Tag: CCA

Strong Revenue and Operational Metrics Growth

HONG KONG, March 26, 2015 /PRNewswire/ — NetDragon Websoft Inc. (“NetDragon” or “the Company”) (Hong Kong Stock Code: 0777), a leading developer and operator of online games and mobile internet platforms in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2014. A conference call and webcast is scheduled at 8 p.m. Hong Kong Time on March 26, 2015 to discuss the results and recent business developments.

Fiscal Year 2014 Financial Highlights

• Revenue was RMB962.8 million, an increase of 8.9% from RMB 884.5 million last year.
• Operating profit was RMB252.0 million, an increase of 24.3% from RMB202.8 million last year.
• Profit from continuing operations attributable to owners of the Company was RMB176.7 million, an increase of 7.5% from RMB164.4 million last year.
• Basic and diluted earnings per share were RMB34.77 cents and RMB34.22 cents, respectively.

Fourth quarter 2014 Financial Highlights

• Revenue was RMB282.9 million, an increase of 21.6% quarter-over-quarter and 23.5% year-over-year.
• Gross profit was RMB246.5 million, an increase of 17.9% quarter-over-quarter and 19.7% year-over-year.
• Operating profit was RMB4.0 million, a decrease of 93.2% quarter-over-quarter and an increase from an operating loss of RMB1.7 million during the same period of 2013.
• Non-GAAP operating profit[1] was RMB13.5 million, a decrease of 79.7% quarter-over-quarter and an increase of 19.4% year-over-year.
• Loss attributable to owners of the Company was RMB19.4 million, compared to profit attributable to owners of the Company of RMB52.6 million during the previous quarter. Non-GAAP profit attributable to owners of the Company, which excludes several non-core operational items, was RMB6.8 million.
• Basic and diluted losses per share were RMB3.78 cents and RMB3.82 cents, respectively.
• The Board of Directors has proposed a final dividend of HK$0.20 per share subject to the approval by shareholders at the Annual General Meeting.

Fourth quarter 2014 Operational Highlights[2]

• Peak concurrent users (“PCU”) for online games were 642,000.
• Average concurrent users (“ACU”) for online games were 301,000.

“We experienced a healthy 8.9% increase in revenue to RMB962.8 million during the year as we further consolidated our market position in the gaming space and pushed forward with the development of our online education platform,” commented Mr. Dejian Liu, Chairman and Executive Director of NetDragon. “Our online games business continues to gain strong growth momentum during the quarter with peak concurrent users reaching 642,000 as revenues increased 6.7% year-over-year to RMB221.5 million. One of our newest games, Calibur of Spirit, continues to gain strong user traction following its selection for the World Cyber Arena last fall. We signed an exclusive China licensing agreement with Tencent and officially launched the game in January 2015 where it achieved record-high MAU of 7 million that month and monthly gross revenue over RMB21.0 million in February 2015. With such a strong performance at the beginning of its lifespan, we are confident that this game will develop into a substantial long-term new revenue stream as large scale marketing campaigns get underway and new updates are launched throughout the year. We launched new expansion packs for our flagship games during the period including an English version for Conquer Online which generated an 11-year high monthly revenue in December 2014. We are also excited to beta-launch Tiger Knight later this year.”

“We continued to incubate our mobile games business during the quarter and have seen encouraging progress from Eudemons Online Pocket Version which was officially launched in January 2015 and is expected to register over RMB10 million in monthly gross revenue in March 2015. The iOS and Android versions of Blade & Sword continue to make steady progress through the various stages of development while the Arabic version of The Pirate remains extremely popular across the Middle East and North Africa where it is expected to continue to grow as new updates are launched.” 

“NetDragon’s new strategic business focus continues to be its online education business which completed a round of series A preference shares funding of US$52.5 million in February 2015. The participation of globally renowned investors demonstrates the confidence they have in our unique position to leverage our proven world-class mobile internet and gaming expertise, large-scale technology resources and team infrastructure to build an online and mobile education ecosystem. We are making very solid progress in the design and development of our educational products, and remain on track to gradually roll them out as each development milestone is achieved. We expect to make exciting announcements in the coming months regarding our overall product strategy and the unique value proposition we can create for students, educators and parents.” 

