YOU On Demand Holdings' (YOD) CEO Weicheng Liu on Q2 2014 Results - Earnings Call Transcript

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 |  About: YOU On Demand Holdings, Inc. (YOD)
by: SA Transcripts

YOU On Demand Holdings, Inc. (NASDAQ:YOD)

Q2 2014 Earnings Conference Call

August 14, 2014 04:30 PM ET

Executives

Jason Finkelstein - Director, Strategy and Investor Relations

Shane McMahon - Chairman

Weicheng Liu - CEO

Marc Urbach - President and CFO

Analysts

Jay Srivatsa - Chardan Capital Markets

Operator

Good afternoon everyone and welcome to the YOU On Demand 2014 Second Quarter Investor Update Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At this time, for opening remarks and introduction, I would like to turn the call over to Jason Finkelstein, Director of Strategy and IR at YOU On Demand. Please go ahead.

Jason Finkelstein

Thank you, operator and good afternoon. Welcome to our second quarter 2014 earnings conference call. Joining me today, I’m pleased to have Shane McMahon, Chairman; Weicheng Liu, CEO, Marc Urbach, President and CFO.

We announced our financial results for the second quarter at approximately 4:00 P.M. Eastern Time today. The Q2 financial results and the webcast of this call are also available at the Company’s corporate Web site at corporate.yod.com. Once Shane, Weicheng and Marc complete their prepared remarks; we will open up the lines to analyst questions and then continue the Q&A session with questions received via e-mail, both prior to and during the call.

As previously instructed in our earnings call dial-in information press release, please e-mail questions to ir@yod.com, and we will do our best to address as many as possible time permitting. The webcast of today’s call will also be archived and available in the Webcasts and Events section of the YOD corporate Web site for a minimum of 30 days.

We may make forward-looking statements during this call regarding the Company’s future performance. Actual results may differ materially from these statements due to risks and uncertainties related to the business. These risks and uncertainties are detailed from time-to-time in the Management’s Discussion and Analysis section of our corporate filings, copies of which can be obtained from the SEC or via our Web site.

All information discussed on this call is as of today, August 14, 2014 and YOU On Demand undertakes no obligation to update any statements or expectations from prior conversations. Regarding today’s agenda, Shane will begin with a quick overview of business development and Weicheng will discuss our strategy and services, finally Marc will cover our second quarter financials.

Shane McMahon

Thank you, Jason and good afternoon everyone. As said on the last quarter’s call, YOU On Demand’s CEO, Weicheng Liu who is joining us at 4:30 in the morning Beijing Time and we appreciate his flexibility and joining us. My remarks will be brief before I turn over to Weicheng and Marc. YOU On Demand is making great strive as we continued to evolve our movie and entertainment service platform which integrates the best in Hollywood entertainment alongside all things movie related via mobile and other devices and screens. YOU On Demand’s platform service aspirations include providing the best functionality features that neck break IMDb and Fandango provide to their loyal users, which will feature high-definition movies, Box Office ticketing services and online database of information related to films including actor biographies, blog summaries and trivia.

In essence a fully immersive experience complete with social engagement for our users. We are focused on creating the number one destination for movie fans. Our user interface is well underway to being best-in-class, offering superb video and audio quality through the highest performing content delivery networks available. I am very excited about the potential future developments on the horizon and we look forward to communicating these to you all at the appropriate time. With that I would like to hand the call over to Weicheng Liu for some recent developments.

Weicheng Liu

Thank you, Shane. Earlier this week, we softly launched the YOU On Demand Mobile App independently via our popular app stores and online channels in China such as Android Mobile Market, 91 Mobile Assistant, 360 Mobile Assistant and Taobao Mobile Store. The focus of this launch is twofold, first and foremost, we are looking to push V2 of the YOU Cinema App to as many smartphones and tablets as possible. Second, we are collecting user feedback data to make final tweaks to V3, our app which we plan to launch in Q4, 2014. We are really excited about V3 and have been working around the clock to complete it. We see this service app as a cornerstone of our multi-screen video entertainment platform.

With continuous adoption of the 4G on smartphones, we envision a day when a YOU Cinema subscriber can toggle back and forth between their smartphone device and their HDTV screen in home. From the data trend TV standpoint, in May we launched our service on a Xiaomi Box as part of our OTT deal for future TV. Because of the success in YOU Cinema subscription service has had on the Xiaomi Box, the YOU Cinema service quickly moved to the number one spot among all the end user paid services on the Xiaomi Box. Not only does that enhance our brand exposure and the opportunity for greater sales but the move has also earned reputation from other OTT device manufacturers and service providers.

