SHANGHAI, China, Aug. 21 /Xinhua-PRNewswire/ -- Linktone Ltd.
(Nasdaq: LTON), one of the leading providers of wireless interactive entertainment services to consumers and a provider of advertising services through new and traditional media channels in China, today announced its unaudited financial results for the second quarter ended June 30, 2007.
(Logo: http://www.prnasia.com/sa/20061101171222-64-min.jpg )
Results for the Second Quarter
-- The Company recorded revenues of $11.7 million, compared with $14.2
million in the first quarter of 2007 and $23.3 million in the second
quarter of 2006.
-- GAAP net loss of $3.2 million, compared with net loss of $3.4 million
in the first quarter of 2007 and net income of $3.1 million in the
second quarter of 2006.
-- GAAP net loss per fully diluted American Depositary Share (ADS) of
$0.13, compared with net loss per fully diluted ADS of $0.14 for the
first quarter of 2007 and net income of $0.12 for the second quarter of
2006.
-- Non-GAAP net loss of $2.9 million, compared with non-GAAP net loss of
$3.0 million in the first quarter of 2007 and net income of $3.5
million in the second quarter of 2006.
-- Non-GAAP net loss per fully diluted ADS of $0.12, compared with non-
GAAP net loss of $0.13 in the first quarter of 2007 and net income of
$0.13 in the second quarter of 2006.
-- The Company recorded advertising service revenues of $1.6 million,
compared with $0.6 million in the first quarter of 2007. There was no
comparable revenue for the second quarter of 2006.
Chief Executive Officer Michael Li said, “Like most wireless providers in China, we continued to face a challenging regulatory environment for our wireless value added services business during the second quarter. However, longer term, we believe these regulations will only help improve the industry and increase the user’s overall experience as demand for mobile data and audio services further develop. We remain confident in the development and potential of our core wireless services in China as fundamentals remain strong, and we forecast that our wireless business can grow from the levels reported in this most recent quarter.”
Li further added, “Our advertising services revenue more than doubled over the first quarter driven by several new contract wins in conjunction with our cooperation agreement with Qinghai Satellite Television via Chinese Youth League Internet, Film and Television Center (“CYL”). We are making solid progress on our revenue diversification strategy by building a scalable platform of new and traditional media channels including interactive television initiatives and innovative advertising and promotional services. We believe that the investments made in this strategy are beginning to pay returns and that our financial losses will decrease in coming quarters. We anticipate that growth from our existing wireless business and our new media platform will return the company to profitability in 2008.”
Second Quarter Revenue Mix
Linktone’s second quarter revenue mix includes data-related services (SMS, MMS, WAP, and Java), audio-related services (IVR and CBRT), advertising service and others (casual game and enterprise services).
Data-related services revenue was $5.7 million, representing 49% of total revenues, compared with $9.1 million or 64% for the first quarter of 2007. Data-related service breakdowns are as follows:
-- Short Messaging Services (SMS) revenue represented 37% of total gross
revenues, compared with 50% for the first quarter of 2007. SMS revenue
was $4.3 million for the second quarter of 2007, compared with $7.1
million for the first quarter of 2007. The sequential decrease was
primarily attributable to a downturn in SMS volume from the first
quarter given the first quarter of each year is the traditional peak
period due to the school holidays and the Spring Festival which fall in
that quarter.
-- Multimedia Messaging Services (MMS) revenue represented 6% of total
gross revenues, compared with 5% for the first quarter of 2007. MMS
revenue was $0.7 million for the second quarter of 2007, which remained
unchanged from $0.7 million for the first quarter of 2007.
-- Wireless Application Protocol (WAP) revenue represented 3% of total
gross revenues, compared with 2% for the first quarter of 2007. WAP
revenue was $0.3 million for the second quarter of 2007, which remained
unchanged from $0.3 million for the first quarter of 2007.
-- Java gaming (Java) revenue represented 3% of total gross revenues,
compared with 7% for the first quarter of 2007. Java revenue was $0.4
million for the second quarter of 2007, compared with $1.0 million for
the first quarter of 2007. The sequential decrease was due to fewer
promotional and marketing initiatives carried out.
