ChinaCache International Holdings Ltd. Announces Third Quarter 2012 Financial Results

Reports Improved Profitability and Enterprise Market Penetration

BEIJING, Nov. 19, 2012 (GLOBE NEWSWIRE) -- ChinaCache International Holdings Ltd. ("ChinaCache" or the "Company") (Nasdaq:CCIH), the leading total solutions provider of Internet content and application delivery services in China, today announced its unaudited condensed consolidated financial results for the Company's third quarter ended September 30, 2012.

Highlights for the Third Quarter of 2012

• Net revenues in the third quarter were RMB209.2 million (US$33.3 million), representing a 5.9% increase from the previous quarter and a 30.4% increase year-over-year.
• Gross profit in the third quarter was RMB68.3 million (US$10.9 million), an increase of 10.0% from the previous quarter and 39.7% year-over-year.
• Gross margin in the third quarter was 32.6%, compared to 31.4% in the second quarter of 2012 and 30.5% in the corresponding quarter in 2011. Adjusted gross margin (non-GAAP) in the third quarter was 38.7%.         
• Adjusted net income (non-GAAP) in the third quarter was RMB8.2 million (US$1.3 million), a 32.3% increase from the previous quarter and a decrease of 25.5% year-over-year.
• Number of active customers in the third quarter was 1,138, compared to 1,013 in the previous quarter. Third quarter 2012 customer additions totaled a record 125, driven primarily by enterprises and e-commerce customers.
• Increased penetration among mobile app developers and platforms, and launched new solution for mobile app developers.
• Expanded International presence through European partnership with Interxion.
• ChinaCache Index, or CCIndex, gained further recognition as a source of valuable data for carriers, ISPs, government agencies and others invested in China's Internet industry. CCIndex began publishing quarterly China Internet Speed Rankings.

"We are pleased to deliver another quarter of financial improvement, while making important progress toward a number of key strategic initiatives," said Mr. Song Wang, co-founder, chairman and chief executive officer of ChinaCache. "Our primary focus, the enterprise vertical, delivered strong performance in the third quarter. Enterprise demand for our value-added services is accelerating, and we are investing the necessary resources to strengthen this segment of the business. These services, together with our Content-aware Network Services, form a comprehensive solution for customers in a variety of industries looking to establish or improve an online presence."

"During the quarter, we continued to enhance our operational capabilities on all fronts," said Ms. Jackie You Kazmerzak, chief financial officer of ChinaCache. "Given the current macroeconomic environment, we have sharpened our strategic focus on what we consider Sustainable Markets.  We are allocating more resources to penetrate the enterprise market and taking a more selective approach to signing new customers. It is this focus that resulted in improved revenue mix favoring enterprises and e-commerce customers, and supported a third consecutive quarter of gross margin expansion. Moreover, we delivered record quarterly increase in customer count. We are confident that our pursuit of quality growth will pay off in the long run, both for ChinaCache and for our shareholders."

Third Quarter 2012 Financial Results

Net revenues for the third quarter of 2012 were RMB209.2 million (US$33.3 million), a 5.9% increase from the second quarter of 2012 and a 30.4% increase from the corresponding period in 2011. Net revenue growth was primarily driven by strength in the enterprises and e-commerce vertical, which reached 29% of total revenues.

Cost of revenues for the third quarter increased by 4.0% quarter-over-quarter and 26.3% year-over-year to RMB140.9 million (US$22.4 million). Gross margin increased to 32.6%, compared to 31.4% in the previous quarter and 30.5% in the corresponding period in 2011. Non-GAAP gross margin, which excludes share-based compensation, depreciation and amortization expenses, was 38.7%, compared to 39.1% in the second quarter of 2012 and 41.4% in the corresponding period in 2011. 

Sales and marketing expenses for the third quarter increased by 16.9% from the previous quarter to RMB21.6 million (US$3.4 million) and increased by 16.2% year-over-year, accounting for 10.3% of net revenues as the Company refined its incentive plans to boost enterprise customer sales.  

General and administrative expenses for the third quarter decreased by 5.8% over the previous quarter to RMB22.3 million (US$3.5 million), or 10.6% of net revenues, and increased by 80.0% year-over-year. This year-over-year increase is mainly due to enhancement in managerial capabilities and costs arising from the Company's office relocation plan.

