Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

VisionChina Media, Inc. (NASDAQ:VISN)

Q1 2011 Earnings Call

May 05, 2011 8:00 pm ET

Executives

Colin Wang - Director, IR

Limin Li - Chairman & CEO

Stanley Wang - VP, Finance

Analysts

Philip Wan - Morgan Stanley

Eddie Leung - Merrill Lynch

Nan Li - SIG

James Lee - CLSA

Chenyi Lu - Cowen & Company

Dick Wei - JPMorgan

Operator

Good evening and thank you for standing by for VisionChina Media’s First Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

I would now turn the call over to your host for today’s conference, Mr. Colin Wang, Investors Relations Director for VisionChina Media. Please proceed, sir.

Colin Wang

Hello everyone and welcome to VisionChina Media’s first quarter 2011 earnings conference call. The company’s first quarter earnings results were released earlier today and are available on the company’s IR website at www.visionchina.cn as well as on Newswire services.

Today, you will hear from our Chairman and Chief Executive Officer, Mr. Limin Li, who will talk about our industry, our company’s strategy and business operations; and Mr. Stanley Wang, our Vice President of Finance, who will take you through our financials and key operating metrics. After their prepared remarks, Mr. Li and Mr. Wang will be available for your questions.

Please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today.

Further information regarding these and other risks and uncertainties is included in our Annual Report on Form 20-F and other documents filed with the US Securities and Exchange Commission. VisionChina Media does not assume any obligation to update any forward-looking statements except as required under applicable law.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on VisionChina Media’s Investor Relations website at www.visionchina.cn.

I will now turn the call over to our CEO, Mr. Li.

Limin Li

Hello everyone and thank you for joining us today. VisionChina saw success in line with our expectations in the first quarter of 2011. Total revenue reached $32.5 million, a 39.1% increase over the first quarter of last year and the company continued to achieve gross profit. Anticipated seasonality caused revenue to slide sequentially by 27.5%.

As we celebrated our sixth year of operation in the first quarter of 2011, the company was pleased to note two favorable indications from independent parties.

First the 2011 Global Advertisers Congress known as the World Expo of Global Advertising was held in China for the first time. During the event VisionChina was analyzed by a board of leading international and domestic industry experts that evaluated the company’s media influence, market value and growth potential.

VisionChina was the only new media company placed in the grand prize category. The other placed in that category were China’s two leading satellite TV stations namely Hunan Satellite TV and Jiangsu Satellite TV. We are proud to have being recognized by the industry for the value of our media platform.

Second, in the Autumn 2010 China Marketing & Media Study, subway and bus TV Media was ranked at the number one most influential out-of-home digital media platform, that in reach as high as 44.7%.

The week-long study was carried out in China’s major city and included all media platforms. In terms of reach, subway and bus TV was ranked number three, right behind the country’s most important TV station CCTV-1 and CCTV-3.

As the market of VisionChina’s nationwide mobile TV media network mature, more third party research study is being conducted. These studies consistently support VisionChina’s intent to establish industry standard and also highlight the effectiveness and reach of our platform enhancing our growth processes.

In terms of new revenue stream growth, in recent years we have seen a surge in new types of internet-based businesses such as social networking, group (inaudible) and video share website. These types of companies promote their brands and products aggressively across various channels. Without vast reach, high conversion rates of viewership to transaction, accurate targeting and massive coverage that reaches hundreds of millions of commuters daily, VisionChina has become a beneficiary of the growing advertising spending related to these emerging businesses.

We have seen revenue growth potential in IT and internet advertising spending verticals as a result of recent placements by these new brands.

As discussed in previous quarter, VisionChina has established cooperation with various leading satellite TV stations around China. By leveraging these relationships to broadcast highly rated and custom tailored content from these stations, VisionChina is creating secondary advertising sales opportunities for programming. We are also actively working with our satellite TV partners to promote trailers for top rated shows such as one called Happy Girls, which is a hit on Hunan Satellite TV to be played on our bus and subway networks.

