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CDC Software Exceeds Second Quarter 2010 Estimates for Application Sales with a 73 Percent Increase Compared to Same Period Last Year

Announcement posted by CDC Software Australia 30 Jul 2010

Second Quarter Adjusted EBITDA was $11.7 Million Compared to $10.6 Million in First Quarter of 2010

SHANGHAI, ATLANTA, SYDNEY – 29 July, 2010—CDC Software Corporation (NASDAQ: CDCS), a hybrid enterprise software provider of on-premise and cloud deployments, today announced financial results for the quarter ended June 30, 2010. For the second quarter of 2010, Non-GAAP revenue(a) was $54.0 million and Non-GAAP net income(a) was $7.8 million, or $0.27 in Non-GAAP earnings per share(a), compared to Non-GAAP revenue of $50.6 million and Non-GAAP net income of $8.4 million, or $0.34 in Non-GAAP earnings per share in the second quarter of 2009. Second quarter 2010 Adjusted EBITDA(a) was $11.7 million, compared to $10.6 million in the first quarter of 2010 and $13.7 million in the second quarter of 2009.

Non-GAAP earnings per share was impacted by several factors, including the company's transition to its hybrid software model that included increased upfront costs for sales and marketing and a higher tax rate than in previous quarters, as well as other expenses. In addition, CDC Software generated significant unrecognised revenue from Software as a Service (SaaS) sales, however, the full cost burden was recognised in the current quarter. Total contracted and unrecognised recurring revenue (TCURR), a measure of maintenance deferred revenue plus all remaining revenue value of SaaS contracts through the end of their respective terms, at the end of the second quarter 2010 was $67.5 million, an increase of 43 percent from $47.1 million in the second quarter of 2009, and a 29 percent increase from $52.5 million in the first quarter of 2010.

Second quarter 2010 application sales increased 73 percent to $13.5 million, from $7.8 million in the second quarter of 2009. Application sales are comprised of license revenue plus new secured total contract value of SaaS contracts. Secured Total Contract Value (STCV) is the contract dollar amount for the duration of the contracts for all SaaS contracts secured, including new logo contracts, upsell, rental, as well as all renewals received by the end of the quarter. The company's estimates, announced in June 2010, provided that application sales during the second quarter of 2010 would increase by approximately 33-42 percent from the second quarter of 2009. The higher than expected results were due primarily to organic growth in the company's core product lines.

License revenue from new logo sales in the second quarter of 2010 increased 131 percent to $3.0 million, compared to $1.3 million in the second quarter of 2009. New logo sales in the second quarter primarily came from the company's Pivotal CRM, CDC Factory, CDC gomembers and China-based Human Resource Management products.

Second quarter 2010 license revenue increased by 13 percent to $8.8 million, compared to $7.8 million in the second quarter of 2009. Non-GAAP SaaS revenue(a) increased 53 percent to $2.6 million, compared to $1.7 million in the first quarter of 2010. STCV was $4.7 million, compared to $480,000 in the first quarter of 2010, due to organic growth, as well as recent acquisitions. Also, the number of enterprise deals (which includes on-premise and SaaS product lines, but excludes SaaS renewals) in the second quarter of 2010 totaled 344, compared to 249 in the second quarter of 2009 (which did not include SaaS). The number of new logo deals in the second quarter of 2010 increased to 120, compared to 108 in the second quarter of 2009.

Total Non-GAAP recurring revenue(a), which CDC Software defines as Non-GAAP maintenance(a) plus Non-GAAP SaaS revenue, increased by 10 percent to $27.3 million in the second quarter of 2010, from $24.8 million in the second quarter of 2009. CDC Software did not begin disclosing SaaS revenue until the fourth quarter of 2009. Second quarter 2010 Non-GAAP maintenance revenue declined slightly to $24.7 million, compared to $24.8 million in the second quarter of 2009, primarily due to the negative impact of currency exchange fluctuations. Second quarter 2010 services revenue was $16.8 million compared to $15.4 million in the first quarter of 2010. Second quarter 2010 gross margin for services increased to 27 percent, compared to 11 percent in the first quarter of 2010 because of increased utilisation.