Research and development expenses for the third quarter increased 23.9% over the previous quarter to RMB18.6 million (US$3.0 million) and increased by 72.7% year-over-year, accounting for 8.9% of net revenues. The increases are mainly due to the Company's research initiatives on technologies and solutions targeting mobile Internet and enterprise customers.

Operating profit was RMB5.9 million (US$0.9 million) in the third quarter of 2012, compared to an operating profit of RMB5.0 million in the previous quarter and RMB6.7 million in the corresponding period in 2011. Non-GAAP operating profit, which excludes share-based compensation expenses and post-acquisition settlement consideration, was RMB9.8 million (US$1.6 million), compared to RMB8.0 million in the second quarter of 2012 and RMB12.8 million in the corresponding period in 2011. 

Income tax expense was RMB1.2 million (US$0.2 million) in the third quarter of 2012, compared to income tax expense of RMB2.6 million in the second quarter of 2012 and RMB2.9 million in the corresponding period in 2011.

Net income was RMB2.9 million (US$0.5 million) in the third quarter of 2012, compared to net income of RMB4.3 million in the second quarter of 2012 and RMB3.4 million in the corresponding period in 2011. Basic and diluted income per American depositary share ("ADS") from continuing operations for the third quarter of 2012 was RMB0.13 (US$0.02) and RMB0.12 (US$0.02), respectively. Each ADS represents 16 ordinary shares of the Company.

Adjusted net income (non-GAAP), defined as income from continuing operations before share-based compensation expenses, foreign exchange loss or gain, penalties on uncertain tax positions and post-acquisition settlement consideration, was RMB8.2 million (US$1.3 million), compared to RMB6.2 million in the second quarter of 2012 and RMB11.0 million in the corresponding period in 2011. Non-GAAP basic and diluted earnings per ADS in the third quarter of 2012 were RMB0.36 (US$0.06) and RMB0.35 (US$0.06), respectively.

Adjusted EBITDA (non-GAAP), defined as EBITDA excluding share-based compensation expenses, foreign exchange loss or gain and post-acquisition settlement consideration, was RMB23.6 million (US$3.7 million) compared to RMB24.4 million in the second quarter of 2012 and RMB31.1 million in the corresponding period in 2011.

Capital Resources

As of September 30, 2012, the Company had cash and cash equivalents of RMB274.1 million (US$43.6 million).  In addition, the Company had an available-for-sale investment amounting to RMB 98.6 million (US$15.7 million) in an RMB denominated short term fixed income fund which is presented as non-current assets. Capital expenditures for the third quarter of 2012 were RMB31.3 million (US$5.0 million).

Share Repurchases

In May 2012, the Company's Board authorized a share repurchase program to repurchase up to US$10 million of the Company's ADSs from May 2012 to May 2013 through open market transactions or in block trades.

As of November 16, 2012, the Company had repurchased a total of 226,006 ADSs for approximately US$1.1 million at an average price of US$4.93 per ADS under this buyback program on the open market. The Company currently has approximately 22.8 million ADSs outstanding.

Outlook for the Company's Fourth Quarter of 2012

ChinaCache currently expects to generate total net revenues in the range of RMB225 million (US$35.8 million) to RMB230 million (US$36.6 million) for the fourth quarter of 2012, representing an increase of 7.6% to 9.9% from the third quarter of 2012, and an increase of 25.3% to 28.1% year-over-year. This forecast reflects ChinaCache's current view, which is subject to change.

Conference Call Information

The Company has scheduled a corresponding conference call and live webcast to discuss these results at 7:00 PM Eastern Standard Time on November 19, 2012, which corresponds to 8:00 AM Beijing time on November 20, 2012.

The dial-in details for the live conference call are as follows:

A live and archived webcast of the conference call will be available on the Investor Relations section of ChinaCache's website at en.chinacache.com.

A replay of the conference call will also be available until November 26, 2012 by dialing:

About ChinaCache International Holdings Ltd.

ChinaCache International Holdings Ltd. (Nasdaq:CCIH) is the leading total solutions provider of Internet content and application delivery services in China. As a carrier-neutral service provider, ChinaCache's network in China is interconnected with networks operated by all telecom carriers, major non-carriers and local Internet service providers. With more than a decade of experience in developing solutions tailored to China's complex internet infrastructure, ChinaCache is a partner of choice for businesses, government agencies and other enterprises to enhance the reliability and scalability of online services and applications and improve end-user experience. For more information on ChinaCache, please visit en.chinacache.com.

