Yueda Digital Holding, Inc. (YDKG) Q3 2015 Earnings Report, Transcript and Summary

Good morning all sites and welcome to the AirMedia Group Incorporation's Third Quarter 2015 Earnings Conference Call. [Operator Instructions] Now I'd like to hand the call over to Mr. Raymond Huang, Senior Director of Investor Relations of the Company. And I'll be standing by for the Q&A session. Thank you. You may begin.

Hello everyone. Thank you for joining AirMedia's third quarter 2015 earnings conference call. Today Richard Wu, our CFO, will provide details on our financial results. Following his prepared remarks, the management team 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 website at ir.airmedia.net.cn. I will now turn the call over to our CFO, Richard Wu.

Thank you, Raymond. Good morning and good evening everyone. Thank you for joining our third quarter 2015 financial review. Before I go into the detail of our financial results, first, I'd like to share with you some of our recent developments. Our transaction with Longde Wenchuang is proceeding well. We have received the first installment of consideration payment and are working to fulfill the preconditions of the second installment. We are excited that net income from discontinued operations attributable to AirMedia's shareholders increased 53.8% year over year to $10 million in the third quarter of 2015. This gives us strong confidence to achieve the earn-out profit target in 2015. Now let me go through the details of our third quarter financial results with you. Revenues from continuing operations for the third quarter of 2015 decreased by 41.7% year over year and 12.4% quarter over quarter to $10.4 million. The year-over-year decrease was 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. The quarter-over-quarter decrease was primarily due to a decrease in revenues from the remaining media business in air travel sector, which was partially offset by an increase in revenues from the gas station media network. Cost of revenues for the third quarter of 2015 was $22.9 million, which reflected a year-over-year decrease of 9.5% from $25.3 million and a quarter-over-quarter decrease of 4.7% from $24 million in the previous quarter. The year-over-year decrease was primarily due to lower agency fees for third-party advertising agencies and lower concession fees. The quarter-over-quarter decrease was primarily due to lower concession fees, which was partially offset by higher agency fees for third-party advertising agencies. Cost of revenues as a percentage of net revenues in the third quarter of 2015 was 220.9%, up from 143.3% in the same period one year ago and 206.7% in the previous quarter. Concession fees for the third quarter of 2015 decreased by 1.7% year over year and decreased by 9.6% quarter over quarter to $18.1 million. The quarter-over-quarter decrease was primarily due to the expiration or suspension of certain concession rights contracts. Concession fees as a percentage of net revenues in the third quarter of 2015 was 174.5%, increasing from 104.3% in the same period one year ago and 172% in the previous quarter. The year-over-year and quarter-over-quarter increases of concession fees as a percentage of net revenues were primarily due to the fact that net revenues decreased fast than concession fees. As a result of the above, gross profit for the third quarter of 2015 was negative $12.5 million, compared to gross profit of negative $7.6 million in the same period one year ago and negative $12.4 million in the previous quarter. Gross profit as a percentage of net revenues for the third quarter of 2015 was negative 120.9%, compared to negative 43.3% in the same period one year ago and negative 106.7% in the previous quarter. The year-over-year and quarter-over-quarter decreases in gross profit as a percentage of net revenues were primarily due to the fact that net revenues decreased faster than cost of revenues. Total operating expenses for the third quarter of 2015 were $9.7 million, which increased by 34.6% from $7.2 million in the same period one year ago and increased by 17.9% quarter over quarter from $8.2 million in the previous quarter. Net loss attributable to AirMedia's shareholders for the third quarter of 2015 was $9.7 million, compared to net loss attributable to AirMedia's shareholders of $5.5 million in the same period one year ago and net loss attributable to AirMedia's shareholders of $19.4 million in the previous quarter. Non-GAAP adjusted EBITDA from continuing operations attributable to AirMedia's shareholders, which is EBITDA attributable to AirMedia's shareholders excluding share-based compensation expenses, was a loss of $17.5 million, compared to adjusted EBITDA attributable to AirMedia's shareholders of a loss of $9.5 million in the same period one year ago and adjusted EBITDA attributable to AirMedia's shareholders of a loss of $15.8 million in the previous quarter. Now let's talk about our balance sheet. Cash and cash equivalents, restricted cash and short-term investments totaled $127.7 million as of September 30, 2015, compared to $81.1 million as of December 31, 2014. The increase in cash and cash equivalents, restricted cash and short-term investments was due to the receipt of RMB800 million, the first installment of the consideration of the transaction with Longde Wenchuang. The capital expenditure for the third quarter of 2015 was $8.9 million. Moderator, would you please open the call for questions?