We just announced another OTT service launch with Dr. Peng Group, a public traded company on Shanghai Stock Exchange and the large independent broadband service provider in China with 8 million broadband subscribers. YOU Cinema subscription service will go live on September 1st whereas a transaction service as well as the mobile add-on will be made available at later time. We are also in touch with several other OTT device vendors and we will update our investors accordingly.

In addition, we are also in final stages of trial tests with several potential telco operators for IPTV and a mobile service launch. We have had slight delays due to the size of these projects and complex process of service integration with different operating units of these telcos. We are hoping to sign the full-fledged commercial agreement shortly and we will update investors accordingly. Our company continues to transition from a pure content aggregation and distribution business into a business that was built around all things movie related with innovations that are changing a way people consume content through social connections amongst the movie fans.

We are on track to launch our YOU Clip service in Q4, 2014 and we will provide an update on that service in our Q3 call. In addition, we have multiple potential mobile and OTT distribution deals, in various stages of negation that we will announce publicly at the appropriate time. I would now like to turn the call over to Marc for our financials.

Marc Urbach

Good afternoon everyone. Revenue for the period ending June 30, 2014 were $183,000, an increase of 33% over Q1, 2014. Our gross loss for the quarter amounted to $674,000, down from $739,000 in the same period in the prior year. Moving down the income statement, we continue to be very mindful of keeping corporate overheads at minimal levels and a 10.6% decline in total operating expenses for the quarter from last quarter to under 2.5 million reflects the continued success of this strategy. The loss from operations of 3.2 million for the quarter was down from 3.5 million loss from operations in the comparable 2013 period.

The net loss from continuing operations for the quarter was 1.1 million which included a $1.5 million charge in the fair value of warrant liabilities versus 3.5 million net loss from continuing operations in the comparable 2013 period. The net loss attributable to the YOU on Demand shareholders for the quarter amounted to $793,000, down from approximately $3.3 million net loss in Q2, 2013. The reported per share loss for the quarter was $0.05 on a diluted basis compared to $0.22 per share loss in the year ago Q2.

As we mentioned on last quarter’s call, CED has increased in capital investments and resulted in a much stronger balance sheet. Cash and cash equivalents increased from $3.8 million in December 31, 2013 to $15.6 million at June 30, 2014. We continue to target achieving cash flow positive status by midyear, next year and will maintain a lean corporate overhead run rate of approximately $8 million a year in the interim. This concludes our management team’s prepared remarks. I’d like to turn the call back to the operator and open up the lines for your questions. As a reminder, webcast participants are advised to e-mail us their questions at ir@yod.com now.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). And our first question will come from the line of Jay Srivatsa with Chardan Capital Markets. Please proceed with your question.

Jay Srivatsa - Chardan Capital Markets

So on Q2, could you give us a split between the mobile revenues and the cable revenues and highlight where the growth came from relative to Q1?

Weicheng Liu

All right. Thank you, Jay. In terms of cable versus mobile OTT for Q2 still pretty much half comes from the cable, the rest come from the OTT and mobile. In terms of growth potential, OTT experienced the highest growth ratio ahead of the mobile and cable still growth is probably kind of flat rate.

Jay Srivatsa - Chardan Capital Markets

Okay. Focusing on the OTT business, I know with the Xiaomi, you had initially over a 1 million boxes installed with the software. Can you give us an update on how many more boxes does Xiaomi rolled out given the success of the product and how you see that growing for the rest of the year?

Weicheng Liu

Yes, we launched our service on Xiaomi Box in May and very quickly our service moved to the number one spot on the Xiaomi Box among all the sub-branded servers on the box including some of the largest Internet video service providers in the country. As a result of that we have multiple OTT device vendors who tests in their lab and also some service providers as well. Today, earlier today, we announced our partnership with Dr. Peng Group who is the largest independent broadband service provider in the country with about 8 million broadband homes service. The service will be commencing on September 1st, the first of several other deals we plan to announce at appropriate time. We will update our investors accordingly.

Jay Srivatsa - Chardan Capital Markets

Okay. Can you give us an update on Huawei and Huawei Mate, I think last call you talked about more hardware product coming out of Huawei potentially by the end of the year. Can you give us an update on where things are at?

Weicheng Liu

Yes. Well, I mentioned launch of our mobile app with Huawei was, as a said the last time was limited to just one model and roughly about 2,000 users. So, the quality user feedback data identified some of the functions and user experiences were somewhat unique to the Huawei’s context before they kind of expand their service for preinstall. We’re also looking to integrating our service with one of their phone and data services, so that they will be an internal sponsor and a driver behind the growth of a combined service to the end-users. We do anticipate to launch our Solitaire app on a full array of Huawei phones and the tablets soon but it’s difficult to give a specific date yet.

