FAB Universal's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Nov.13.13 | About: FAB Universal (FU)

FAB Universal Corporation (NYSEMKT:FU)

Q3 2013 Earnings Conference Call

November 13, 2013 10:00 AM ET

Executives

Stephanie Prince - LHA

Chris Spencer - Chief Executive Officer

John Busshaus - Chief Financial Officer

Analysts

Ken Nagy - Zacks Investment Research

Suzanne Franks - Vivid Research

Brooks Whitehouse - Wells Fargo

Bud Zaino - Royce and Associates

Joanne Kraft - Ridgeway & Conger

John Harrington - Harrington Capital Management

Operator

Greetings, and welcome to the FAB Universal Third Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Stephanie Prince. Thank you, Ms. Prince. You may now begin.

Stephanie Prince

Thank you, Christine, and good morning everyone. This is Stephanie Prince from LHA. Thank you for joining us for FAB Universal's third quarter 2013 earnings conference call. With me this morning are Chris Spencer, FAB Universal's Chief Executive Officer and John Busshaus, Chief Financial Officer.

FAB Universal issued a press release this morning with details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fabuniversal.com.

I would like to remind everyone that today's call is being recorded. A replay of today's call will be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, an archived webcast replay will be available on the Investor Relations page of the company's website at fabuniversal.com following the conclusion of this conference call.

I would also like to call your attention to the customary Safe Harbor disclosure regarding forward-looking information. The conference call today will contain certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statement relate to future events or our future financial performance. These statements are only predictions and may differ materially from actual future results or events. We disclaim any intention or obligation to revise any forward-looking statements, whether as a result of new information, future developments, or otherwise.

There are important Risk Factors that could cause actual results to differ from those contained in forward-looking statements including, but not limited to, risks associated with the changes in general, economic, and business conditions, actions of our competitors, the extent to which we are able to develop new services and markets for our services, the time and expense involved in such development activities, the level of demand and market acceptance of our services, the changes in our business strategies, and act of terror against the United States.

I would now like to turn the call over to Chris Spencer. Chris?

Chris Spencer

Thank you, Stephanie, and thank you everyone for joining us today. I will begin today's call with the review of who we are and our growth strategy, before highlighting some key financial results and discussing the third quarter performance of our business segments. John will then review our financial results and guidance before we open the call up for your question.

For those of you, who are new to FAB, FAB Universal is a leader in digital media entertainment sales and distribution. We distribute audio and video products, including copyright protected musics, video games, digital books movies, DVDs and Blu-rays to consumers in China through three established channels wholesale, retail, and our network of Intelligent Kiosks. Together these channels form our distribution platform and the cornerstone of our growth strategy which is to extend our market leadership and fully leverage our established FAB brand by increasing our content offerings across a growing number of distribution channels.

Complementary to our digital and media distribution business, we also operate the largest network of independent and professional digital media publishers using podcasting reaching over 60 million audience members annually in over 240 countries. In China, the media and entertainment industry is growing rapidly. This growth is being driven by the increasing spending power of China's rising middle-class and the government's stated intention to support the industry's growth. As an established leader in the industry FAB is well positioned to capitalize on this rapid growth by continuing to expand our distribution channels, drive more content through these channels and extend our market leadership and brand strength. And as Internet penetration and supporting infrastructure are build out in China and more digital media content is distributed over the Internet, FAB is getting ready to evolve its distribution platform.

During the third quarter, we maintained our steady growth achieving revenue of $29.8 million a sequential increase of approximately 15% again led by our high margin digital segment which recorded a 38% sequential increase in revenue. We continue to deliver strong profitability with net income reaching $7.3 million building on our first-half performance.

For the first nine months of 2013, we produced revenue of $78.2 million and net income of $16 million. Based on these results we've adjusted our guidance for the full year to a range of $102 million to $105 million in revenue and $19 million to $21 million in net income. These adjustments taken to account increased investment expenses in the licensing and kiosk business during the fourth quarter to support our current licensees as well as continued growth of the network.