Audio-related services accounted for 36%, or $4.2 million of total revenues, compared with 31% or $4.3 million for the first quarter of 2007. Breakdowns are as follows:
-- Interactive Voice Response services (IVR) revenue increased to 26% of
total gross revenues, compared with 20% for the first quarter of 2007.
IVR revenue was $3.0 million for the second quarter of 2007, compared
with $2.8 million for the first quarter of 2007. The sequential
increase was due to Linktone’s ongoing efforts to attract new users via
joint cooperation projects with third parties.
-- Color Ring-Back Tones (CRBT) revenue decreased to 10% of total gross
revenues, compared with 11% for the first quarter of 2007. CRBT
revenue was $1.2 million for the second quarter of 2007, compared with
$1.5 million for the first quarter of 2007.
Advertising service revenue accounted for 14% or $1.6 million of total revenues in the second quarter of 2007, compared with 4%, or $0.6 million for the first quarter of 2007. The sequential increase was primarily the result of more advertising and product promotion sponsorship contract wins resulting from Linktone’s cooperative agreements with CYL which commenced in January 2007. According to CVSC Sofres Media Research (“CSM”), Qinghai Satellite Television had approximately 200 million viewers in 23 municipalities and 20 advertisers on QTV as of June 30, 2007.
Television advertising revenue increased sequentially from $0.5 million to $0.7 million while our product promotion sponsorship revenue increased sequentially from $0.1 million to $0.9 million. Linktone’s clients from TV direct sales, consumer goods, food and beverage, automobile, electronic goods and other industries account for 33%, 31%, 23%, 9% and 4% of total advertising revenue, respectively, in the second quarter of 2007. Linktone is currently developing advertising service relationships with household names in the food and beverage industry such Coca Cola, McDonalds and Pepsi.
Margins, Expenses and Balance Sheet
Linktone’s key operating benchmarks and balance sheet items for the second quarter of 2007 include the following:
-- Gross margin was 39% of net revenues, or gross revenues minus business
tax, compared with 44% for the first quarter of 2007 and 63% for the
second quarter of 2006. The sequential decrease in gross margin was
due to the negative gross margin of Linktone’s advertising services
business which incurred significant costs in connection with operating
the exclusive advertising agent relationship with CYL and certain
sponsorship contracts. In addition, the margins for some of Linktone’s
sponsorship contracts were much lower than its traditional wireless
business during this initial phase of deployment as it establishes its
brand name in the industry.
-- Operating loss was 32% of net revenues, compared with operating loss of
30% for the first quarter of 2007 and operating margin of 12% in the
second quarter of 2006. The sequential increase in operating loss was
primarily attributed to the negative gross profit margin from
Linktone’s advertising services.
-- Operating expenses totaled $8.0 million, compared with $10.1 million in
the first quarter of 2007 and $11.3 million for the second quarter of
2006. The sequential decrease was primarily attributable to decreased
promotional spending via TV channels for the Company’s wireless value
added services and overall cost control measures implemented by
management.
-- Selling and marketing expenses were $3.9 million, compared with $5.6
million for the first quarter of 2007 and $6.8million for the second
quarter of 2006. The sequential decrease was due to lower costs
related to promotional expenses and marketing initiatives given the
traditional off peak period.
-- Product development expenses were $1.5 million, compared with $1.5
million for the first quarter of 2007 and $1.8 million for the second
quarter of 2006.
-- Other general and administrative expenses were $2.6 million, compared
with $2.9 million for the first quarter of 2007 and $2.7 million for
the second quarter of 2006. The sequential decrease was primarily due
to management’s continued effort to control expenses.
-- Cash and cash equivalents, as well as short-term investments available
for sale, totaled $47.4 million, compared with $48.4 million for the
first quarter of 2007. Net cash generated from operations totaled $
1.7 million. The decrease in cash and cash equivalents was primarily
due to an advance payment for Linktone’s investment in eChinaMobile
(BVI) Ltd. (see below), partially offset by positive net cash flow
generated from operations.
-- Days sales outstanding (DSOs), the average length of time required for
the Company to receive payment for services delivered, were 112 days as
of the end of the second quarter of 2007, compared with 107 days at the
end of the first quarter of 2007.