Jay Srivatsa - Chardan Capital Markets

Okay. In terms of cable, it looks like you mentioned is flat. I guess the question Weicheng is, I mean what needs to happen for that business to get-off the ground and become really meaningful for you or do you expect to shift your resources more to the mobile and OTT side and deemphasize your efforts on the cable side given the slow growth?

Weicheng Liu

Cable is still a significant market longer term. The Chinese government actually is forming a national cable company and they’re putting out more resources to build out that business. Until then, we see the mobile and OTT business fast growing opportunities, so we shifted our resource and focused more on the OTT and mobile. But technology it kind of changes through advanced field as well, most of the cable companies are also crafting the so called cable services which means they chip the cable piece in their set-top box by adding the OTT module into it as well. So some of the cable companies put the entire system, the broadband pipe in consumer’s home rather than try to upgrade their cable infrastructure in two ways.

Now the upgrade, whole new opportunity for companies like YOD, we have; number one, our company eyes for cable, IPTV, mobile and OTT. Number two, our technology is ready for that as well but I would say it’s going to take some time for cable to see significant growth. Right now, our strategy is to take cable space around and see it sizable for the next two years for cable to something around probably RMB10 million each year. But in terms of growth potential, OTT and mobile is ramp up and ready to go over the next two to three years.

Jay Srivatsa - Chardan Capital Markets

Okay. In terms of your full year guidance, looking at the first half it appears you have over 2.5 million to earn in the next two quarters. Can you tell us where you expect that to come from in order for you to be able to meet the guidance and how confident are you in achieving the guidance at this quarter?

Weicheng Liu

Yes. Our revenues are indeed back-leveraged in Q3 and Q4 due to the fact that we have a number of significant deals that are in trial and it takes time to reach a commercial launching. Said that, I am very confident in my team’s ability to execute and reaching our goals. If there were any shortfalls it would only be a timing issue and the result will be shown in subsequent quarter.

Jay Srivatsa - Chardan Capital Markets

Okay. In terms of your efforts for the telecom operators, I think the last quarter you had mentioned you’re working with several telecom operators. What happened with them and when do you hope to get some operators signed up?

Weicheng Liu

Actually our trials with several potential operators are going fairly well. We thought to have a rather contract internal sort of working units you have to get since our workout. But I do expect by year’s end, probably sooner than that to expect announcing some of the deals plus hopefully the nationwide launching as well.

Jay Srivatsa - Chardan Capital Markets

Okay. I am sure Weicheng you saw the announcement of Alibaba taking the stake on Youku in order to, for them to get a play on the online video business. Has YOU On Demand been approached by any of these larger companies in China or outside? And if you have, what do you need to do in order to make yourself attractive to some of these larger companies who are actually taking stakes in the online video play?

Weicheng Liu

Well, we have our own position and our own strategy and goals, I cannot speculate, I am not in a situation at this point to sort of discuss. We however from time-to-time said people coming talking to me but my focus right is to actually execute our strategy. As I explained last time, our position is rather different from those Internet video companies. They are basically driven by the eyeball economy, so certainly driven by the Internet traffic and there will be a media service. So, making money on high growth and we are building the commercial service, it’s actually an e-commerce service. We provide up and running service which have added more value-added services into our offering.

So eventually, it’s more like a membership service where you can get lot of interesting services around new links or something related. We grow our subscriber base that way. I believe we will create significant values in to our segments and I am not excluding any opportunity but we are open. It’s just like we are indeed different from the general sort of comprehensive DivX site. They compete on a variety, they compete on I would say massive video content. They also shift the focus on program content and we focus on goals we are pursuing.

Jay Srivatsa - Chardan Capital Markets

Okay. Last question, Marc, on becoming cash flow positive, I think in the previous call you had sighted potentially Q1, today you seem to suggest it’s going to be a mid-year. What has changed to move the cash flow timing and what needs to occur in order for you to keep your original guidance of Q1?

Marc Urbach

Sure. We think that we’re doing a lot of deals with a lot of the companies and we’re extremely optimistic as Weicheng has already gone through. The some of the deals have taken a slightly longer, if you are dealing with large complex, some governments, some non-agencies. So that’s why we haven’t changed our revenue guidance. The revenue will be there, on the growth it’s still there and if anything, I think we’re more excited because the amount of people approaching us is a little bit overwhelming sometimes for our team. So, I still think we’ll be there next year. It maybe mid-year, next year or few months delay possibly but we’re still very confident and some of those have been in the company for a lot of years, I don’t think I’ve ever been more excited about the stuff that we’re doing right now.

Operator

Thank you. We will now turn the call back to Jason Finkelstein.

Jason Finkelstein

Thanks, Jay and thank you operator. So, now let’s move into questions that being e-mailed to us by investors before entering the call. As will be our standard practice from this call going forward we’ve organized the questions by topics I do receive them. So, the first question is, as far as the move to KPMG as your order, how do that come about, was the request of potential partner or investor?

