acquisitions during 2009 including: WKD Solutions (Categoric), a developer of supply chain event management software which adds new functionality for CDC's Supply Chain solutions; Activplant, a provider of enterprise manufacturing intelligence solutions for the plant floor that holds significant cross-selling opportunities for CDC Factory business; gomembers, an on-demand solution for member-based organisations and Truition, a leading on-demand eCommerce platform. CDC gomembers and CDC eCommerce (Truition) are at the centre of CDC Software's SaaS expansion strategy. CDC Software also acquired PeoplePoint, a provider of aged care software solutions in January 2010. This month, CDC Software completed the acquisition of computility, an association management software solution with integrated web modules and web collaboration tools that automate processes such as membership, events services, communications and financials. The computility acquisition adds web-based functionality and breadth to the CDC gomembers on-demand platform for the Not-For-Profit (NFP) market.

CDC Software's mergers and acquisitions pipeline focuses on companies that typically match a subscale profile and fit synergistically, as well as add new functionality within the company's product roadmap. For SaaS acquisitions, CDC Software is focusing on companies that can complement its current SaaS solutions and expand their vertical markets.

Integrate

The integration portion of CDC Software's strategy is fueled by its global scalable business and technology infrastructure that features multiple complementary applications and services, domain expertise in vertical markets, cost effective product engineering centres in India and China and a worldwide network of direct sales and channel operations.

CDC Software's integration activities are based on three cornerstones. The first is a common integration strategy which includes the company's commitment to providing cohesive solutions, active involvement in developing integration standards and its application supporting a service-oriented architecture. The second is the use of common integration principles including a model based on Open Applications Group Integration Specification (OAGIS), point-to-point integration replaced by a service bus architecture, and a clear distinction between online, event-driven and batch-oriented architectures. The third cornerstone is the adoption of common integration technologies including a common on ramp to CDC Software applications and an internal service bus, a common service adapter model to hook up to the service bus and web services to provide interoperability between platforms.

By leveraging this corporate solution architecture, CDC Software believes it has achieved a successful track record of integrating software/technology companies that promote innovation and add new functionality as part of the company's product roadmap. CDC Software's business and technology infrastructure also helps integrate its acquisitions by driving more cross-sell synergy to its 6,000 customers globally, eliminating redundant expenses, streamlining efficiencies and positioning these businesses for organic growth and profitability.

As an illustration of this strategy, CDC Xalerts supply chain event management product, has been a popular cross-selling solution to the company's CDC Supply Chain installed base, while CDC Activplant, CDC eCommerce and CDC gomembers have been exceeding internal expectations and reporting solid performance. Both CDC eCommerce and gomembers, for example, are preparing for international expansion with gomembers targeting Canada, U.K. and Australia while CDC Truition plans to expand in Latin America and Asia.

Innovate

The key enabler in the "innovate" component of CDC Software's corporate strategy is the company's global technology platform. This global infrastructure delivers applications and services by leveraging state-of-the-art product engineering centres in India and China that utilise the Agile development methodology. Through this Agile development methodology and domain expertise, CDC Software believes it has achieved fast speed-to-market delivery and enhanced quality in its products, as well as building an exceptional collaborative product development organisation.

During the fourth quarter of 2009, CDC Software introduced several new products and version upgrades for its core ERP, SCM and CRM applications, and also began marketing its recently acquired products from Activplant, gomembers and Truition. Major new releases included: CDC Ross Enterprise Performance Management, Financial Budgeting and Reporting 6.3.2, CDC Supply Chain Customer Collaboration 2.2, CDC Pivotal Hand Held Solutions for Windows, Mobile, MRM 6.0, CDC Contact Management 6.0 and CDC Activplant's ActivEssentials 6.0.

CDC Software also is developing other upgrades to enhance its current SaaS offerings. In addition to upgrades delivered for CDC gomembers and CDC eCommerce, CDC has piloted CDC Respond on the Microsoft Azure platform and plans further partnerships with Microsoft to leverage this newly released Cloud infrastructure. CDC is also utilising key parts of its SaaS portfolio to build reference architectures for both Microsoft.Net and Java for future SaaS offerings. Furthermore, the company is consolidating its hosting infrastructure to provide worldwide delivery and support for its SaaS customers.

Grow

The company has continued its previously announced initiatives to accelerate organic growth. In the fourth quarter, CDC Software added new resellers to its channel to expand its pipeline and target emerging high growth regions. The company is also focusing its channel growth in Brazil, Russia, India and China.

With its Franchise Partner Program, CDC Software has already tapped into other high growth regions such as in Latin America, India and China. Through the Franchise Partner Program, CDC Software funds investments, through the acquisition of majority control or minority stakes, in strategic partners located in high growth geographies. CDC Software plans to add Franchise Partners next in Brazil and Russia. The company believes that leveraging resellers in emerging markets such as these can accelerate the company's organic revenue growth rate.

In the fourth quarter of 2009, the company initiated an OEM strategy to resell its solutions directly into third party software providers. In addition to its OEM agreement with Pilgrim Software in the fourth quarter, CDC Software has added three new OEM partnerships in 2009. These partnerships are expected to help CDC Software expand its footprint in the company's traditional vertical markets as well as in new markets. CDC Software believes that by adding OEM channels, it not only increases sales productivity, but also improves profit margins.

"We believe we are executing efficiently on our "acquire, integrate, innovate and grow" strategy which we believe is evident by the increase we have seen in organic license revenue and our operating metrics," said Bruce Cameron, president of CDC Software. "With our increased cross-selling and the significant expansion in our global partner/reseller channel, we have also seen an increase in our first quarter pipeline. Even though we are seeing a slow economic recovery, we are cautiously optimistic that our pipeline will show steady growth this year. With our SaaS strategy and acquisitions of subscale companies with sticky maintenance revenue, we expect the majority of CDC Software's revenue to continue to come from recurring sources."

Furthermore, during the fourth quarter of 2009, CDC Software added approximately 100 new customers and signed upgrade and expansion agreements with approximately 400 enterprise software customers. New customers accounted for 25 percent of total software license revenue during the quarter.

Yip concluded, "Last year was challenging for virtually every business and that is why we are especially proud of our strong results for the fourth quarter and year. Overall, we remain cautiously optimistic on our long-term fundamental business prospects. Our confidence stems not only from our improved pipeline and marginally improving economy, but also our $49.2 million in total contracted and unrecognised recurring revenue at the end of the fourth quarter of 2009."



For further information please contact:
Jimmy Hong
CDC Software Australia
(02) 8870 7287
jimmy.hong@cdcsoftware.com.au