Recent Business Highlights
-- Agreement with eChinaCash (“eCC”) to purchase a 49% equity stake in
eChinaMobile (BVI) Ltd, a wholly owned subsidiary of eCC. Under the
terms of the agreement, as joint owners of eChinaMobile, both Linktone
and eCC will engage in cross-selling promotional opportunities by
leveraging each others extensive customer resources.
-- Joint venture with ShanghaiHomer & Landau Cartoon Cultural
Communication Co., Ltd. (“SHLCC”) to establish a joint venture in
Shanghai to operate value added services to an estimated 367 million
teenagers in China using the content and promotional channels of SHLCC
and its related party, Hunan Greatdreams Cartoon Media Co., Ltd.
Resignation of Director
Mark Begert, Director of Linktone Ltd. since September 2005, is resigning for the Board of Directors of Linktone effective today for personal reasons. Mark, who was also CFO of Linktone from April 2001 until June 2005, plans to focus his time and attention on Future Energy Assets, LP, a venture capital fund investing in clean energy opportunities recently formed by Mark and partners based in Austin, Texas.
Mr. Begert stated, "I have enjoyed and appreciated my experience with Linktone from the early, challenging beginning as a start-up in a nascent industry to the recent challenging period of regulatory transition and business restructuring. I will continue to support the Company in whatever ways I can, and I believe Linktone is well-positioned to build significant value for shareholders in the coming years."
Third Quarter 2007 Outlook
For the third quarter ending September 30, 2007, Linktone expects gross revenue to grow sequentially to approximately $12 to $13 million. The Company anticipates GAAP net loss in the third quarter of 2007 to decrease sequentially to approximately $0.09 to $0.11 per fully-diluted ADS.
Use of Non-GAAP Financial Measures
The reconciliation of GAAP measures with non-GAAP measures for net income and net income per fully-diluted ADS included in this press release is set forth after the attached financial statements. Linktone believes that the supplemental presentation of adjusted net income and net income per fully diluted ADS calculations, excluding the effect of non-cash stock-based compensation expense, provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis, independently of non-cash items. Thus, the non-GAAP financial measures provide investors with another method for assessing Linktone’s operating results in a manner that is focused on the performance of its ongoing operations. Linktone management also uses non-GAAP financial measures to plan and forecast results for future periods. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results located after the financial statements.
Today’s Conference Call
As previously announced, Linktone management plans to host a conference call to discuss its second quarter 2007 financial results at 8:00 p.m. Eastern Time on August 20, 2007 (5:00 p.m. Pacific Time on August 20, 2007 and 8:00 a.m. Beijing/Hong Kong Time on August 21, 2007). The dial-in number for the call is 800-218-0713 for U.S. callers and 303-262-2130 for international callers. Chief Executive Officer Michael Li and Chief Financial Officer Colin Sung will be on the call to discuss the quarterly results and highlights and to answer questions from participants. A replay of the call will be available through 11:59 PM ET on September 4, 2007. To access the replay, U.S. callers should dial 800-405-2236 and enter passcode 11093841#; international callers should dial 303-590-3000 and enter the same passcode.
Additionally, a live webcast of this call will be available on the Linktone web site at http://english.linktone.com/aboutus/index.html . An archived replay of the call will be available for 90 days.
About Linktone Ltd.
Linktone Ltd. is one of the leading providers of wireless interactive entertainment services to consumers and advertising services to enterprises in China. Linktone provides a diverse portfolio of services to wireless consumers and corporate customers, with a particular focus on media, entertainment and communications. These services are promoted through the Company’s and our partners cross-media platform which merges traditional and new media marketing channels, and through the networks of the mobile operators in China. Through in-house development and alliances with international and local branded content partners, the Company develops, aggregates, and distributes innovative and engaging products to maximize the breadth, quality and diversity of its offerings.