In effect, we are beginning to invest in the third prong of our kiosk growth strategy growing membership and increasing download sales. We also have been remodeling the Joy City flagship store. The store was closed during this renovation which will also have an impact on the fourth quarter results.

I will now turn to a review of our business segment structuring my comments to match our segment reporting. I am going to start with our growth engine, our digital segment which includes our 5C licensing and kiosk business and our podcasting business.

Our brand licensing in kiosk business posted another strong quarter with sequential revenue growth of 38.5% and gross margins of 79.7%. This growth is primarily due to the addition of new licensees and growth among existing kiosks. In this business, we generate revenue from multi-year licensing agreements, content downloads, paid advertising and membership card sales.

During the third quarter, we added 2,421 kiosks compared to 2,311 kiosks in the second quarter. Our installed base is now 16,820 kiosks and 5C brand licenses in 41st and second tier cities throughout China including Beijing, Shenzhen, Chengdu, Guangzhou. Some of the other cities were represented in includes Tianjin, Langzhao, Nanjing, Qingdao, Ningbo, Damien and Wuhan. Many of you have asked for a map or a list of the exact locations of our 16,820 kiosks as well as full listings of our content offerings. We will be populating our website with more information as it's translated although it's taking time to complete the translation. We expect to have this available as quickly as possible.

As we've said previously we believe that there is room to expand our network of intelligent kiosk to about 200,000 terminals in the other 120 cities in China that we are not currently represented in and that have a population of over 1 million people.

To fully penetrate this addressable market, we have a three pronged strategy. First is to continue to build out our network and strengthen our infrastructure. Second, is to increase the quantity and variety of digital content that we put through the kiosk network. And third, once we have accomplished much of the first two prongs is to drive membership growth and advertising revenue.

During the third quarter, we announced one of first advertising agreements, China Xiangyu Cultural Development Company has signed with us for advertising on the top screen of the FAB Intelligent Media Kiosk Network. This company is a marketing and entertainment company focused on organizing cultural performances. They also provide marketing activities for online games and the like.

The advertising revenue from this non-exclusive agreement is expected to be at least $2.5 million annually. We will be pursuing more agreements of this kind going forward. Our Libsyn podcasting business also had a very good third quarter posting revenue of $1.4 million 27% above the second quarter level of $1.1 million. Libsyn's publishing platform posted a new high of 15,368 shows compared to 14,760 shows during the second quarter of the year.

The number of episodes totaled 1.6 million compared to nearly 1.5 million sequentially. We had 32 million unique monthly audience members an 18.5% increase compared to 27 million for the second quarter, a new record and the largest sequential increase that we've ever recorded. Based on this increase, we believe we are on track to reach our estimate of 60 million unique individuals accessing our service for the full year 2013 and delivering about $1 million of operating profit for the year.

This growth is due to a combination of greater adoption of podcasting in general as well as greater content availability and these new shows such as from popular comedians are attracting new audience members. The shift in distribution from downloading to streaming has been reaching critical mass and is another factor that is broadening our audience. Streaming also allows us to track monthly unique audience usage data, the performance measure that matters most to advertisers. We expect to generate increased advertising revenue going forward which will be more fully monetize our podcasting business.

During the quarter we reached new audience members through the distribution of our apps on two new platforms Microsoft Windows 8 and Microsoft Windows Phone 8. Our apps are supported on all of the following devices iPhone, iPad, Android, Tablet, Windows 8 devices and Kindle. To-date, we have created over 4000 custom branded smartphone and tablet apps for producers that are available in all the popular app marketplaces such as the iTunes App Store, Google Market Play, Amazon App Store, Windows 8 Phone App Market, Windows 8 desktop App market.

Apps are featured in iTunes under the Wizzard Media brand that's Wizard with two Zs and in other markets as Libsyn which Liberated Syndication LIBSYN and under White Label to other media producers and networks. Liberated Syndication also offer its producers the opportunity to be included in a Facebook App designed for social media engagement and playback.