[Operator Instructions] We do have our first question from Mr. Wei Fang from CLSA. Please ask your question.

Hey. Thank you for taking my question. Two quick questions. First of all, can you help provide some more color on the progress of your 75% equity sales deal? Remember the original schedule was late of October when you receive the second payment, and I'm just curious what else do you need to do in order to get that money. Thank you.

Yes, thank you for the question. So, basically, since slowly behind schedule, you're right, with the closing of the deal, then the second payment of the -- will be due, due to the restructuring of some of the businesses that the transaction does not cover, because previously the target business involves some other businesses which the buyer is not interested. So we have to file with the commerce industry registration bureau for the divestiture of those non-targeted businesses. This is slower than what we thought due to the government system upgrading kind of caused us a few weeks delay. Now looks like we are close to the finish of all the preconditions for the closing of the business as well as second installment payment. We still expect close the deal before the yearend.

Okay. So when you say before the yearend, does that mean the calendar year or the Chinese Lunar New Year?

The calendar year.

Okay, got that. Thank you. And, yeah, maybe another question, follow-up. So, can you maybe help us understand the timeline of your privatization and have you received any feedback from your most recent SEC filing, the 13-E filing?

Yeah, thank you. We have filed the 13-E last week and are still waiting for next steps. Other than that, we do not have any other information at this point.

Okay. I assume the privatization deal comes after you finish your 75% deal sale, right?

Time-wise, it looks like, yeah, according to the customary practices of how our privatization takes, how long it takes, look like, yeah, the closing of the 75% sale, yeah, should be controllable [ph] on it coming faster.

Okay, got it. Okay. Thank you. That's my question. Thank you very much.

Thank you.

Moderator, do we have further questions?

Yes, we do have the next question from Mr. Sharif Agrawal [ph]. Please ask your question.

Yeah, hi. Thanks for taking my question. Hello?

Hi. How are you?

Yeah. Yeah, hi. I'm good. Could you -- I have two questions. Firstly, on the earn-out structure in the agreement with the buyers, could you talk about what's, you know, how you're doing it versus the profit target for the year 2015? That's my first question. And second question is, on the financing for the privatization, my understanding is that there's a loan guarantee from China Merchants Bank. How, you know, is that linked in some way to the cash on balance sheet and therefore contingent upon closing of your transaction with the 35% equity interest or it's completely independent and the loan guarantee is, you know, is going to be drawn down irrespective whether the transaction is closed or not?

Okay. So in terms of the profit target as a part of the earn-out arrangements with the buyer for the outdoor media business, seems -- look good. They did have a third party, a local Chinese auditor, complete first the third quarter audit of this year's operations. Yeah, we're past the kind of buyout hurdle for -- setup for the deal for this year. Looks like, yeah, we are on our way to meet or even exceed the profit target set for this year. Second part of your question in terms of privatization financing, you're right that we have secured the loan guarantee from China Merchant Bank, New York branch. Part of the transaction basically is the credit award to the buying company. In terms of the company's thinking on having third-party equity partners jointly participating the financing process, is still an option. We are working on that. We are kind of weighing the pros and the cons of having the [inaudible] participation or having some equity or strategic partner getting involved, is still an option at this time.

Right. So my question was, in the event there's no new equity from third parties, is the China Merchant Bank, like what are the conditions to the loan guarantee from China Merchants Bank? Are there any conditions or it's unconditional?

It's kind of unconditional, but on the other hand, it's kind of typical for this kind of credit line compared to any other banks. So, basically the founders, Mr. Herman Man Guo and also the other members of buying group have to pledge their share ownership of the company to China Merchant Bank. So far that is basically, yeah, the biggest condition. In terms of that one, we do not have any other irregular conditions compared to other privatization cases financing.

Thank you. And one last question -- excuse me. We've been, you know, we read that there have been some agitations from investors against the privatization price, particularly around this transaction actually, this 75% [ph] equity transaction. Could you give us a sense of what proportion of the shareholder base has joined litigation?

We have a litigation going on, as you just mentioned. We do not have any stats about the percentage -- I mean, based on the public information, the total ownership of those few litigants involved are just a couple of thousand ADS or -- yeah, trading shares, is, you know, percentage-wise, is minimal. It's still, yeah, that's basically, yeah, the case we have. And we do not -- we have not received any other, yeah, disputes or litigation at this time.

Okay, great. Thanks a lot for your answers.

Thank you.

Thank you.

There are no further questions at this time. Please continue with your presentation. Thank you.

Okay. Thank you all for joining our conference call. Nice to talking with you next time.

Thank you.