Forward-Looking Statements
This press release contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: changes in the policies of the PRC Ministry of Information Industry and/or the mobile operators in China or in the manner in which the operators interpret and enforce such policies; the risk that other changes in Chinese laws and regulations, including without limitation tax and media-related laws, or in application thereof by relevant PRC governmental authorities, could adversely affect Linktone’s financial condition and results of operations; the risk that Linktone will not be able to compete effectively in the wireless value-added services market in China for whatever reason, including competition from other service providers or penalties or suspensions for violations of the policies of the mobile operators in China; the risk that Linktone will not be able to realize meaningful returns from strategic partnerships including its cooperation with Shanghai Dong Fang Long New Media Co. Ltd., Qinghai Satellite Television, or the Chinese Youth League Internet, Film and Television Center; future growth in the advertising market in China and Linktone’s ability to successfully generate advertising revenue in future periods; the risk that Linktone will not be able to develop and effectively market innovative services; the risk that Linktone will not be able to effectively control its operating expenses in future periods or make expenditures that effectively differentiate Linktone’s services and brand; and the risks outlined in Linktone’s filings with the Securities and Exchange Commission, including its registration statement on Form F-1 and annual report on Form 20-F. Linktone does not undertake any obligation to update this forward-looking information, except as required under applicable law.
LINKTONE LTD.
CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except share data)
December 31, June 30,
2006 2007
(audited) (unaudited)
Assets
Current assets:
Cash and cash
equivalents 51,445,086 44,112,332
Restricted cash -- 308,581
Short-term investments 1,012,230 3,269,644
Accounts receivable,
net 12,371,700 9,567,049
Tax refund receivable 784,506 1,714,648
Deposits and other
receivables 3,813,562 5,387,667
Deferred tax assets 1,020,608 1,306,166
Total current assets 70,447,692 65,666,087
Long-term investment -- 3,000,000
Property and equipment, net 2,852,735 2,670,926
Intangible assets 2,162,993 1,554,070
Goodwill 16,518,898 16,584,212
Deferred tax assets 691,321 445,111
Other long-term assets 5,475,631 4,573,229
Total assets 98,149,270 94,493,635
Liabilities and
shareholders’ equity
Current liabilities:
Tax payable 3,011,537 2,496,394
Accrued liabilities and
other payables 5,109,264 7,037,409
Deferred income 247,823 228,721
Deferred tax
liabilities 576,600 301,025
Total current liabilities 8,945,224 10,063,549
Long-term liabilities
Other long term
liabilities 55,203 32,575
Total liabilities 9,000,427 10,096,124
Shareholders’ equity
Ordinary shares
($0.0001 par value;
500,000,000 shares
authorized, 260,870,940
and 260,891,940 shares
issued and outstanding
as of December 31, 2006
and June 30,2007) 26,087 26,089
Additional paid-in
capital 77,041,914 77,722,969
Treasury stock (11,362,575) (11,362,575)
Statutory reserves 2,344,525 2,344,525
Accumulated other
comprehensive income:
Unrealized gain on
investment in
marketable securities 33,177 138,146
Cumulative
translation adjustments 2,172,265 3,207,575
Retained earnings 18,893,450 12,320,782
Total shareholders’ equity 89,148,843 84,397,511
Total liabilities and
shareholders’ equity 98,149,270 94,493,635
LINKTONE LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In U.S. dollars, except share data)
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