Leveraging VisionChina’s highly effective broadcasting capability to support their marketing campaign, these satellite TV stations are able to influence audiences’ brand perception and increase viewer ratings. We are confident that these partnerships will become another revenue growth area for VisionChina.

In terms of media platform maintenance and expansion, we have recently renewed our exclusive contract to operate on Guangzhou subway system for the next five years. The new contract includes all of Guangzhou’s existing subway lines and the extensions of those lines as well as new subway lines.

Further, we have signed an exclusive contract to add three new subway lines to our existing subway network in Shenzhen for the next five years. By signing these two contracts, we have strengthened our strategic advantages in Tier-1 cities and further solidified our near 100% share of China subway digital mobile television market.

With our outstanding reputation, as a solid business partner as well as our increasing market share, we have been able to control costs effectively on a newly signed contract. It is reported that there will be more than five new subway lines added to Beijing subway system before the end of this year.

We have already taken proactive steps and initiated preliminary communications regarding conditions of cooperation and I feel confident that we will be able to achieve an even more favorable cost structure when those lines become operational.

We continue to asses our existing network structure to optimize efficiency by lowering media costs through active communications and negotiations. In fact, in the first quarter of this year, we arranged new terms with several TV bureau and subway companies that reduced our media cost to help us to meet our firm target of not increasing our total annual media cost by any more than 10% in 2011.

Much as we anticipated the 2008 Beijing Olympics and the 2010 Guangzhou Asian Games, we will welcome 26th Universiade, a world-class sporting event to Shenzhen in August 2011. As the mobile television medium platform of choice in China’s urban public transit system, we are once again poised to demonstrate our core competency in and advertising value to our mass international audience.

With the first quarter and traditionally most highest season behind us, we welcome the industry momentum of the second quarter and are confident in our ability to see rapid revenue growth and realized profitability on a non-GAAP basis in the second quarter.

And with six years of operations on or about, we have become a more mature company with a strong market position and great industry recognition. This is the result of our consistent efforts to educate and start more and more advertisers. On behalf of our staff, I wish to express my gratitude to our shareholders and investors who have participated in VisionChina’s growth. We remain firmly committed to creating long-term value and return for all of our shareholders.

I will now hand over the call to our Vice President of Finance, Mr. Stanley Wang to discuss our financials and operating metrics in more details.

Stanley Wang

Thank you, Mr. Li. In the first quarter of 2011, our operating results were negatively affected by decrease in advertising revenues due to expected seasonality. However, our year-over-year revenue growth indicates strong market demand and increasing customer recognition of the value of our platform.

Thus far, in the second quarter of 2011, we are encouraged by strong momentum in the revenue growth and we optimistic about our full year results of 2011.

In a first quarter we continue to implement rigorous cost control measures and have succeeded in lowering cost in various cities in which we have exclusively contracts. Our achievement in cost control have provide a solid base from which we will further enhance our gross profit and the bottom line going forward.

Turning now to our first quarter operating results. Our network capacity, which is measured by total broadcast hours, was 45,878 hours in the first quarter of 2011, representing a 8% decrease compared to 500,019 hours in the fourth quarter of 2010. This is the first time we have recorded a decrease in the network capacity, and it is a reflection of our strategy to exit contracts that do not enhance our bottom lines. More specifically, we terminated one of our exclusive agreement and made a decision to not to renew another exclusively agency agreement.

Both agreements were unfavorable to the company’s profitability. Our average advertising service revenue per broadcast hour was 699 in the first quarter of 2011 compared to US$859 in the fourth quarter 2011 and US$472 in the first quarter of 2010. We are pleased to see our average advertising revenue for broadcast hour in the first quarter of 2011 increase by 48% on a year-over-year basis. A reflection of increased utilization rates and stable pricing environment.

On average the company sold 7.02 advertising minutes per broadcasting hour in the first quarter of 2011 as compared to 8.87 advertising minutes in the fourth quarter of 2010, a 5.01 advertising minutes in the first quarter of 2010. Again, our sales force has continued to focus on driving utilization while we still have a significant inventory to be sold. We are pleased with the trend on utilization.