Mr. Ben Yam, Chief Financial Officer, added, “Non-GAAP profit for the quarter was RMB4.1 million which is a blended figure combining our highly profitable gaming business and our online education business which is currently in product development stage. During the quarter, our online games business achieved revenue growth of 6.7% year-over-year and 9.8% sequentially with a stable operating cost structure. We also continue to invest heavily in the development of educational products which requires significant investments in staff costs and has reduced the blended profitability in the short-term. These investments however, are the best use of our cash and demonstrate our commitment to building an online education business that will become another cornerstone for our long-term success.”

Fourth quarter 2014 Unaudited Financial Results

Revenue

Revenue was RMB282.9 million, an increase of 21.6% from RMB232.7 million in the previous quarter and 23.5% from RMB229.0 million during the same quarter last year.

Revenue from online games and other business generated from China was RMB229.0 million, an increase of 16.9% from RMB195.9 million in the previous quarter and 11.6% from RMB205.2 million in the same quarter last year. The increase in revenue was mainly due to the strong performance of Eudemons Online and Calibur of Spirit.

Revenue from online games and other business generated from overseas markets was RMB53.9 million, an increase of 46.2% from RMB36.8 million in the previous quarter and 126.0% from RMB23.8 million in the same quarter last year due to the growth in the Company’s mobile solutions and marketing business operated by its Hong Kong-based subsidiary Cherrypicks.

Gross profit and gross margin

Gross profit was RMB246.5 million, an increase of 17.9% from RMB209.2 million in the previous quarter and 19.7% from RMB205.9 million in the same quarter last year. Gross margin was 87.2%, compared with 89.9% in the previous quarter and 89.9% in the same quarter last year. The decreases in gross margin were partly due to the inclusion of Cherrypicks which generates lower gross margins when compared with NetDragon’s online games business.

Operating expenses

Selling and marketing expenses were RMB51.2 million, representing an increase of 32.8% from RMB38.6 million in the previous quarter, and 61.6% from RMB31.7 million during the same period last year. The increase in selling and marketing expenses was mainly due to the increase in advertising and promotional expenses of Eudemons Online and Calibur of Spirit.

Administrative expenses were RMB120.9 million, representing an increase of 55.9% from RMB77.5 million during the third quarter of 2014 and a decrease of 14.2% from RMB140.9 million during the same period last year. The quarter-over-quarter increase in administrative expenses was mainly due to the increase in (i) staff costs; and (ii) depreciation and amortization. The year-over-year decrease in administrative expenses was mainly due to the (i) decrease in exchange loss on foreign currencies; and (ii) expenditure of domain name during the same period last year.

Development costs were RMB89.3 million, representing an increase of 32.6% from RMB67.3 million during the third quarter of 2014 and an increase of 100.8% from RMB44.5 million during the same period last year. The sequential and year-over-year increases in development costs was mainly due to increases in (i) staff costs; and (ii) outsourcing fees.

Other expenses were RMB12.0 million, representing an increase of 226.7% from RMB3.7 million during the third quarter of 2014 and 126.4% from RMB5.3 million during the same period last year. The sequential and year-over-year increases in other expenses was mainly due to the increase in allowances on trade receivables.

Operating profit

Operating profit from continuing operations was RMB4.0 million, a decrease of 93.2% from RMB57.7 million in the third quarter of 2014, and an increase from an operating loss of RMB1.7 million in the same quarter last year.

Taxation

Taxation was RMB9.4 million, an increase of 126.6% from RMB4.2 million during the third quarter of 2014 and a decrease of 43.7% from RMB16.8 million during the same quarter last year. The sequential increase in taxation was mainly due to an under provision for tax in 2014 while the year-over-year decrease was mainly due to the decrease in taxable profit.

(Loss) profit for the period from continuing operations

Loss from continuing operations was RMB22.2 million, compared with profit of RMB52.4 million in the previous quarter and loss of RMB2.7 million in the same quarter last year.

Non-GAAP profit from continuing operations, which excludes a net loss on held-for-trading investments (which tend to fluctuate quarter-to-quarter), an exchange loss and amortization of intangible assets resulting from the acquisition of Cherrypicks last year, was RMB4.1 million during the fourth quarter of 2014. 

Liquidity

As of December 31, 2014, NetDragon had bank deposits, bank balances, cash, pledged bank deposits and held-for trading liquid investments of approximately RMB3,484.8 million, compared with RMB4,483.7 million as of December 31, 2013. 