CDC Software's cash and cash equivalents totaled $29.5 million at June 30, 2010. Second quarter 2010 Adjusted EBITDA margin(a) was 22 percent, compared to 27 percent in the second quarter of 2009 and 20 percent in the first quarter of 2010.

"We are very pleased with the strong growth in application sales that included a significant increase in new logo organic sales from our Front Office, Plant Floor, China-based HRM on-premise applications and CDC gomembers SaaS solutions," said Bruce Cameron, president of CDC Software. "Notably, cross-selling was strong in the second quarter, compared to the first quarter of this year. Momentum has also been increasing for cross-selling our SaaS point solutions into our on-premise installed base, such as our on-premise CRM and supply chain solutions with our SaaS global trade management products. We are also very excited about closing a seven digit SaaS upsell deal to one of our largest financial services customers, who also is an on-premise CRM customer, during the second quarter."

"We have also been seeing our SaaS applications serve as mission critical solutions for our customers, as our SaaS renewal rates averaged approximately 95 percent in the second quarter of 2010. Based upon the increase in SaaS revenue we have seen, our preliminary estimates and projections, and our projected bookings so far this year, we expect to see double digit quarter-to-quarter growth in SaaS revenue for at least the next few quarters. With SaaS revenue continuing to grow at a greater rate than our other revenue streams, and assuming modest maintenance revenue growth, we continue to expect to reach our goal of achieving recurring revenue closer to 70 percent of total revenue in the next few years."

Cameron added, "We are forecasting a lower EPS for the next few quarters due to our continued transition to the hybrid software model, where we recognised increased sales and marketing costs upfront while building our TCURR significantly, as we experienced this past quarter. However, we believe the hybrid enterprise software model and reporting strong TCURR will help make us an even stronger company with more predictable revenue stream and profitability."

DSO (days sales outstanding) in the second quarter of 2010 was 79 days, compared to 89 days for the second quarter of 2009. Accounts receivable as of June 30, 2010 was $48.2 million, compared to $44.7 million as of December 31, 2009. During the second quarter of 2010, about 53 percent of CDC Software's total revenue was derived from North America, 33 percent from EMEA, and 14 percent from Asia/Pacific. Non-GAAP gross margin(a) improved to 63 percent during the second quarter of 2010, compared to 60 percent the same quarter of 2009.

Footnotes:

a) Adjusted Financial Measures

This press release includes Non-GAAP revenue, Non-GAAP recurring revenue, Non-GAAP SaaS revenue, Non-GAAP maintenance, Non-GAAP gross margin, Non-GAAP net income, Non-GAAP earnings per share, Adjusted EBITDA and Adjusted EBITDA margin, which are not prepared in accordance with generally accepted accounting principles in the United States ("GAAP") (collectively, the "Non-GAAP Financial Measures"). We believe that these Non-GAAP Financial Measures are helpful in understanding our past financial performance and our future results. Non-GAAP Financial Measures are not alternatives for measures such as revenue, gross margin, net income, net income margin, EBITDA and earnings per share prepared under GAAP. These Non-GAAP Financial Measures may also be different from non-GAAP measures used by other companies. Non-GAAP Financial Measures should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP.

Investors should be aware that these Non-GAAP Financial Measures have inherent limitations, including their variance from certain of the financial measurement principals underlying GAAP, should not be considered as a replacement for GAAP performance measures, and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. These supplemental Non-GAAP Financial Measures should not be construed as an inference that the Company's future results will be unaffected by similar adjustments determined in accordance with GAAP. Reconciliations of Non-GAAP Financial Measures to GAAP are provided herein immediately following the financial statements included in this press release.

(b) Revised 2009 Information

Results provided herein for 2009 may be different than those previously reported in our press releases due to certain year-end adjustments required to be made in connection with the audit of our financial statements for the year ended 31 December, 2009.

All dollar amounts are in U.S. dollars