During the first quarter of 2011, 333 advertisers precious advertising time on our network, compared to 736 advertisers in the fourth quarter 2010 and 419 advertisers in the first quarter 2010.

In the first quarter of 2011, the company saw a total of approximately 322,000 advertising minutes in our network, compared to 443,000 minutes in the fourth quarter of 2010. And 238,000 advertising minutes in the first quarter of 2010.

We ended the first quarter of 2011 with 548,000 personnel representing a net decrease of 37 sales personnel compared with the end of fourth quarter of 2010. The restart of one of our cost control policies to optimize our ratio of sales people to advertise and customers.

Turning now to our first quarter financial results. Total revenue were US$22.5 million in the first quarter of 2011 which shows within the company’s revenue guidance range of US$32 million to US$34 million. This represents a quarter-over-quarter decrease of 27.5 million from total revenue of 44.9 million in the fourth quarter of 2010 and a year-over-year increase of 39.1% from total revenue or US$23.4 million in the first quarter of 2010.

The quarter-over-quarter decrease is mainly attributable to the seasonality of our business.

Media cost, the most significant component of our advertising service costs was $26.3 million in the first quarter of 2011, representing 81.5% of our total advertising service costs.

Compared to media cost of US$26.5 million in the fourth quarter of 2010, and media cost decreased by US$0.2 million in the first quarter of 2011. This is made primarily a result of our effort to continuously lower the media cost for ongoing negotiation. We have our various local operating partners. As soon for early termination of exclusive agency agreement that was unfavorable to the company’s bottom-line.

Gross profits in the first quarter of 2011 was $0.2 million compared to the gross profit of $11.6 million in the fourth quarter of 2010 and gross loss of $4.5 million in the first quarter of 2010.

Advertising service gross margin was 0.7% in the first quarter of 2011 compared to 25.9% in the fourth quarter of 2010 and a negative 19.4% in the first quarter of 2010.

The quarter-over-quarter decreasing gross profit was primarily due to seasonality and a year-over-year improvement in gross profit primarily resulting increase on revenue and better optimization of our existing advertising network.

Selling and marketing expense were $9.9 million US in the first quarter of 2011. The increase of 9.9% or $9 million in the fourth quarter of 2010, an increase of 65.2% from $6 million in the first quarter of 2010. The subsequent year-over-year increase in marketing expense were related to increasing marketing efforts and an expanding our customer lease. General and administrative expenses were $2.4 million in the first quarter of 2011, an increase of 5.1% from $2.3 million in the fourth quarter of 2010, an increase of 18.2% from $2 million in the first quarter of 2010.

We incurred other operating expenses of $2.1 million in the first quarter of 2010. It represents one off penalty payment for early termination of the exclusive agency agreement. That was unfavorable to our profitability and that I had mentioned earlier. We believe that the benefit of termination outweighed the negative effects of staying with this contract. There was no such expenses in the first of fourth quarter of 2010. Loss from equity market investment amounted to $19,000.00. In the first quarter of 2011 compared to a loss of $72,000.00 in the fourth quarter of 2010 and an income of $31,000.00 in the first quarter of 2010.

Operating loss was $14.3 million in the first quarter of 2011 compared to the operating loss of $56.3 million in the fourth quarter of 2010 and operating loss of $12.5 million in the first quarter of 2010. We recorded a net interest expense of $800,000 in the first quarter of 2010 compared to net interest expense of $700,000 in the fourth quarter of 2010 and net interest income of $800,000 in the first quarter of 2010.

Net loss attributable to VisionChina Media shareholder referred as GAAP net loss was $13 million in the first quarter of 2011. Basic and diluted net loss per share referred to as GAAP EPS attributable to VisionChina Media shareholders in the first quarter of 2011 were both $0.13.