Our wholesale segment supplies CDs, DVDs and other forms of entertainment content through retail stores, smaller resellers and FAB licensees. This division has over 80 customers including our newest customers China Unicom which we began stocking in the third quarter. Revenue was $14 million in the third quarter on par with the second quarter revenue. The twin components of our strategy are to increase our portfolio of content and expand the number of distribution channels. With respect to content, we recently signed seven copyright licensing agreements with several well known distributors for additional content. Many of these distributors have long-term cooperation agreements with over 80 independent film producers in the United States. The purchase price for each movie varies from several thousand U.S. dollars to several million U.S. dollars. Terms of these are agreements range from one to five years and two, our revenue sharing agreements.

This content will be distributed across all of our distribution channels leveraging our cost of acquisition. Through these agreements we obtain the right to distribute an additional 500 songs, 800 hours of TV series, 100 hours of documentaries and over 1,500 movies of which over 70% were produced in countries outside of China including Million Dollar Baby, Crouching Tiger Hidden Dragon, Roman Holiday and other popular Oscar con and Golden Globe winners and nominees.

In addition we signed a copyright licensing agreement with the Universal audio publishing house to purchase this Chinese company's highly regarded unique music teaching courses. These music teaching courses are very popular in China and are divided into 71 sets with more than 1,000 curricula delivered by well known teachers from China Central Conservatory of Music.

Last we also signed an agreement to distribute over 300 hours of South Korean variety shows with the Seoul Broadcasting System. In our retail segment, we currently operate two superstores that offer a vast selection of our copyright protected audio and video products. Our superstores also host weekly celebrity appearances, star signings and album launch parties on an exclusive basis. These events attract thousands of fans and spread the FAB name through widespread media coverage.

We also generate exclusive content through these events that are available for purchase on our kiosks. This content includes photos of fans, super impose with the photo of the star and the like. Our retail business carries significant strategic value as a brand promotion engine. And we are continuing to work through the government approval process to open one or two additional stores this year.

We have also just begun to open express style stores in the movie theater chain and a supermarket chain. This segment reported sales of $2.5 million in the third quarter, compared to $2.3 million for the second quarter, a 9% sequential gain. With our established media and entertainment distribution platform and the power of the FAB brand we believe that we have the fundamentals in place to continue to drive strong organic growth as we increase our content offerings across an expanding number of distributions channels. We have recently taken the first steps to build a presence in mobile phone and subscription TV distribution channels in order to distribute content over mobile phones in the Internet, the Chinese Government requires an Internet publishing license which is granted by the General Administration of Press and Publication, the National Agency of Radio, Film and Television.

Earlier in the year we applied for a license and in the third quarter FAB was granted a perpetual license to distribute media content over the internet. FAB Universal is one of the eight companies who have received such a license in 2013 criteria considered in the application process include a company’s business size industry and its financial strength which includes the review of audited financial statements and capital verification report.

During the third quarter, we announced an agreement to distribute our copyright protected digital music content through China Unicom, China mobile and China Telecom, the top three providers of mobile phone services in China over smartphones and tablets. We also signed an agreement with Future TV to distribute our copyright protected media content including European and American movies, music and cartoons through pay-TV terminals used in the home by future TV subscribers. We have begun online testings in preparation for our formal rollout which we expect in the next several months.

As we are growing, we have also being adding to our management team. We recently announced that Steve Sun has joined FAB as COO. Steve has operating experience with emerging growth companies in both the US and China. Steve's immediate priorities are focused on digital content acquisition and monetization, retail store renovation and expansion and mobile internet application. We welcome Steve to the FAB team.

As we've discussed before and disclosed in every SEC filing starting with the merger agreement, we expect to issue 20.2 million shares of stock to the owners of DEI, the Hong Kong company that Wizzard Software acquired at the end of September 2012.The combination of DEI and Wizzard created FAB Universal. The terms of the merger agreement call for a staggered issuance of shares to DEI in [lieu] of cash payments from Wizzard.