Business Review and Outlook

Games

On October 26th, 2014, NetDragon began beta testing “Goddess Era,” a new expansion pack for Eudemons Online that introduces the “Goddess Gifts” system and allows players to enhance their character’s attributes free of charge. The new expansion pack, which enhances gameplay and increases user stickiness, is expected to begin closed beta testing during the first half of 2015. Eudemons Online celebrated its anniversary in March 2015 with in-game activities. Conquer Online, the Company’s other flagship title, also launched a new expansion pack “King of Kungfu” in October 2014. By adding new classes to the game, the expansion pack provides more excitement for players. The English, French, Spanish and Arabic versions of Conquer Online’s expansion pack were also launched overseas. A class-updated version of Conquer Online — The Rhapsody of Ice and Fire: Taoist Ascending will be launched during the first half of 2015 and is expected to maintain the game’s market share overseas. Revenue generated by the English version of Conquer Online in December 2014 reached an 11-year high as a result of the enhanced competitiveness of the game in various countries and regions worldwide.

Calibur of Spirit, NetDragon’s first MOBA web micro-client game, officially began open-beta testing on January 16, 2015, achieving MAU of 7 million that month and over RMB21.0 million in monthly gross revenue in February 2015 demonstrating the Company’s world-class game-design and development capabilities. The game was previously selected for the 2014 World Cyber Arena held in Yinchuan, China in October 2014. Marketing and promotional events have rapidly increased the game’s operational metrics. The Company also signed an exclusive China licensing agreement for Calibur of Spirit with Tencent at the end of 2014. NetDragon is confident that revenue from this game will grow substantially as large scale publicity campaigns get underway. The Portuguese and Spanish versions of Calibur of Spirit have already been completed and are scheduled to begin testing in Latin America and Europe in the first half of 2015. The Company’s in-house developed 3D action war game Tiger Knight began its first round of internal beta testing during the fourth quarter of 2014 and will begin its second round during the second quarter of 2015. A new expansion pack for Way of the Five was launched during the quarter along with annual celebration activities which began on March 7, 2015.

NetDragon continued to release content updates for its mobile game including one for the Arabic version of The Pirate in the fourth quarter of 2014 in an effort to solidify its existing player base as well as to seek out new players. This resulted in new record high monthly gross revenue in October 2014. The Company is committed to its strategy of developing high-quality products and continues to develop mobile products to ensure their success in an increasingly competitive market. The iOS version of Blade & Sword, NetDragon’s self-developed mobile 2.5D martial arts role-play game, finished closed beta testing in November 2014 and is currently undergoing closed beta testing of its iOS version with the Android version expected to begin closed beta testing in the first quarter of 2015. Martial Overlord, a mobile 3D martial arts action game, began channel testing in November 2014 and its second round of beta-testing in March 2015. The iOS version of Eudemons Online Pocket Version was officially launched on Apple’s AppStore in January 2015 with open beta testing for the Android version beginning at the same time. Waku & Maou, is a real-time strategy-based collectible mobile card game which began being operated by China’s leading mobile game publisher in January 2015. The Android version began its first round of closed beta testing in January 2015 with open beta testing for the Android and iOS version expected to begin during the first half of 2015.

Online and Mobile Education 

The Company made very strong progress in research and development, pedagogy integration, content partnership and acquisition, sales channel build-out and M&A discussions for its online and mobile education business during the fourth quarter and fiscal year 2014.

Research & Development — The Company’s educational product design and R&D team currently comprises of over 350 staff. With world-class leadership, the team focuses on the design and development of both software and hardware, and over the course of 2014, has achieved many milestones in the development of high-quality and differentiated software. The Company’s 101 student tablet, which has also gone through multiple design iterations, will be commercially launched during the third quarter of 2015. The Company’s product development roadmap to create a holistic, integrated total-solution for online and mobile education remains unchanged. The initial version of the commercialized product will be focused on enabling best-in-class interconnectivity in the classroom, and will create true value through a transformational yet easy-to-learn educational solution for teachers and students. The Company will update the market when more information on product launches is available. In addition, the Company expects to officially open a research lab in Beijing in the coming months to extend its talent acquisition reach. The current plan is to scale the office to hundreds of R&D staff within one to two years to accelerate educational research and development.