Net loss attributable due to VisionChina Media shareholders excluding share-based compensation expense, amortization of intangible assets, impairment loss and income tax credit in connection with the impairment loss referred to as non-GAAP, in the first quarter of 2011 was $10.9 million compared to non-GAAP net income of $4.5 million in the fourth quarter of 2010 and non-GAAP net loss of $8.1 million in the first quarter of 2010.

The company has cash and cash equivalent of $107.9 million as of March 21, 2011. The company’s net cash using operating activity during the first quarter was $17.2 million. Depreciation and amortization was $2.9 million and capital expenditure was $0.3 million in the first quarter of 2011 respectively.

Turning now to our guidance. The company estimates a total revenue which consists of advertising service revenue only in the second quarter of 2011 to be between $44.7 million and $46.2 million. Second quarter 2011 net income attributable to VisionChina Media shareholder excluding share-based compensation expense and amortization of intangible assets, referred to as non-GAAP net income is expected to be between $0.5 million and $2 million.

These estimates are based on exchange rate of RMB6.5501 per US dollar. The company noted that’s its guidance is based on its current network of 21 cities, that as of the release date, have already begin secure by contracts. If the company’s network expense to additional cities, either organically or through acquisition, management’s forecast will be effected. Thank you again for joining us today and I’ll now open up calls to your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question is coming from the line of Philip Wan with Morgan Stanley. You may proceed, sir.

Philip Wan - Morgan Stanley

First of all, you mentioned that advertising demands from online services is coming in strong, and could you please share with us the sales contribution and growth rate for this quarter?

Also it would be great if you could update us your unrecognized tax loss as of now. What is the revenue contribution from the online services?

Colin Wang

Can you repeat your first question? It’s a little bit low on your voice.

Philip Wan - Morgan Stanley

You mentioned that advertising demands from the online services is coming in strong for this quarter and could you please share with us the sales contribution and growth rate?

Stanley Wang

Okay. Especially the online service in Q1 accounted for 12% in the first quarter of 2011 and this is compared to 2% contribution in Q4 of 2011 and generally it’s a positive increase and in Q1, 2011, the online service including the other form of Internet service revenue, actually became our third largest vertical in Q1 and the growth rate is over 60% quarter-to-quarter. The second question is about the (inaudible) reserves of company and up to the date after release we have a contract reserve of $110 million as of the date of release.

Philip Wan - Morgan Stanley

Can you breakdown how many from online services this was?

Stanley Wang

The online service, what is it, on the contract reserve, it accounts for 13% of our total backlog currently.

Philip Wan - Morgan Stanley

Just to clarify, your $110 million backlog also includes the first quarter sales or which is the way…

Stanley Wang

Yes. That’s correct.

Philip Wan - Morgan Stanley

Then my second question, I noticed that there’s a decline in terms of number of advertisers this quarter, and could you please give us some color on why we are seeing a year-over-year decline in terms of advertising days? For example, which sector did they belong to? And, if possible, any particular reason why they are leaving the platform? Thank you.

Stanley Wang

The decrease in the number of advertisers so what we – and an analysis where we actually we noted basically from certain small sized local or single TV advertisers and also from the certain international customers which is affected by seasonality and we are delighted to see is with our stronger new growth, the average income for advertising customers has increased in Q1 as compared to the past two quarters.

So, especially in Q2, we really expect this that customers – number of customers that with the placement with our network will pick up again. So basically, we do nothing to please the number of customers – this is giving us a established trend and there is no concern about such decrease.

Operator

Your next question is from the line of Eddie Leung with Merrill Lynch. You may proceed.

Eddie Leung - Merrill Lynch

Just a few questions. To start with, Stanley, could you give us the breakdown of your Tier-1 cities revenue versus other cities and then, separately, also the breakdown between like subway revenues versus bus revenues? Thanks.

