VisionChina Media's (VISN) CEO Limin Li on Q3 2014 Results - Earnings Call Transcript

| About: VisionChina Media, (VISN)
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VisionChina Media Inc (NASDAQ:VISN) Q3 2014 Results Earnings Conference Call December 17, 2014 8:00 PM ET

Executives

Shuning Yi - Investor Relations

Limin Li - Chairman of the Board, Chief Executive Officer

Stanley Wang - Chief Financial Officer

Analysts

Xin Wang - BOCI

Operator

Good evening and thank you for standing by for VisionChina Media's Third Quarter 2014 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 do have any objections, you may disconnect at this time.

I will now turn the call over to your host for today's conference, Ms. Shuning Yi, Investor Relations for VisionChina Media.

Shuning Yi

Hello, everyone and welcome to VisionChina Media's third quarter 2014 earnings conference call. The company's third quarter 2014 earnings results were released earlier today and are available on the company's IR website at www.visionchina.cn as well as on our 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 Chief Financial Officer, 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 U.S. 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 U.S. 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

[Foreign Language]

Shuning Yi

Hello, everyone and thank you for joining us today.

Limin Li

[Foreign Language]

Shuning Yi

We continue our momentum from the first half of this year and deliver another solid quarter with advertising revenue achieving year-over-year growth of 5% for the third quarter of 2014. Revenues from our mobile TV advertising service totaled US$29.5 million in the third quarter, despite uncertainties rounding the macro economy in the outdoor advertising market.

Utilization for the third quarter of 2014 reached to 9.6 minutes per broadcasting hour, while revenue per broadcasting hour reached US$630. Our advertising growth margin has also increased to 25% compared with 23% in the year ago.

Limin Li

[Foreign Language]

Shuning Yi

In the second quarter of the year, we strived to optimize the cost structure of our separate mobile TV business in order to achieve the goals that we set at the beginning of this year. At the end of the third quarter, we managed to restructure our exclusive agreement with Beijing Subway following the media cost initiatives that we implemented in Shanghai.

Under our new contract, we paid to media cost based only on the advertising minutes purchased. This releases VisionChina Media from what was had been unnecessarily high fixed media cost.

As a result of this restructured contract, we paid US$1.8 million advance payment that we believe will lead to future profitability for our business in the Beijing subway in the future.

Additionally, we started to restructure the agreement with Guangzhou subway in the fourth quarter. As a result of these initiatives, we expect to – we expect advertising media cost to decrease by 20% year-over-year for the remainder of 2014 and throughout 2015.

Limin Li

[Foreign Language]

Shuning Yi

In the third quarter VisionChina Media continue its exhibition marketing, telemarketing and activity marketing initiatives achieving several favorable recognitions within our industry. At this year’s Global Mobile Game Developers Conference or GMGDC which took place in September, VisionChina Media won the Tianfu Award for the outdoor media with the strongest communication capability and continue to provide the game industry with more effective and a better marketing service, as one of the integrators of the mobile game service provider comfort ratio.

This is important and these recognitions allow VisionChina Media to gain significant exposure to a large number of the leading mobile game devices, allowing us to demonstrate our superior capabilities to important audience.

In the third quarter in advertisement value provide that VisionChina Media platform continue to generate solid growth with game advertisement revenue rising by 10% in the third quarter compared with the same period of last year.

Limin Li

[Foreign Language]

Shuning Yi

In addition, as a designating mobile media – corporation media, VisionChina participated in the promotional activities at the Guangzhou International Beauty Expo and Chongqing Autumn Sugar and Wine Trade Fair in the third quarter. These exhibition activities provided us good opportunities to further penetrate into the ad customer market.

In the third quarter, CSL, also known as the Chinese Football Association Super League and the China Cup International Regatta had a successful debut. In addition from developing the superior programs around the CSL and increasing the number of cooperation partners, VisionChina Media focused more on spreading the words about regatta on TV through our public buses in subways and over 20 cities, including Shenzhen, Guangzhou, Beijing and Shanghai.

We increased the awareness of the general public – of regatta more roughly and directly, thus attracting more people to watch the China Cup and come to the venue. Meanwhile, our efforts have also increased the advertisement value before and after the programs and attracted more advertisement from customers.

Limin Li

[Foreign Language]

Shuning Yi

Turning now to our mobile Internet strategy. With the strong needs by smartphone users, free Wi-Fi access has become the new vast view [ph] for many Internet giants to grab and occupy the mobile terminal. The everywhere Wi-Fi program by Alipay, with free Wi-Fi zero data downloading initiative by Baidu and everyone Wi-Fi re-tasking initiative by Tencent all reflected determination of these market leaders to gain access.

To address these customers strongly, VisionChina Media has built super access based on our public transit platforms thus seen in operation for many years. These programs integrate a large mobile, TV screen business, more smartphone screens, bringing richer TV programs and free Wi-Fi data to use this and thus creating the dual effect media with a big screen to build friends and smart screen to value traffic.

As of today, the company has completed the development and a test of the Wi-Fi equipments and the equipment is now been thus produced as planned. Over the next two quarters, we will focus on the business operation and market expansion of mobile Internet across our network. It is expected that our mobile Internet strategy will become the new sustainable growth strategy for our company in the near future and we expect to grow VisionChina Media to the next level as the premier transit Wi-Fi network operator.