Pedagogy Integration — NetDragon continues to deepen its partnership with Beijing Normal University, China’s top education university, to ensure the most effective pedagogy is being developed and integrated based on collaboration with proven hands-on educators. In November 2014 NetDragon, signed an agreement with Beijing Normal University to jointly research e-classroom design in an effort to develop insight into how software and hardware can best be integrated with various teaching models in a classroom learning environment. One March 18, 2015, NetDragon’s education subsidiary and Beijing Normal University also announced the establishment of Smart Learning Institute which will provide a unique platform to integrate the most advanced e-pedagogy with NetDragon’s mobile internet expertise and technological know-how. The Company believes the accumulation and understanding of pedagogy through its partnerships with top-tier universities and institutions including Beijing Normal University will form a significant barrier to entry.

Content Partnerships — NetDragon signed a MOU in November 2014 with a subsidiary of Pearson, the globally renowned leading education company, and Beijing Normal University, to develop a smart education solution. This collaboration will leverage Pearson’s rich K12 educational content resources to build China’s leading integrated smart education solution. In addition, the Company is also in discussions with numerous major publishers and content partners to enrich the content on its platform.

Channel Build-Out — The Company is in the process of building a nationwide school distribution network for its educational products. Currently, the Company is in discussion with over 20 regional and local distributors and has secured distribution agreements with a number of them. The Company is also in active discussions with several channel partners in addition to conventional distributors.  

M&A — NetDragon is in advanced discussions with multiple major acquisition targets in the online education space. If such acquisitions materialize, the Company’s competitive position in the market will further be enhanced.

Fundraising — In February 2015, NetDragon’s education subsidiary closed a Series A equity fundraising round of US$52.5 million led by IDG, Vertex (a Temasek subsidiary) and Alpha Animation, at a valuation of US$477.5 million. 

Other developments —Netdragon was officially admitted to the Education Informatization Standard Committee under the Ministry of Education in November 2014. Membership will allow NetDragon to participate in the forming of technology standards, which will be conducive in developing the right products that meet or exceed regulatory standards. NetDragon is one of a very select few tier-one mobile internet companies who are members of the committee.

Non-GAAP Financial Measures

To supplement the consolidated results of the Company prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), the use of certain non-GAAP measures is provided solely to enhance the overall understanding of the Group’s current financial performance. These non-GAAP measures are not expressly permitted measures under HKFRSs and may not be comparable to similarly titled measures for other companies. The non-GAAP financial measures of the Group exclude share-based payments expense, amortisation of intangible assets arising from acquisition of subsidiaries, interest income on pledged bank deposits, exchange gain (loss) on pledged bank deposits, secured bank borrowings and redeemable convertible preferred shares, net gain (loss) on derivative financial instruments, finance costs and gain on disposal of subsidiaries (net of related income tax).

Management Conference Call

NetDragon will host a management conference call and webcast to review its the fourth quarter and fiscal year 2014 results on Thursday, March 26, 2015, at 8pm Hong Kong time.

Details of 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 NetDragon’s website at http://ir.netdragon.com/investor/ir_events.shtml. Participants in the live webcast should visit the aforementioned website 10 minutes prior to the call, then click on the icon for “4Q and Fiscal Year 2014 Results Conference Call” and follow the registration instructions.

About NetDragon

NetDragon Websoft Inc. (HKSE: 0777) is a leading innovator and creative force in China’s online games and mobile internet industries. Established in 1999, NetDragon is leading developer in the mobile internet segment with a highly successful track record which includes the development of flagship MMORPGs such as Eudemons Online and Conquer Online, China’s number one online gaming portal, 17173.com, and China’s most influential smartphone app store platform, 91 Wireless, which was sold to Baidu in what was at the time the largest internet M&A transaction in China in 2013. Being a China’s pioneer in overseas expansion, NetDragon directly operates a number of game titles in over 10 languages internationally since 2003. NetDragon continues to strive for developing mobile games and software applications for users. In recent years, NetDragon has also become a major player in China’s online and mobile education industry as it works to leverage its mobile internet technologies expertise and know-how to develop a game-changing education ecosystem product.

For investor enquiries, please contact:

NetDragon Websoft Inc.

Ms. Maggie Zhou
Senior Director of Investor Relations
Tel.: +852 2850 7266; +86 591 8754 3120
Email: maggie@nd.com.cn; ndir@nd.com.cn
Website: www.nd.com.cn/ir

 

 

 

– Solid YOY Top Line Growth with Strong New Game Pipeline Growth Momentum

– Education Ecosystem Product Development on Track

HONG KONG, Dec. 2, 2014 /PRNewswire/ — NetDragon Websoft Inc. (“NetDragon” or “the Company”) (Hong Kong Stock Code: 777), a leading developer and operator of online games and mobile internet platforms in China, today announced its financial results for the third quarter ended September 30, 2014 (“the Period”). A conference call and webcast is scheduled at 8 p.m. Hong Kong Time on Tuesday, December 2, 2014 to discuss the results and recent business developments.