Stanley Wang

Hi, Eddie Leung. Thanks of the question. The revenue from the Tier-1 cities in Q1, 2011 accounts for 67% of our total revenue. And that means the remaining other fifty especially contribute 33% of revenue. And this is just a split; it is actually quite consistent with Q4, 2010 and also in overall situation of 2010. And for the spilt up subway and the bus, direct revenues from the bus actually accounted for 54% of the total revenue. The contribution from the subway accounts for 46% of our total revenue.

Eddie Leung - Merrill Lynch

Then a couple of [thesis] questions, you guys mentioned that you terminated one exclusive agency agreement, and also decided not to renew another one, which cities have been affected by these two decisions? And are we talking about like bus network? Thanks.

Stanley Wang

It is two of the possibilities. So it’s our Tier-2 cities, so I may not be able to name those two competitors because of certain persuasion for competition. I can provide a certain numbers that we have historical loss in these two cities and these two cities actually these two contracts I would say from the operator is from the bus platforms and these two cities account – they are really the contribution of these two contracts account for 6% of our total revenue in 2010, but the overall costs and the provision costs is more than, its nearly 10% of our total cost. We have a negative gross population in these two contracts, so we actually make a position since exit; under the circumstances that local partners refuse to cut down the cost.

Eddie Leung - Merrill Lynch

Yes, so just want to confirm, basically, we are talking about like Tier-2 cities, right?

Stanley Wang

Yes.

Eddie Leung - Merrill Lynch

One last question before going back to the queue. Just a follow-up question on the previous discussion about the decrease in number of advertisers, so just wondering, are we looking at the bigger impact on the bus network or on the subway network?

Stanley Wang

The decrease in the number of customers actually is across our network, let us we see that it’s a 50-50% split for those impact, but overall almost between the bus – the network has been less affected as compared to subway.

Operator

Your next question is coming from the line Nan Li with SIG. You may proceed.

Nan Li - SIG

I have a few questions. My first question is can you give us some color about the media costs? How shall we look at this line going forward?

Stanley Wang

Thank you. I’ll take first question that. I offer the question and for the media cost we will have a -- as we talk about participation we have taken new progress on cost control procedures see some second half of dividends and actually we have already mention cut down, cut down there constrain cost evaluate contracts in Q1 and we expect this measure take more further effects possibly on a costly each side construction cost in the Q2 of 2011 because the European Canada antenna cut down the cost effect in (inaudible) basically the partition cost we can see we will, it will reflect an increase by around -- .

Actually we expect that the media cost will decrease a further 5% as compare to Q1 of 2010. However, overall cost of revenue it remained stable and stating the decrease decreased because there is a increasing now deduct tax due to the strong growth of revenue…

Nan Li - SIG

Thank you, that’s very helpful. And my second question is I’m just wondering if you have already received cash injection from Focus Media and other investors. I see there is an increase in the cash balance.

Stanley Wang

We have received a full amount of $61.9 million proceeds on.

Nan Li - SIG

My last question is, I think in the preparation remark you mentioned about the sales people reduction, so I’m just wondering if that will hurt the revenue growth.

Stanley Wang

It will not affect the revenue growth as you know our sales team continue to contribute a very strong top line growth for the company and actually we visit that this to say a normal turnover because we are also taking measures to optimize the team structure, capital structures to increase creditability of these sales persons and we see this as a normal turnover of the – in 17% personnel and also we have actually on the cost we have increased sales incentives to the sales team in 2011 so as to retain those outstanding sales people which is a custom for the further contribution to the company’s offices growth.

Operator

Your next question is coming from the line of James Lee with CLSA. You may proceed.

James Lee - CLSA

Thanks for taking my questions. My first question is a follow-up on the media costs where you guys talk about that being no more than 10% increase year-over-year. Stanley, I was wondering, what is your assumption based on that? Can you help us walk through, or help us understand, how many more cities are you evaluating for termination at this point in time? And how many more potential renewals and extensions would you anticipate for the rest of the year?

Assuming we are heading to 2012 you don’t add any more capacity, how should we think about media costs for 2012? And second question is regarding your sales force, and obviously you talk about optimizing your sales productivity. I was wondering, how do you go about doing that? What is your specific plan? Any granular color would be helpful. And second, does that include maybe potentially lowering your sales and marketing costs as a percentage of revenues? I notice that, that percentage of revenue is higher than it appears in general. Thank you.