The terms of the agreement called for $10 million shares to DEI investors at the time of closing last year. The 20.2 million shares which we expect to issue in late November and the final payment of 7.5 million shares that are scheduled to distributed in mid May 2014, assuming all milestones are achieved. All with these newly issued shares are subject to Rule 144 under which they are locked-up for six months from the date of issuance.

In closing FAB's growing distribution platform is deplaced for China's consumers and customers to buy high quality copyright protected media and entertainment products. We're posting strong growth metrics which we expect to build on as we execute our growth plans.

I'd now like to turn the call over to John to discuss our financial results in more detail. John?

John Busshaus

Thanks Chris. As a background to those of you who are new to FAB Universal based on third quarter we passed the anniversary of the DEI transaction. This will make year-over-year comparison easier going forward, but for now the variance in our reported results is almost entirely due to the acquisition. Therefore for the purpose of today's discussion I am going to focus on sequential comparison.

Revenue totaled $29.8 million compared to $25.9 million in the second quarter of the year. By segment, wholesale revenue is $14 million, retail $2.5 million and digital $13.3 million. For the second quarter, wholesale revenue was $14 million, retail was $2.3 million and digital was $9.6 million. Over the course of the year our digital segment is turning toward a growing percentage of the total revenue. Digital grew from 30% of total revenue for the first quarter to 37% in the second quarter and accounted for 44.6% of the third quarter revenue.

For the digital segment our 5C licensing and kiosk business delivered $11.9 million in revenue compared to $8.4 million for the second quarter and podcasting is reported $1.4 million in revenue compared to $1.1 million for the second quarter reflecting the greater adoption and increased content availability that Chris mentioned.

Gross profit was $14.1 million, an increase of $2.6 million or 22.6% over the second quarter. Gross margin reached 47.4% compared to approximately 44.5% for the second quarter driven by the increase in excess higher margin digital revenue. Gross margin for our digital segment is 79.7 compared to 80.4 in the second quarter. Operating expenses for the third quarter were $4.9 million versus $4 million for the second quarter.

Selling expense increased $346,000 due to an increase in advertising efficient resulting from increased ad revenue. General and administrative expenses increased $546,000 reflecting historical seasonal cost and staffing for our new distribution. The greater mix of revenue from the high margin Kiosk business resulted in 28% increase in net income to $7.3 million or $0.35 per share compared to $5.7 million or $0.28 per share for the second quarter. Weighted average shares outstanding were 20.8 million for both second and third quarters.

Turning to the balance sheet. We ended the quarter with a cash balance of $43.6 million. We generated approximately $15.9 million in operating cash flow during the quarter. This compares to the $10 million of cash flow generated in the first and second quarter each. Inventory decreased to $0.8 million to $6.6 million and accounts receivable increased $1.1 million reflecting the demand for our products from both our retail and wholesale customers including the beginning to start turning new comps stores during third quarter.

Our long-term deposits of $39.5 million includes the anti-piracy sales guarantee deposits made to [project] licensors, rent deposits made to landlords, prepayments made for the opening of new retail stores and a $13 million deposit for the potential building purchase. These are the only major variances on the assets side of the balance sheet on June 30th.

Our current liabilities reflect fluctuations associated with normal operating activities and we continue to carry no long-term debt. Our balance sheet contains deferred revenue both current and long-term that has derived from licensing acquired CPS business model and the sale of FAB membership cards. We recorded deferred revenue for payments made by licensing to FAB, the licensing in the kiosk model and the FAB brand and by consumers for the purchase of FAB membership card. Licensees pay cash upfront for a five year license and we will recognize revenue over the five year term of the contract. Memberships are sold for a 12 month period.