Third quarter 2014 Financial Highlights

• Revenue was RMB232.7 million, an increase of 1.1% quarter-over-quarter and 6.1% year-over-year.
• Gross profit was RMB209.2 million, an increase of 0.4% quarter-over-quarter and 4.8% year-over-year.
• Operating profit was RMB57.7 million, a decrease of 24.1% quarter-over-quarter and an increase of 15.8% year-over-year.
• Non-GAAP[1] profit for the Period attributable to owners of the Company was RMB62.9 million
• Profit for the Period from continuing operations was RMB52.4 million, a decrease of 17.8% quarter-over-quarter and an increase of 41.8% year-over-year.
• Basic and diluted earnings per share were RMB10.31 cents and RMB10.27 cents, respectively.

Third quarter 2014 Operational Highlights[2]

• Peak concurrent users (“PCU”) for online games were 382,000, a decrease of 18.9% quarter-over-quarter and 25.1% year-over-year.
• Average concurrent users (“ACU”) for online games were 225,000, a decrease of 5.9% quarter-over-quarter and 16.7% year-over-year.
• Average revenue per user (“ARPU”) for online games was RMB299, an increase of 1.4% from the previous quarter and 14.6% year-over-year.
• Daily active users (“DAU”) for new micro-client game Calibur of Spirit were 1 million.

“We achieved another quarter of solid growth as we gain strong growth momentum in our MMORPG, mobile games and online education businesses.” commented Mr. Dejian Liu, Chairman and Executive Director of NetDragon. “We are pleased that two of our newly launched games, Calibur of Spirit and Eudemons Online Pocket Version, gain strong user traction as hype surrounding Calibur of Spirit continuues to grow following its selection for the World Cyber Arena (“WCA”) held in Yinchuan in October 2014. This was not only the sole China-developed competitive game selected, but also marked NetDragon’s first game entered into the WCA – a fact that we are very proud of. Calibur of Spirit has already been able to achieve PCU of 170,000, MAU of 4 million and DAU of 1 million during the quarter, and over RMB10 million in monthly gross revenue in October 2014. With marketing and promotional activities ramping up in preparation for its official launch early next year, we are confident that revenue for this game will grow substantially in 2015. At the same time, we are excited to have concluded an agreement with Valve during the quarter to make the English version of our new 3D strategy MMO game, Tiger Knight, available on Steam in the near future once open beta-testing is completed early next year.”

“We continued to push our mobile games business forward with revenue increasing 43.8% sequentially as we take advantage of the rapid shift towards mobile globally. The Android version of Eudemons Online Pocket Version was launched in September 2014 to great reviews and has already generated solid operating metrics. We also have high hopes for the iOS version which will begin open-beta testing next quarter. We signed an exclusive licensing agreement for Blade & Sword with one of China’s leading mobile game publishers during the quarter. In overseas markets, the Arabic version of The Pirate generated record high monthly revenue.”

“We just concluded a summit on smart education which we jointly organized with East China Normal University to focus on developing educational tools for the digital age. We are developing relationships with multiple educational institutions such as Beijing Normal University and Central China Normal University as part of our broader strategy to participate in the formulation of educational standards. As part of this effort, we have been developing intelligent classroom and other educational products that will seamlessly be integrated into our overall ecosystem. We began to generate revenue from our K12 educational tablet during the quarter and look forward to further developing our total-solution educational ecosystem. We are confident our education products will provide a unique value proposition to the massive addressable market of students in China.”

Third quarter 2014 Unaudited Financial Results

Revenue

Revenue was RMB232.7 million, an increase of 1.1% from RMB230.1 million in the previous quarter and an increase of 6.1% from RMB219.4 million during the same quarter last year.

Revenue from online games and other business generated from China was RMB195.9 million, a decrease of 3.8% from RMB203.5 million in the previous quarter and an increase of 0.4% from RMB195.1 million in the same quarter last year.