Marc Urbach

I will answer that. There was really no problem with UHY. UHY did a great job but obviously in this regulatory market and an investor world, Big 4 is certain an extra lot of confidence. The fact that they’re willing to pick up added a lot of confidence and it’s something we’d always talked about moving to Big 4. And then at this time while getting close to hyper growth, we wanted to have a firm like KPMG represent us and we’re excited to have them, did great first quarter. They are running our business so they learned our business and we have a great relationship with them and then we’re excited to be able to say that KPMG is our auditor going forward.

Jason Finkelstein

Great. Second question is Mr. Herr, active in the strategic road of YOU On Demand through the relationship or is he more of a silent partner?

Shane McMahon

This is Shane I’ll take that. Yes, he is. We had several meetings with his team and we’re looking forward to recruiting strategy in fact we’re scheduled to do major road show in Q4 of this year.

Jason Finkelstein

Great, YOU On Demand in any conversations or testing with any of C Media’s partners like China Mobile, China Unicom or China Telecom?

Weicheng Liu

We are actually in talks two of those three you mentioned.

Jason Finkelstein

Okay. Next question, how is YOU On Demand being promoted increasing brand awareness for adoption in China. Can you elaborate a little bit on the marketing going on?

Weicheng Liu

With the limited financial resources we have to figure out the better ways to get our name out there but we do have some sort of emulator strategy and CapEx to promote our sales and ourselves on the social map and build vital growth but I am not sort of ready to pump that openly. One thing I can do though is I can give some sort our marketing strategy in terms of, to build the brand recognition through partnerships. I will give you three example, one is like we think in China or in Asian countries, the objective is kind of an important piece of the culture. So, we feel a very well designed product that allow our partners to take our movies, just one or two at the best or through some of the well recognized traditional business things that hold productions relevant.

Indeed, we just signed a deal with a nationwide WiFi service provider to the hotels where we sort of partner with that to get our service reaching the consumers. One that we can get money, we get revenue, we get paid and number two we got our name passed and app download into the consumers’ mobile phones or tablets. The second example there, we partner with extreme resources with a traditional media for client absorption and we find that what strategy it takes, the National movie channel where we take the most popular show we have on the channel which the Lu Chen program played twice, over Lu Chen they played Hollywood movies typically as modern rule, which also was our number one rating program on CCTV 6.

They have the TV rights and we make have the label rights and which is a perfect combination. So, what we do in backdrop, we take the content from them because they have translator to translate into Chinese plus they have especially build program with directors, actors commonly those come to build out the program, not just movie itself, so that would become available on our mobile app. At the same time, there will be a QR code appear on TV screens and people can certainly scan out the QR code to reach our mobile app so that’s mutually beneficial. And also kind of in our V3, we will have interactive features into it so people will be able to watching the movie on huge screen that actually calls over quite an interesting information about the movie and actors whatever, so that’s kind of one other example. Maybe Q3, Q4 when our V3 is also getting launched; we will share more on our marketing strategy.

Jason Finkelstein

Great, thank you. Next question, what’s your view in terms of the competitive landscape as far as high-tech acquisition?

Weicheng Liu

Lot of the competition for content in China was pretty much driven by an eyeball economy and the new content thrown among those video Web sites. In a straight way it continue on the popularity, the variety whatever popular they need to a get a content that drives a price up and down and some of which like our studio partners they also light on the rolling cost, price can very often go down, it depends on they achieve thereafter. But like I said we have a clear position and we have a clear goal. We’re not taking after the pipeline of pricing war. We basically focus on our business. We do our business based on what we presented.

Jason Finkelstein

As far as content spend, is there any forecast or internal budget that you can share with us for this year?

Marc Urbach

Sure, currently you could see in our financial statements we’re spending between $3 million and $4 million on content. We’re always looking for new and unique content. We have some great content partners right now in place. I would anticipate we are in the growth phase right now, I mean reasonably constant because like I said we have a great library to launch on all these different platforms. But having said if something new and unique comes on like we just brought the right to some of the kids content to watch our kids platform, we’re always looking at different types of content but we'll be reasonably consistent between the $3 million and $4 million range for foreseeable future.

Jason Finkelstein

Great, that’s all the time we have for questions today. Shane would you like to make any closing remarks?

Shane McMahon

Sure, I’d like to thank everyone for joining us today. We’re excited to be sharing lots of announcements over the next few months. Again we are leaded with the company’s direction of where we’re headed. And I would like to thank investors from the past and present who have been there, part of our growth and also like to thank Weicheng and Marc, especially Weicheng for joining us so early. And we all look forward to updating all of you on the call, on You On Demand’s ongoing process and as we also host our 2014, Q2 call. Have a great night.

Operator

Thank you. Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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