As of September 30th, short-term deferred revenue amounted to $13.1 million representing a revenue that will be recognized over the next 12 months. Long-term deferred revenue totaled $25 million on September 30th. This long-term amount represents revenue that will be recognized starting October 01, 2014 through September 30th of 2018. More detailed information about our financial results can be found in our 10-Q which we plan to file by the end of the day tomorrow.

Turning now to guidance. We are reiterating our guidance based on our performance in year-to-date and our expectation that strong growth will continue through the balance of the year.

Chris I will now turn this back over to you.

Chris Spencer

Thanks John. In closing, FAB delivered another strong quarter of growth, profitability and cash generation. We are working hard to drive organic growth and build on our established distribution platform and increase the strength of the FAB brand.

We'll now open the call up for your questions. Operator?

Question-And-Answer Session

Operator

Thank you. We will now be conducting a question and answer session. (Operator Instructions) Thank you. Our first question comes from the line of Ken Nagy with Zacks Investment Research. Please proceed with your question.

Ken Nagy - Zacks Investment Research

Hi, thanks for taking my call. Just back up to those two deals signed on the September 24th and the 17th of September, could you take us to that process and maybe answer when we’d start to see significant revenues from those two deals?

Chris Spencer

Which specific deals you're referring to?

Ken Nagy - Zacks Investment Research

The three mobile deals and the future TV deal?

Chris Spencer

Sure. We expect them really I mean as we’ve stated here we expect them to start generating revenue and possibly have an impact on earnings at some point in late 2104.

Ken Nagy - Zacks Investment Research

Great, thanks.

Chris Spencer

Sure.

Operator

Our next question comes from the line of Suzanne Franks with Vivid Research. Please proceed with your question.

Suzanne Franks - Vivid Research

Good morning. I just want to make sure I understand that kiosk count, you said at the end of Q3 you had 16,820 net after adding 2,400 in the quarter. It's my understanding that the end of Q3 you had about 16,000. I am wondering is there some sort of closure of kiosk or…?

Chris Spencer

Well, I think when it comes down to is we're very careful to refer to kiosk. There is kiosk sold, kiosks that are active in the marketplace and so we are very careful about that and there is of course some level of churn, but right now the number we're reporting is the number we stated today of what was exactly 16,000 you have the exact number for as of the close of the third quarter.

Suzanne Franks - Vivid Research

How do I reconcile that with the number of kiosks reported at close of Q2, which was 16,000?

Chris Spencer

It was actually approaching 16,000 I believe was the stated number.

Suzanne Franks - Vivid Research

That's true. Okay so it was more magnitude of 15,000 or 14,000 I guess at the end of the Q2?

Chris Spencer

I don't have the exact numbers in front of me, but it was approaching 16,000 and then again we sell them they are not always activated immediately and so forth so we get the information. It's important to understand that we don't actually own the kiosks, the kiosks are owned by the licensees, they purchase them directly from one of five manufacturers that we have designated or approved. And so we get the reports from the manufacturers and then we determine between sales, as well as activation. So I think the number that we reported today is the number we are very confident in.

Suzanne Franks - Vivid Research

Okay. And then for Q4 what is your expectation from the number of main kiosks added?

Chris Spencer

I believe that our position is that we anticipate the growth in the kiosk network to continue along the historical path that we’ve seen over the last two years.

Suzanne Franks - Vivid Research

Okay. Thank you.

Operator

Our next question comes from the line of [Caroline Hugh with Wayside Capital Management]. Please proceed with your question.

Unidentified Analyst

Yes. Good morning thanks for taking my question. Can you give us some insight as to why management and the directors have been selling their stock? Most of the holdings or all these holdings have been sold. And I think this sends the wrong message to the market and to the shareholders? Thanks.

Chris Spencer

Well sure, I can't the independent directors. I can only speak for myself. I was awarded 250,000 shares when we originally founded this company approximately 13 years ago, that's all the stock that I had ever received until June of last year where I received a bonus of 250,000 shares basically for the closing or the imminent closing of this deal. I sold 40% of that bonus right afterwards for tax purposes and then I sold the rest of that bonus basically as compensation. I have always been compensated I would say at the low-end of the traditional public market level and that's for me at least. I still hold 250,000 shares. And I look forward to working hard and growing shareholder value and earning more stock over the years to come. John, do you want to comment on yourself?