Revenue from online games and other business generated from overseas markets was RMB36.8 million, an increase of 38.3% from RMB26.6 million in the previous quarter and an increase of 51.4% from RMB24.3 million in the same quarter last year. The sequential and year-over-year increases were mainly due to revenue contribution from Cherrypick’s mobile solutions business which was acquired by the Company during the third quarter of 2014.

Gross profit and gross profit margin

Gross profit was RMB209.2 million, an increase of 0.4% from RMB208.2 million in the previous quarter and an increase of 4.8% from RMB199.5 million in the same quarter last year. Gross profit margin was 89.9%, compared with 90.5% in the previous quarter and 91.0% in the same quarter last year.

Operating expenses

Selling and marketing expenses were RMB38.6 million, an increase of 14.8% from RMB33.6 million in the previous quarter and an increase of 38.1% from RMB27.9 million in the same quarter last year. The sequential and year-over-year increases in selling and marketing expenses were mainly due to increases in staff costs in relation to the rapid build-up of our education business as well as advertising and promotional expenses.

Administrative expenses were RMB77.5 million, an increase of 8.2% from RMB71.6 million in the previous quarter and a decrease of 11.5% from RMB 87.6 million in the same quarter last year. The sequential increase in administrative expenses was mainly due to increases in staff costs and depreciation of the new Changle base and amortisation of intangible assets arising from acquisition of Cherrypicks which were offset by a decrease in legal and professional fees. The year-over-year decrease was mainly due to decreases in share-based compensation and legal and professional fees which were partially offset by increases in low value consumables, depreciation and amortisation and rental expenses.

Development costs were RMB67.3 million, an increase of 30.3% from RMB51.7 million in the previous quarter and an increase of 48.5% from RMB45.3 million in the same quarter last year. The sequential increase in development costs was mainly due to an increase in R&D staff. The year-over-year increase was mainly due to increases in staff and outsourcing costs.

Other expenses were RMB3.7 million, a decrease of 77.8% from RMB16.5 million in the previous quarter. The sequential decrease in other expenses was mainly due to a one-time donation during the second quarter of 2014 to Beijing Normal University.

Operating profit

Operating profit from continuing operations was RMB57.7 million, a decrease of 24.1% from RMB76.0 million in the previous quarter and an increase of 15.8% from RMB49.8 million in the same quarter last year.

Profit for the Period from continuing operations

Profit for the Period from continuing operations was RMB52.4 million, a decrease of 17.8% from RMB63.8 million in the previous quarter and an increase of 41.8% from RMB37.0 million in the same quarter last year.

Basic and diluted earnings per share were RMB0.1031 and RMB0.1027, respectively, compared with RMB0.1254 and RMB0.1250, respectively, in the previous quarter, and RMB0.0727 and RMB0.0722, respectively, in the same quarter last year.

Liquidity

As ofSeptember 30, 2014, NetDragon had bank deposits, bank balances, cash and pledged bank deposit and liquid investments (classified as held-for-trading investments) of approximately RMB3,398.7 million, compared with RMB3,709.3 million as of June 30, 2014. Liquid investments are comprised of pre-dominantly highly liquid fixed-income investments which are used to enhance the Company’s overall strong cash position.

Share Repurchase Program

During the nine months ended September 30, 2014, the Company repurchased a total of 2,585,000 shares for an aggregate consideration of approximately HKD37.0 million before expenses.

During the month ended October 31, 2014, the Company repurchased and subsequently cancelled 2,824,500 shares for an aggregate consideration of approximately HKD37.0 million.

Third quarter 2014 Business Developments

Games

Growth momentum in the Company’s online and micro-client games business picked up during the quarter following the launch of Calibur of Spirit and Eudemons Online Pocket Version. Calibur of Spirit generated PCU of 170,000, MAU of 4 million, and DAU of 1 million during the third quarter and over RMB10 million in monthly gross revenue in October 2014. The Company expects to the see the game generate increasing returns following its official launch early next year. In September 2014, the android version of Eudemons Online Pocket Version was launched and recorded a pay rate of 6.74% and a one-day retention rate of approximately 45%.

In September 2014, the Company began closed-beta testing for Goddess Era, the Chinese expansion pack for its flagship game Eudemons Online. Slated to begin open-beta testing next quarter, the expansion pack allows players to enhance their characters’ attributes for free through the newly added ‘Goddess Gifts’ system. The Company also released Second Ninja War, a new updated version of Conquer Online that adds new skills and weapons to the game. Mecho Wars, an expansion pack for the Company’s flagship title Zero Online was launched in September 2014 and provides players with inter-server game modes and new gameplay. Talisman World, an expansion pack for Way of the Five began open-beta testing in July 2014. The expansion pack generated record monthly revenue by providing players with a refreshing new combat experience and battle mode.