Colin Wang

Okay. I will also translate the question to Mr. Lee. Hi, James, let me translate the question, the first and ?

James Lee - CLSA

First question.

Colin Wang

The second question I will leave it to Mr. Li and for the media cost effect, just I mentioned and in the Q1, 2011, actually our media costs actually approximately flat with that of Q4 and in Q2 we expect that the media costs to be a 5% decrease, as a result of our cost cutting procedures.

So overall speaking, in the second half we expect that the media costs will still cut down a little bit because there will be seven new subway lines additions, to be added in our network, say like Shenzhen will have three new subway lines and we expect Beijing to have seven new subway lines to be added.

So we actually we have started negotiations and all those things in between, we do not anticipate that the new media access that we secure, but the new contracts will relatively affect our targets. Because the current cost cutting procedures has significantly cut down those non-competency costs that enable us to show we can achieve the target after cost cutting.

For the third question, for 2012 trend in the media costs, we still expect a 10% increase year-over-year in 2012 in the media costs. We’ve continue to work with our local (inaudible) to optimize the cost structure. In our current plan we have no plans to exit from the other cities or other contracts. And currently we will continue to work with the local partners in two or three cities now to further discussion of the cost cutting, but we have no plans to exit any other cities at this moment.

For the first question you asked about the sales and marketing expenses and this appears to be a higher percentage to the peers. I will say that in Q1 because our top line is relatively weak and actually we have more investment in the sales and marketing side, say like we have increased a lot of brand building investment and also we have increased the sales personnel’s incentives and also the training and also we have a certain increase in expenses to work with third party research institute.

This actually makes the sales and marketing expenses as a percentage of revenue to increase as compared to the previous quarters, and actually we think for the full-year 2011, we still aim to keep this percentage at 20% on average for the full year.

In Q2 and Q2 2011, we expect this, we will aim to keep the sales and marketing expenses as a percent of revenue to at around 25% or lower. James, do you have any question on these two issue.

James Lee - CLSA

Yes, just want to follow up regarding your working relationship Focus Media. Clearly I think the sales organization has been very effective in terms of marketing their product. I was wondering as you continue to optimize your sales organization, what have you learned from those guys in order to streamline your sales operation better?

Limin Li

Your first question concerning the decrease of the sales forces in the first quarter of 2011. The first quarter of 2011 is actually the time we carried out this performance evaluation of sales forces for the year of 2010. So there have been a number of sales forces who failed to achieve the performance check annually. So these have been the amount of the sales forces left in the company.

Secondly, VisionChina has been focusing on increasing the productivity of individual sales forces rather than increasing the quantity of our sales forces. So this year, we have started implementing to increase, the motivation and the compensation packages just to – in order to maintain the most productive sales forces.

Certainly, the turnout the rate of the sales forces has been maintained at the common level and we’ll continue to develop our management structure of the sales forces to keep increasing the productivity.

Focus Media, and this really is answer to your second question concerning the cooperation with Focus Media is that, Focus Media is the leading lifecycle communication media in China. The cooperation with Focus Media has received positive feedbacks from both, customers and employees.

VisionChina has been communicating with Focus Media in terms of marketing operation, sales promotion and brand promotions, and we that has helped VisionChina to develop a better system.

In a lot of the industrial events that the CEO of Focus Media, Jason Jiang, and Mr. Li have all participated together. They have been making speech and they have been speaking and making recommendations of each other and that have received positive feedback from the advertising client. Thank you.

Operator

Your next question is coming from the line of Chenyi Lu with Cowen. You may proceed.

Chenyi Lu - Cowen & Company

I have two quick questions. One is, I know you guys are pretty much not going to do any more disconnections over the next 12 months, so do you plan to expand to a new city over the next 12 to 24 months?