John Busshaus

Yeah. Thanks Chris. As for me I filed [10B] price plan and it was filed based upon conversations with my legal counsel and requirements that I had any tax obligations in April of this past year. And based upon the advice of legal counsel it was recommended and strongly suggested that [My75] plan not be for any short of time period then 12 months or a year. And in order to do that I had to come up with an estimate of number of shares that I needed to sell by the end of or the middle of April to cover my tax liability. And taking that advice, the number of shares that I classify to sell each month net debt specific criteria that’s the reason why you see my shares being sold.

Unidentified Analyst

Okay. Thank you.

John Busshaus

Thank you.

Operator

Our next question comes from the line of [Bruce Olson] with Oppenheimer. Please proceed with your question.

Unidentified Analyst

Good morning.

Chris Spencer

Good morning Bruce.

Unidentified Analyst

Congratulations on the excellent quarter. I see that you're generating cash at a very nice pace. Last year it was $19.7 million you just finished September 30th period with $43.6 million in cash. Is there any plan to return this cash to shareholders through dividend or stock buyback program and if not what you plan to do with the cash?

John Busshaus

Sure. I think at this time right now, there is no immediate plans for a dividend or a stock buyback plans. I don’t believe that the Board has expressed any plans to do so immediately. I don’t think anybody is opposed to it in the future, but right now there is no plans for it. Currently the plans for the capital are to reinvest in our growth businesses to accelerate growth going forward as well as to look for acquisitions in the United States that are complementary to our business as well as our strategy, which is expanding our content and growing our distribution opportunities.

Unidentified Analyst

Thank you very much.

Operator

Our next question comes from the line of Brooks Whitehouse with Wells Fargo. Please proceed with your question.

Brooks Whitehouse - Wells Fargo

Yes my question is what is the full dilution of the shares being issued, what does that amount do?

Chris Spencer

John, do you have the numbers right in front you, just what we discussed, it was 20.2 million I believe in late November here, and then approximately 7.5 million in, is it March or May of 2014, John?

John Busshaus

It will be the second half of May of 2014.

Brooks Whitehouse - Wells Fargo

What's the standard dilution that represents?

John Busshaus

And if you go back and look at what we've filed with all of our documents, in the end when all shares are issued, the original [Wizzard] shareholders will have 22% ownership in the company and the distribution of their shares represent 78% of the company.

Brooks Whitehouse - Wells Fargo

Thank you.

Chris Spencer

That includes the previous distribution as well upon closing of the transaction.

Brooks Whitehouse - Wells Fargo

Thank you.

Operator

(Operator Instructions). Our next question comes from the line of [Michael Silverman] with Edward Jones. Please proceed with your questions.

Unidentified Analyst

Two questions please. The first is, how much you spend on kiosk content licensing in quarter three?

Chris Spencer

John, do you have that number in front of you that we have disclosed that?

John Busshaus

No, we have not disclosed that information to-date.

Chris Spencer

We have we recently just disclosed some of our initial licensing of content. I think that’s the only numbers we’ve provided to-date which was just earlier in my discussion where we talked about the basic round numbers of what the licensings are costing us. I do believe in the future we’ll get into more detail and break out some of that but not at this time right now.

Unidentified Analyst

Okay. And then my other question was if you could please update us on the $32.5 million office building purchase?

Chris Spencer

Sure. Right now we are contemplating, the Board is contemplating a purchase of a building for some of our new business lines, including talent management and live performance. It includes studio and some other things. At this time it is under Board review and we will notify and make public any plans to proceed with that purchase. The deposit of approximately $13 million is fully refundable based upon the Board’s decision.

Unidentified Analyst

Okay. Thank you everyone. Thank you.