* Use of Non-GAAP Financial Measures

In evaluating its business, ChinaCache considers and uses the following non-GAAP measures defined as non-GAAP financial measures by the SEC as supplemental measures to review and assess its operating performance: non-GAAP gross profit, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP research and development expenses, non-GAAP operating profit, adjusted net income (non-GAAP), EBITDA and adjusted EBITDA (non-GAAP).  The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of Non-GAAP to GAAP Financial Measures" set forth at the end of this press release.

To present non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses and non-GAAP research and development expenses, the Company excludes share-based compensation expenses.

To present non-GAAP gross profit, the Company excludes depreciation and amortization expenses and share-based compensation expenses.

To present non-GAAP operating profit, the Company excludes share-based compensation expenses and post-acquisition settlement consideration.

The Company defines adjusted net income as income (loss) from continuing operations before share-based compensation expenses, foreign exchange loss or gain, penalties on uncertain tax positions and post-acquisition settlement consideration.

The Company uses EBITDA to assist in reconciliation to adjusted EBITDA.  The Company defines EBITDA as income (loss) from continuing operations before interest expense, interest income, income tax expense, penalties on uncertain tax positions, and depreciation and amortization.  The Company defines adjusted EBITDA as EBITDA before share-based compensation expenses, foreign exchange loss or gain, and post-acquisition settlement consideration that the Company does not consider reflective of its ongoing operations.  The Company believes that the use of adjusted EBITDA facilitates investors' use of operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in items such as capital structure (affecting relative interest expense and share-based compensation expense), the book amortization of intangibles (affecting relative amortization expense), the age and book value of facilities and equipment (affecting relative depreciation expense) and other non-cash expenses.  The Company also presents adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties as a measure of the financial performance of companies in its industry.

Those non-GAAP financial measures are not defined under U.S. GAAP and are not measures presented in accordance with U.S. GAAP.  Those non-GAAP financial measures have limitations as analytical tools, and when assessing the Company's operating performance, investors should not consider them in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP.  Some of these limitations include, but are not limited to:

• Adjusted net income, EBITDA and Adjusted EBITDA do not reflect the Company's cash expenditures or future requirements for capital expenditures or contractual commitments;
• They do not reflect changes in, or cash requirements for, the Company's working capital needs;
• They do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt;
• They do not reflect income taxes or the cash requirements for any tax payments;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted net income, EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
• While share-based compensation is a component of cost of revenues and operating expenses, the impact on the Company's financial statements compared to other companies can vary significantly due to such factors as assumed life of the options and assumed volatility of the Company's ordinary shares; and
• Other companies may calculate Adjusted net income, EBITDA and Adjusted EBITDA differently than the Company does, limiting their usefulness as comparative measures.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars at a specified rate solely for the convenience of the reader.  Unless otherwise noted, all translations from RMB to U.S. dollars are based on the effective exchange rate of 6.2848 as of September 30, 2012.

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 outlook for the fourth quarter of 2012 and quotations from management in this announcement, as well as ChinaCache's strategic and operational plans, contain forward-looking statements. ChinaCache may also make written or oral forward-looking statements in its reports filed or furnished to the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements, including but not limited to the following: the Company's goals and strategies, expansion plans, the expected growth of the content and application delivery services market, the Company's expectations regarding keeping and strengthening its relationships with its customers, and the general economic and business conditions in the regions where the Company provides its solutions and services. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission. All information provided in this press release is as of the date of this press release, and ChinaCache undertakes no duty to update such information, except as required under applicable law.

FINANCIAL TABLES

• Unaudited Condensed Consolidated Balance Sheets
• Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
• Supplementary Financial Data
• Supplementary Operating Metrics
• Reconciliations of Non-GAAP to GAAP Financial Measures

CONTACT: For investor and media inquiries please contact:
         
         Ms. Yujie Li
         Investor Relations
         ChinaCache International Holdings
         Tel: +86 (10) 6437 3399
         Email: ir@chinacache.com
         
         Mr. Lee Roth
         The Piacente Group | Investor Relations
         Tel: +1 212-481 2050
         Email: chinacache@tpg-ir.com