Limin Li

Many thanks for the question. Actually, we for the expansion into new cities we are not very careful. And we will (inaudible) possibility that we will enter – secure new contract but the promise is that we will make sure that the that the price is reasonable and that the company can have a – can quickly turning to make the profitability from these contracts in a reasonable period.

So in the next two years currently we feel comfortable where we are and being a national footprint but in the future we will be very, very careful about this.

Chenyi Lu - Cowen and Company

And then so timing is over next two years most likely you won’t expand to new cities, is that correct?

Colin Wang

I think we will be careful about the contribution and before we enter into the new contracts.

Chenyi Lu - Cowen and Company

Then for current network, I know you guys are not going to any more disconnect over the next 12 months so basically that implied that you guys are all very happy with all these networks in all these 21 cities, right?

Stanley Wang

Yes.

Chenyi Lu - Cowen and Company

One more question; can you give us, do you have any more new contract renewable over the next 12 month period?

Stanley Wang

Over the next 12 months period we have two contract renewable and the first one is, I am sorry it is one contract renewable which is the (inaudible) platforms which, the contract will expire on July 31 of this year and actually we have just started negotiations with our local operating partner in (inaudible) to discuss about the service of the renewable.

Chenyi Lu - Cowen and Company

Okay. And then just to add one more question to it. I know you guys just signed, when you renew the Guangzhou contract and also the Shenzhen contract that you guys will add the new subway lines, right, and then the question is are these new lines cost a similar price as the renewable for the older lines?

Stanley Wang

First of all for Guangzhou, we have three new subway lines added, and we have three expansion line to the existing subway line and all this the Guangzhou contract actually for 2011 there is no increase, no cost increase as compare to 2010. but in efficient there is a also a step up in the cost equipment 10% pursue, although we have this new lines but fortunate there is no cost increase. Guangzhou contract three news subway line actually the (inaudible) cost is not the other three Q1.

Chenyi Lu - Cowen and Company

Okay. So basically, in Guangzhou you’ve got three new lines without any more additional cost?

Stanley Wang

Yes.

Operator

Your next question coming from the line of Dick Wei with JPMorgan. You may proceed.

Dick Wei - JPMorgan

Just want to see if there is any update in the lawsuit with the higher DMG owners; just want to see any update, and I guess, if you lose the lawsuit, just say what would be the financial impact to the Company.

Stanley Wang

Thanks Dick. (Inaudible) for question. for the losses and the actually from the last time in the March we have earnings conference we would have update the focus on to losses that actually we see kind from the TMG Firm assurance of the management and they raised several motions, including dismiss of credit and all kinds of things and also they replace and have a motion to replaced injunction and attachment.

Also all these motions will be heard credit and (inaudible) New York State Supreme Court in the middle of May, which is indeed in the coming in two weeks. And that it is still now very close to estimate actually a timeline whether we’ll get (inaudible) adjustment from the court. Now, let’s the – just like we said, if we need to estimate, there was a worst case of the losses and actually we have -- and the DMG former shareholders and management have request an enforcement of the contact, of the merger agreement.

So basically we have already approved the considerations in relation to the merger agreement in two amounts on our balance sheets as of the date of completion of the acquisition. And also, in the worst case, even if we lose the case, they may -- it depends, the DMG shareholders may request us to pay some compensatory and that’s for the (inaudible) fee or the national (inaudible) and also the interest for delayed treatments and currently we have -- because there’s no solid evidence that for such a (inaudible) we did not make such [floor] show we cannot within such restructures balancing financial statements. It will also cost of every judgment that will be difficult to see and next we close to be made to our financials.

Operator

And with no further questions in queue, I would like to hand the call back to Mr. Colin Wang for closing remarks.

Colin Wang

Thank you all for joining us today. If you have any questions, please do not hesitate to contact us at ir@visionchina.cn.

Operator

Ladies and gentlemen, thank you for your participation in today’s call. The presentation has now ended. You may now disconnect. Have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: VisionChina Media's CEO Discusses Q1 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts