Yueda Digital Holding, Inc. (YDKG) Q2 2015 Earnings Report, Transcript and Summary

Good morning all sites and welcome to the AirMedia Group, Inc. Second Quarter 2015 Earnings Conference Call. [Operator Instructions] Now I'd like to hand the conference over to Mr. Raymond Huang, Senior Director of Investor Relations of the company. Thank you. You may begin.

Hello, everyone. Thank you for joining AirMedia's second quarter 2015 earnings conference call. Today Richard Wu, our CFO, will provide details on our financial results. Following his prepared remarks, the management will be available to take your questions. Before the management's presentations, please allow me to read you our Safe Harbor statement. During this conference call, representatives of the company will make certain forward-looking statements. These statements are based upon management's current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are by their nature subject to a number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements. AirMedia does not undertake any obligation to publicly update any forward-looking statements whether as a result of new information, future events, or otherwise except as required by applicable law. Please refer to AirMedia's filings with the SEC, including its Form 20-F for discussions of important factors that could affect future results. Our press release and this call include a discussion of unaudited GAAP financial information as well as some unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. The press release is available on the Investor Relations section of AirMedia's Web site at ir.airmedia.net.cn. I will now turn the call over to our CFO, Richard Wu.

Good morning and good evening everyone. Thank you everyone for joining our second quarter 2015 financial review. Before I go into the detail of our financial results, first I would like to discuss the decrease in our net income from discontinued operations. Pursuant to the agreement to sell 75% equity interest of AirMedia Group Inc., starting from the second quarter of 2015, the financial results associated with the company's standalone digital frames, mega-size LED screens, traditional media in airports, unipole signs and other outdoors media which form the transaction, were classified as discontinued operations. As a result, revenues in our financial statements for the second quarter of 2015 and comparable periods in the previous quarter of 2014 and in the previous quarter reflected revenues from continuing operations only. The year-over-year and quarter-over-quarter decrease in net income from discontinued operations attributable to AirMedia's shareholders were partially because there were income tax expenses of US$2 million for discontinued operations in the second quarter of 2015 and income tax benefits of US$4.1 million from discontinued operations in the same period one year ago, and income tax expense of US$507,000 for discontinued operations in the previous quarter. Partially due to the recognition of income tax expenses or income tax benefits, the net income from discontinued operations attributable to AirMedia Group Inc's shareholders in the second quarter of 2015 and the comparable period in the same period of 2014 and in the previous quarter, were significantly different from those on the [PRC cap] [ph]. In the past, our results of operations for the second half of each year were generally better than the first half due to seasonality. If that trend continues into the second half of 2015, we expect to achieve the 2015 profit target. Now let me pull through the details of our second quarter financial results with you. Revenues from continuing operations for the second quarter of 2015 decreased by 32.8% year-over-year and by 31.3% quarter-over-quarter to US$11.9 million. The year-over-year and quarter-over-quarter decreases were primarily due to a soft advertising market and the divestiture of TV-attached digital frames and digital TV screens in airports in February 2015, as previously discussed in our first quarter 2015 financial results. Cost of revenues for the second quarter of 2015 was US$24 million, which reflected a year-over-year increase of 1.8% from US$23.6 million and a quarter-over-quarter decrease of 1.2% from US$24.3 million in the previous quarter. The year-over-year increase was primarily due to higher concession fees, which were partially offset by lower agency fees for third-party advertising agencies. The quarter-over-quarter decrease was primarily due to lower agency fees for third-party advertising agencies, which were partially offset by higher concession fees. Cost of revenues as a percentage of net revenues in the second quarter of 2015 was 206.7%, up from 134.5% in the same period one year ago, and 141.2% in the previous quarter. Concession fees for the second quarter of 2015 increased by 12% year-over-year and by 1.7% quarter-over-quarter to US$20 million. The year-over-year and quarter-over-quarter increases were primarily due to newly signed or renewed concession rights contracts during the period. Concession fees as a percentage of net revenue in the second quarter of 2015 was 172%, increasing from 101.8% in the same period one year ago, and 114.1% in the previous quarter. The year-over-year and quarter-over-quarter increase of concession fees as a percentage of net revenues were primarily due to the fact that net revenues decreased while concession fees increased. Gross profit as a percentage of net revenues for the second quarter of 2015 was negative 106.7%, compared to negative 34.5% in the same period one year ago, and negative 41.2% in the previous quarter. Total operating expenses for the second quarter of 2015 were US$8.2 million, which decreased by 16.1% from US$9.8 million in the same period one year ago and increased by 111.7% quarter-over-quarter from US$3.9 million in the previous quarter. Net loss attributable to AirMedia's shareholders for the second quarter of 2015 was US$19.4 million, compared to net loss attributable to AirMedia's shareholders of US$5.4 million in the same period one year ago and net loss attributable to AirMedia's shareholders of US$5.7 million in the previous quarter. Non-GAAP adjusted EBITDA attributable to AirMedia's shareholders, which is EBITDA attributable to AirMedia's shareholders excluding share-based compensation expenses, was a loss of US$15.8 million, compared to adjusted EBITDA attributable to AirMedia's shareholders of a loss of US$11.7 million in the same period one year ago and adjusted EBITDA attributable to AirMedia's shareholders of a loss of US$7 million in the previous quarter. Next, let's talk about our balance sheet. Cash and cash equivalents, restricted cash, and short-term investments totaled US$20.8 million as of June 30, 2015, compared to US$81.1 million as of December 31, 2014. On July 6, 2015, AirMedia received RMB800 million, the first installment of the consideration of the Transaction with Longde Wenchuang, which will be reflected in the company's third quarter balance sheet. The capital expenditure for the second quarter of 2015 was US$4.4 million. Moderator, would you please open the call for questions.

[Operator Instructions] Your first question comes from the line of Wei Fang from CLSA. Go ahead.

Just a quick question on the seasonality since right now you are reporting the business lines differently, right. For the modeling perspective, can you give us a little bit, maybe guidance on the second half of the year in terms of your continued business revenues? Thank you.

Yes. The continued operations consist mainly of Wi-Fi business and the gas station media business. The Wi-Fi business is still in the investment stage with the installation of the on-train Wi-Fi being conducted right now with the local railway bureaus. So the revenue from this product line is still minimal. And the main component of the continuing operations will be the gas station media business. This line is similar to our airport media business, still faces tough advertising environment with Chinese companies basically squeezing their advertising spending. But we expect the gas station media business to be kind of flat in top line compared to last year, while we are trying to cut operating expenses given the cost of that business is pretty much fixed through the concession fee arrangements with Sinopec's sales division. So that is a quick, basically summary of the outlook for second half of our continuing operations.

In addition to the gas station and the Wi-Fi business...

So the biggest part of your continued business is gas stations, that’s the biggest part?

Yes. In terms of revenue. Actually, we also have the digital TV on airplanes in the continuing operations.

Right. And that’s smaller than the gas station?

That’s smaller than the gas stations but larger than the Wi-Fi business.

Okay. Got it. And second question, on the net income from discontinued business after your tax rate. Last quarter you booked $4.9 million and this quarter it's $1.3 million. Is that simply because of the 25% you booked or any reason that’s significantly downsized?

Top line was decreased [definitely] [ph] for this quarter compared to the previous one. And also there is income tax negative impact on our bottom line for the discontinued operations. Operating expenses wise, it was a decrease, so we controlled that part pretty nicely. So overall, it was a reduction basically because of the income tax adjustments as well as slight top line decrease which according to our higher operating leverage situation was a direct reduction of our bottom line.

Got it. Okay. And maybe last question, do you have a time line in terms of your privatization process? When should we expect that to be completed? Thank you.

We are moving aggressively with our service providers according to, basically the relevant market practices. Right now, we do not have a definitive timeline or days for the completion of this privatization yet, but I do -- can assure you that things will move on diligently through the efforts of the management as well as our external parties and independent committee, the special committee. So, so far that basically is the latest.

[Operator Instructions] Thank you. We have no further questions at this time. I will hand back to our hosts for closing remarks.

Okay. Thank you for joining our call. I look forward to speaking with you next time. Bye.

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