2006 2007 2007 2006 2007
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Gross
revenues 23,266,835 14,193,015 11,666,945 46,225,304 25,859,960
- WVAS and
others 23,266,835 13,589,586 10,083,825 46,225,304 23,673,411
- Advertising -- 603,429 1,583,120 -- 2,186,549
Business
tax (966,985) (564,138) (483,820) (2,035,543) (1,047,958)
- WVAS and
others (966,985) (501,868) (375,330) 2,035,543) (877,198)
- Advertising -- (62,270) (108,490) -- (170,760)
Net
revenues 22,299,850 13,628,877 11,183,125 44,189,761 24,812,002
- WVAS and
others 22,299,850 13,087,718 9,708,495 4,189,761 22,796,213
- Advertising -- 541,159 1,474,630 -- 2,015,789
Cost of
services (8,229,609) (7,582,088) (6,830,018)(16,665,432) (14,412,106)
- WVAS and
others (8,229,609) (5,672,020) (3,431,080)(16,665,432) (9,103,100)
- Advertising -- (1,910,068) (3,398,938) -- (5,309,006)
Gross
profit/
(loss) 14,070,241 6,046,789 4,353,107 27,524,329 10,399,896
- WVAS and
others 14,070,241 7,415,698 6,277,415 27,524,329 13,693,113
- Advertising -- (1,368,909) (1,924,308) -- (3,293,217)
Operating
expenses:
Product
Development (1,773,164) (1,507,817)(1,496,688) (4,063,892) (3,004,505)
Selling and
marketing (6,783,846) (5,623,855)(3,898,656)(12,069,055) (9,522,511)
- WVAS
and
others (6,783,846) (5,092,596)(3,188,264)(12,069,055) (8,280,860)
- Advertising -- (531,259) (710,392) -- (1,241,651)
Other
general
and
admini-
strative (2,736,346) (2,945,717) (2,575,546) (6,465,045) (5,521,263)
Total
Operating
expenses (11,293,356) (10,077,389) (7,970,890)(22,597,992)(18,048,279)
Income/
(loss) from
operations 2,776,885 (4,030,600) (3,617,783) 4,926,337 (7,648,383)
Interest
income 476,444 239,830 297,848 989,109 537,678
Other
income 370,992 94,300 204,675 621,891 298,975
Income/
(loss)
before
tax 3,624,321 (3,696,470) (3,115,260) 6,537,337 (6,811,730)
Income tax
benefit/
(expense) (478,469) 317,966 (78,904) (1,038,843) 239,062
Minority
interest (57,554) -- -- (72,100) --
Net
income/
(loss) 3,088,298 (3,378,504) (3,194,164) 5,426,394 (6,572,668)
Other
comprehensive
income: 78,801 371,764 768,515 296,846 1,140,279
Comprehensive
income/
(loss) 3,167,099 (3,006,740) (2,425,649) 5,723,240 (5,432,389)
Earnings/
(loss) per
ordinary
share:
Basic 0.01 (0.01) (0.01) 0.02 (0.03)
Diluted 0.01 (0.01) (0.01) 0.02 (0.03)
Earnings/(
loss) per
ordinary
ADS:
Basic 0.12 (0.14) (0.13) 0.21 (0.27)
Diluted 0.12 (0.14) (0.13) 0.20 (0.27)
Weighted
average
ordinary
shares:
Basic 262,413,947 239,215,930 239,221,415 260,226,079 239,218,687
Diluted 265,785,127 239,215,930 239,221,415 269,293,694 239,218,687
Weighted
average
ADSs:
Basic 26,241,395 23,921,593 23,922,142 26,022,608 23,921,869
Diluted 26,578,513 23,921,593 23,922,142 26,929,369 23,921,869
LINKTONE LTD.
NON-GAAP RECONCILIATION
(In U.S. dollars, except share data)
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
2006 2007 2007 2006 2007
(unaudited)(unaudited) (unaudited) (unaudited) (unaudited)
Net
income/(loss) 3,088,298 (3,378,504) (3,194,164) 5,426,394 (6,572,668)
Stock based
compensation
expense 372,382 343,613 335,375 683,511 678,988
Non-GAAP net
income/(loss) 3,460,680 (3,034,891) (2,858,789) 6,109,905 (5,893,680)
Non-GAAP
diluted
earnings/
(loss)
per share 0.01 (0.01) (0.01) 0.02 (0.02)
Non-GAAP
diluted
earnings/
(loss)
per ADS 0.13 (0.13) (0.12) 0.23 (0.25)
Number of
shares used
in diluted
per-share
calculation 265,785,127 239,215,930 239,221,415 269,293,694 239,218,687
Number of
ADSs used
in diluted
per-share
calculation 26,578,513 23,921,593 23,922,142 26,929,369 23,921,869
For more information, please contact:
Edward Liu
Linktone Ltd.
Tel: +86-21-6361-1583
Email: edward.liu@linktone.com
Brandi Piacente
The Piacente Group, Inc.
Tel: +1-212-481-2050
Email: brandi@tpg-ir.com