Online and Mobile Education

The Company continued to make steady progress in the development of its Open Cloud-based Education Platform during the quarter. In partnership with universities, the Company drove the research progress on artificial intelligence, big data analysis and cloud computing and allowed the seamless connectivity of the educational tablet to education resources. Having established a robust back-end platform, the Company is able to provide content support to various online education applications.

Discussions to develop new content and strategic partnership for the Company’s online and mobile education business continued during the quarter. Development of the Company’s K-12 educational tablet continued as it moved through the various stages of development including the design and function of its features and content. Through the implementation of a “total solution ecosystem” product strategy, the Company is working diligently to achieve targets in the design and development of software, hardware, content and social networking components. By leveraging technology, ‘gamification’ of educational content and user behavioral analysis in the delivery of educational content, the Company is confident that the final product will be a game-changer in the way students learn.

NetDragon entered into a strategic cooperation agreement with Beijing Normal University to jointly-focus on developing new educational content and technologies. The Company plans to establish a NetDragon research center in Beijing that will focus on jointly-developing educational opportunities with Beijing Normal University. Opportunities include cooperation in the development and production of content, joint employment of senior staff, collaborative research on classroom interaction and e-textbooks. NetDragon donated US$250,000 to the Internet Learning Institute of the National Central University in Taiwan in an effort to develop smart educational tools for Chinese students in Mainland China, Taiwan, and Hong Kong during the quarter. The Company believes that its partnership with universities will broaden the supply of high-quality educational content as well as access to world class pedagogical research and practices.

The Company also signed strategic agreements with domestic and international education book publishers, working together in an effort to generate quality content for the educational tablet. In additional, it formed a strategic partnership with East China Normal University, Beijing Normal University and Huazhong Normal University to develop a unique innovative mobile education platform and worked with People’s Education Press on to support the National Science and Technology program – Research on key technology in developing education resources digital publishing and application.The Company was responsible for presenting the program’s display terminal (electronic bag), and its education tablet will serve as an pilot end device for the entire education industry.

Cooperation and Communication in the Mobile Internet Industry and Communication Technology between Fujian Province and Hong Kong

On September 5, 2014, NetDragon signed a Letter of Intent (“LOI”) with Hong Kong Cyberport Management Company Limited and Hong Kong Wireless Technology Industry Association for a term of one year. The three parties agreed to establish a strategic partnership to further grow the local information and communication technology industry. The LOI covers the following four aspects: professional training, the introduction of local mobile applications to the mainland market, internship programs, and digital classrooms. All three parties will jointly support and help Hong Kong-based IT companies and talent to promote their business in Mainland China and will provide talent training programs for them.

Strategic Merger with Cherrypicks

On June 3, 2014, NetDragon entered into a sale and purchase agreement to acquire Cherrypick’s mobile solution business. Cherrypicks is a leading enterprise in mobile technology and mobile marketing in the Asia Pacific region. The acquisition was completed on July 21, 2014. The strategic merger will provide the Company with a team of world-class, innovative mobile solutions developers with strong capabilities to build cutting edge mobile products for global markets in areas including enterprise software, mobile marketing, mobile commerce and mobile education.

Business Outlook

MMORPGs

The Company’s first micro-client in-house developed multiplayer online battle arena game, Calibur of Spirit was selected for the World Cyber Arena (“WCA”) held in at Yinchuan China in October 2014. This marks the Company’s first game selected for the WCA, and represents a solid footstep in exploring the game industry chain. Calibur of Spirit is the only China-developed competitive game selected for the WCA. The game is currently undergoing beta-testing and will begin open-beta testing in early 2015. Given the huge popularity of this game, the Company expects Calibur of Spirit to generate increased revenue for its gaming revenue in the following quarters. The Company’s new 3D action strategy MMO, Tiger Knight, was identified by the Steam Community as a game of interest during the first half of 2014. Steam is a global fully integrated digital gaming and social platform developed by Valve. In September 2014, the Company signed an agreement with Valve to make the English version of the game available on Steam in the near future. Tiger Knight is in currently undergoing testing, with open beta-testing expected to begin in early 2015.

For existing online games, the Company will continue to provide gameplay updates and new versions to increase user stickiness. NetDragon plans to release brand new expansion packs for its flagship titles, Eudemons Online and Conquer Online, in the fourth quarter of 2014 including content enhancements.

Mobile Games

• ŸThe android version of Eudemons Online Pocket Version was officially launched in September 2014.
• Blade & Sword, a self-developed 2.5D role playing mobile game based on martial arts, is expected to begin testing of its iOS and Android versions during the fourth quarter of 2014.
• Waku & Maou, a real-time strategy-based collectible card mobile game featuring scenic landscapes, is currently undergoing closed-beta testing and is expected to launch during the fourth quarter of 2014.
• Fatal Fighter, a 2D scrolling mobile combat game, began a new beta testing in October 2014 with a simplified Chinese and Arabic version expected to launch in the fourth quarter of 2014 or early 2015.
• Martial Overlord, a 3D in-house developed martial arts mobile action game, is currently undergoing beta-testing and is expected to launch during the first quarter of 2015.

Online and Mobile Education

In cooperation with East China Normal University, the Company jointly organized the “2014 Strait Wisdom Education Forum and Education Informatization Technology Conference” held at the end of November 2014 which focused on education in the digital age. On November 27, NetDragon officially became a member of CELTSC’s Branch Council for Education Technology following approval by all members present at the Council’s general meeting. In the future, the Company will continue to participate in the formulation of standards for electronic books, bags and study rooms by cooperating with various institutions as it works to develop its educational ecosystem.

The Company expects to continue its strong progress in the development of its mobile education ecosystem product. On the hardware side, the Company is working to refine and enhance the functionality and uniqueness of its educational tablet based on user feedback gathered during the pilot launch. On the software side, NetDragon is implementing a program that will be rolled out in tandem with China’s ‘Three Access Points, Two Platforms’ program which seeks to upgrade overall information technology for educational uses. According to the program, NetDragon will build a communication platform on online study room space based on the instant messaging technology.

In November 2014, NetDragon, Beijing Normal University and a global educational content company signed a memorandum of understanding to leverage each party’s strengths to develop a leading smart education solution to support the national educational technology platform.

Non-GAAP Financial Measures

To supplement the consolidated results of the Company prepared in accordance with HKFRSs, the use of certain non-GAAP measures is provided solely to enhance the overall understanding of the Company’s current financial performance. These non-GAAP measures are not expressly permitted measures under HKFRSs and may not be comparable to similarly titled measures for other companies. The non-GAAP financial measures of the Company exclude share-based payments expense, amortization of intangible assets arising from acquisition of subsidiaries, interest income on pledged bank deposit, exchange gain (loss) on pledged bank deposit, secured bank borrowing and redeemable convertible preferred shares, net gain (loss) on derivative financial instruments and finance costs.

Management Conference Call

NetDragon will host a management conference call and webcast to review its third quarter 2014 financial results ended September 30, 2014 on Tuesday, December 2, 2014, at 8pm Hong Kong time.

Details of 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 NetDragon’s website at http://ir.netdragon.com/investor/ir_events.shtml. Participants in the live webcast should visit the aforementioned website 10 minutes prior to the call, then click on the icon for “3Q 2014 Results Conference Call” and follow the registration instructions.

About NetDragon

NetDragon Websoft Inc. (HKSE: 0777) is a leading innovator and creative force in China’s mobile internet industry. Established in 1999, NetDragon is a vertically integrated, cutting-edge R&D powerhouse with a highly successful track record which includes the development of flagship MMORPGs such as Eudemons Online and Conquer Online, China’s number one online gaming portal, 17173.com, and China’s most influential smartphone app store platform, 91 Wireless, which was sold to Baidu in what was at the time the largest internet M&A transaction in China in 2013. Being a China’s pioneer in overseas expansion, NetDragon directly operates a number of game titles in over 10 languages internationally since 2003. NetDragon continues to strive for developing mobile games and software applications for users. In recent years, NetDragon has also becoming a major player in China’s online and mobile education industry as it works to leverage its mobile internet technologies and operational know-how to make fun and effective learning tools.

For investor enquiries, please contact:

NetDragon Websoft Inc.

Ms. Maggie Zhou
Senior Director of Investor Relations
Tel.: +86 591 8754 3120; +852 2850 7266
Email: maggie@nd.com.cn; ndir@nd.com.cn
Website: www.nd.com.cn/ir