Limin Li

[Foreign Language]

Shuning Yi

I will now hand over the call to our Chief Financial Officer, Mr. Stanley Wang, who will discuss our financials and operating metrics in more detail.

Stanley Wang

Thank you, Mr. Li. I will first go over our quarterly operating metrics. Our network capacity, which is measured by total broadcasting hour was 37,978 hours in the third quarter of 2014, compared to 39,930 hours in the third quarter of 2013 and 38,039 hours in the second quarter of 2014.

Our average advertising revenue per broadcasting hour was $630 in the third quarter of 2014, compared with US$687 in the third quarter of 2013 and US$734 in the second quarter of 2014.

In the third quarter of 2014, we sold a total of approximately 364,000 advertising minutes in our network, an increase of 19% compared to 305,000 advertising minutes in the third quarter of 2013 and an increase of 11% compared to 329,000 advertising minutes in the second quarter of 2014.

On average, we sold 9.58 advertising minutes per broadcasting hour in the third quarter of 2014, an increase of 24% compared to 7.95 advertising minutes per broadcasting hour in the third quarter of 2013 and an increase of 11% compared to 8.65 advertising minutes per broadcasting hour in the second quarter of 2014.

Turning now to our third quarter financial results. Our total revenue in the third quarter of 2014 were US$29.7 million. Advertising service revenue, which is accounting for 99.7% of our total revenue in the third quarter of 2014 was US$29.6 million, representing an increase of 4.9% compared to US$28.2 million in the third quarter of 2013.

Media costs, the most significant component of our advertising service costs, were US$18.9 million in the third quarter of 2014, representing 85.7% of our total advertising service costs, compared to US$17.5 million, or 81.1% of total advertising service costs in the third quarter of 2013, and US$18 million, or 81.3% of total advertising service costs in the second quarter of 2014.

Gross profit in the third quarter of 2014 was US$7.6 million, compared to gross profit of US$6.9 million in the third quarter of 2013 and gross profit of US$8.2 million in the second quarter of 2014.

Advertising service gross margin was 25.4% in the third quarter of 2014, compared to 23.4% in the third quarter of 2013 and negative – and 26.9% in the second quarter of 2014.

Selling and marketing expenses were US$4.5 million in the third quarter of 2014, compared to US$7.1 million in the third quarter of 2013 and US$3.7 million in the second quarter of 2014.

General and administrative expenses were US$3.3 million in the third quarter of 2014, compared to US$2.5 million in the third quarter of 2013 and US$3.2 million in the second quarter of 2014.

Operating loss was US$1.5 million in the third quarter of 2014, including a non-recurring charge of US$1.8 million incurred for restructuring of our exclusive concession contract in Beijing Subway, compared to an operating loss of US$2.9 million in the third quarter of 2013 and an operating profit of US$2.0 million in the second quarter of 2014.

Our income tax expenses were US$40,000 in the third quarter of 2014, compared to the US$50,000 in the third quarter of 2013 and US$50,000 in the second quarter of 2014. Net loss attributable to our shareholder, referred to as GAAP net loss was US$2.9 million in the third quarter of 2014. Basic and diluted net loss per ADS on GAAP basis in the third quarter of 2014 were $0.56 respectively.

In the third quarter of 2014, our non-GAAP financial measure, net loss attributable to our shareholders excluding share-based compensation was US$2.8 million compared to non-GAAP net loss of US$3.5 million in the third quarter of 2013 and non-GAAP net income of US$2.5 million in the second quarter of 2014.

We had cash and cash equivalents of US$18.2 million as of September 30, 2014. Our net cash used in operating activities were US$2.3 million in the third quarter of 2014. We made a US$7.7 million payment for upfront settlement of the litigation with former Digital Media Group shareholders in the third quarter.

The company expects net cash from operating activities to be no less than US$1.2 million for the fourth quarter of 2014. Depreciation and amortization was US$0.9 million and capital expenditures were US$0.3 million in the third quarter of 2014.

Thank you again for joining us today, and I will now open the call to your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And your first question comes from the line of Xin Wang of BOCI. Please ask your question.

Xin Wang

Thank you for taking my question. My first question is how much reduction in media cost was due to the Beijing subway contract in Q3? This is my first question. Thank you.

Stanley Wang

Thanks for asking. And the deductions of Beijing’s contract in Q3 actually take effect starting from – starting from late August. So those amount of deduction is approximately less than $1 million, less than $1 million. But however in the fourth quarter and onwards for each of the quarter we have a reduction of approximately $1 million for premium [ph] in each of the quarter for the restructuring of Beijing’s contract.

Xin Wang

Thank you. My second question is that could you please give us some color on the margin level of your subway business and the bus business. And how much contracts in Q3 that was to loss making? Thank you.

Stanley Wang

The only loss making contracts were Beijing subway contract and the Guangzhou subway contract. And however for the overall margin level for the bus business, the margin level were higher than the company's average gross margin and the – and the subway business is basically below the average.

Xin Wang

Thank you very much.

Operator

And there are no further questions from the phones at this time. I'll now hand back to today's presenters to continue. And there are still no further questions at this time. So once again I'll hand back to today's presenters to continue.

End of Q&A

Shuning Yi

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

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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