Operator

Our next question comes from the line of Bud Zaino with Royce and Associates. Please proceed with your question.

Bud Zaino - Royce and Associates

Okay. Do you have accounts for the number of members cards that you have sold and can you determine what the revenue for member has been and what the trend has been?

Chris Spencer

We have published a number of in excess of 400,000 as total number at any given time for the membership levels, but I can say this, I understand the reason for the question and then helping you build to identify the metrics for the model. At this time, as we stated previously in my statements, we are just getting to the point now, we are really focusing on advertising and membership growth.

Our first focus was to get the key out there because when you’re walking down the street, you want to make sure that in the mall that you go to and the grocery store you go to and the movie theater you go to, then our focus was the content because once you walk up to one of our kiosks, you want to make sure that the content that you are interested in that will be in there, the music and the movies and the TV series.

So we have been focusing on that as part two of our three-pronged strategy. And then finally now just now, we are focused on membership drives and advertising. If you recall in our second quarter, we did a large membership promotion. We stated that it was a one-time event. We were testing some ways of doing it. And I do believe going forward, we are going to be investing that. We also stated in the fourth quarter, in the growth of our membership and content downloads.

So the in-provision you are looking for I believe will be available and in the future going forward, but right now we really are just getting to that stage of our three-pronged approach.

Bud Zaino - Royce and Associates

Wonderful, thank you.

Operator

(Operator Instructions). Our next question comes from the line of Joanne Kraft with Ridgeway & Conger. Please proceed with your question.

Joanne Kraft - Ridgeway & Conger

I wanted to know if you could comment on future healthcare stock, I don't know if you can comment on that, if there is plans for growth in that?

Chris Spencer

Well, I don't think that was necessary the appropriate for this phone call. Since it's another company now and that was run off as a separate public company. But I'd be happy to try to answer any of your questions at another time and feel free to reach out to me. I know you know how to contact me.

Joanne Kraft - Ridgeway & Conger

Great. Thanks Chris.

Operator

Our next question comes from the line of John Harrington with Harrington Capital Management. Please proceed with your question.

John Harrington - Harrington Capital Management

Thank you. My question centers on the total emphasis from a shareholder perspective. In the news where you gave us that is all in China. What about the U.S. market, the European a separate entity, but U.S. market with all of its malls et cetera, do you plan any activity over here?

Chris Spencer

No, I don't believe we do at this time. And the reason is because in the United States the internet is already here. I don't think necessarily that would be the best strategy for us. The reason that our kiosk strategy is so strong in China is because the internet is still in a very, very early stage, especially once you get outside of downtown of tier 1 cities. So I don't necessarily think we're looking at the kiosk where the FAB, the 5C licensees is portion of our business in U.S. or in Europe to that matter.

There is opportunities we believe in developing nations and developing countries and we're at early, early stages of exploring that. But I do think there is opportunities for acquisitions in the U.S. and that's what we are looking at in terms of both content as well as distribution opportunities to complement possibly our podcasting network or just our overall content and distribution.

John Harrington - Harrington Capital Management

So a lot of because that then would be India that it’s just now opening up the channels to the internet services same question then would call for activity in marketing in India?

Chris Spencer

Yes, I mean that would be the logical, one of the logical companies to look at in terms of emerging markets and where our brands, excuse me where our concepts are, kiosk and brand licensing concept could enjoy some success. So I agree that would be an interesting consideration.

John Harrington - Harrington Capital Management

Okay. So nothing is on the joint board now?

Chris Spencer

Nothing that we can speak to at this point that I think we get, I don’t think at this time that we should talk about that.

John Harrington - Harrington Capital Management

Okay. Thank you.

Operator

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Mr. Spencer for closing comments.

Chris Spencer

Well thank you very much and thank you everyone for joining us. We look forward to talking to you after our fourth quarter and continuing on our business strategy and executing our plans that we've outlined for you here today. Thank you once again and look forward to talking you soon. Bye, bye.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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