-- Revenues and Earnings Exceed Company’s Previous Guidance --
SHANGHAI, China, Nov. 17 /Xinhua-PRNewswire/ -- Linktone Ltd. (Nasdaq:
LTON), a leading provider of wireless interactive entertainment services in
China, today announced its unaudited financial results for the three months
ended September 30, 2006.
(Logo: http://www.prnasia.com/sa/20061101171222-64.jpg )
FINANCIAL Highlights for the THIRD Quarter
-- The Company recorded revenues of $19.6 million, ahead of its prior
guidance of $17.5 to $18.5 million, and compared with $23.3 million in
the second quarter of 2006 and $20.5 million in the third quarter of
2005.
-- GAAP net income of $1.0 million, compared with $3.1 million in the
second quarter of 2006 and $4.1 million in the third quarter of 2005.
-- GAAP net income per fully diluted American Depositary Share (ADS) of
$0.04, exceeding the company’s prior guidance of $0.02 per fully
diluted ADS and compared with $0.12 for the second quarter of 2006 and
$0.15 for the third quarter of 2005.
-- Non-GAAP net income of $1.4 million, compared with $3.5 million in the
second quarter of 2006 and $4.6 million in the third quarter of 2005.
-- Non-GAAP net income per fully diluted ADS of $0.05 compared with $0.13
in the second quarter of 2006 and $0.17 in the third quarter of 2005.
Chief Executive Officer Michael Li stated, “We are pleased with our
results during the quarter, which exceeded expectations in a tough
environment, and reflect Linktone’s continued strength as one of China’s
leading wireless interactive entertainment and media service providers.
During the quarter and most recently, we continued to leverage and build our
leadership position in interactive media programming by expanding
relationships with partners in traditional media outlets such as television,
radio, and print.”
Mr. Li further added, “By remaining true to our vision of delivering the
highest quality wireless services to the interactive media market, Linktone
has continued to move forward as a leader in an increasingly healthy
industry. Our focus remains on the growing demand for interactive media and
entertainment event-driven programming, and by establishing partnerships that
leverage our expertise and expand our opportunities for additional revenue
streams such as advertising.”
Third Quarter Revenue Mix
Linktone’s third quarter revenue mix continued to show steady
diversification across multiple wireless product areas including data-related
services (SMS, MMS, WAP, and Java) and audio-related services, (IVR and
CBRT).
Data related services revenue were $13.0 million, representing 66% of
total revenues, compared with $16.9 million or 72% for the second quarter of
2006. The sequential revenue decrease was primarily due to new policy
changes introduced by China’s mobile operators during the second quarter of
2006. The policy changes impose a one-month free trial period for new users,
require double confirmations on new subscriptions, require that a reminder be
sent to existing monthly subscribers of their subscription and fee
information, and that inactive users are cancelled. These new policies have
had a substantial negative impact to the Company’s business, resulting in
substantial revenue and profit declines from prior quarters. Breakdowns are
as follows:
-- Short Messaging Services (SMS) revenue represented 52% of total gross
revenues, compared with 56% for the second quarter of 2006. SMS
revenue was $10.3 million for the third quarter 2006, compared with
$13.1 million for the second quarter of 2006.
-- Multimedia Messaging Services (MMS) revenue represented 7% of total
gross revenues compared with 7% for the second quarter of 2006. MMS
revenue was $1.3 million for the third quarter of 2006, compared with
$1.6 million for the second quarter of 2006.
-- Wireless Application Protocol (WAP) revenue represented 4% of total
gross revenues compared with 4% for the second quarter of 2006. WAP
revenue was $0.9 million for the third quarter of 2006, compared with
$1.0 million for the second quarter of 2006.
-- Java gaming (Java) revenue represented 3% of total gross revenues
compared with 5% for the second quarter of 2006. Java revenue was $0.5
million for the third quarter of 2006, compared with $1.2 million for
the second quarter of 2006.
Audio related services accounted for 32%, or $6.3 million of total
revenues, compared with 26% or $6.0 million for the second quarter of 2006.
Breakdowns are as follows:
-- Interactive Voice Response services (IVR) revenue increased to 24% of
total gross revenues compared with 16% for the second quarter of 2006.
IVR revenue was $4.8 million for the third quarter of 2006, compared
with $3.7 million for the second quarter of 2006, primarily due to
enhanced promotions and limited exposure to policy changes as IVR is
non-subscription based.
-- Color Ring-Back Tones (CRBT) revenue decreased to 8% of total gross
revenues compared with 10% for the second quarter of 2006. CRBT
revenue was $1.5 million for the third quarter of 2006, compared with
$2.3 million for the second quarter of 2006, primarily due to a drop in
sales promotions resulting in fewer new users.
Margins, Expenses and Balance Sheet
Linktone’s key operating benchmarks and balance sheet items for the
third quarter of 2006 include the following:
-- Gross margin was 61% of net revenues, or gross revenues minus business
tax, compared with 63% for the second quarter of 2006 and 61% for the
third quarter of 2005. The sequential decline was due to an increase
in transmission and agency costs.
-- Operating margin was 4% of net revenues, compared with 12% for the
second quarter of 2006 and 19% in the third quarter of 2005. The
sequential decrease was primarily due to the significant decline in
revenue as a result of the new policy changes.
-- Operating expenses totaled $10.8 million, compared with $11.3 million
in the second quarter of 2006 and $8.3 million for the third quarter of
2005. The sequential cost reduction was primarily attributed to a
reduction in headcount and other operating related expenses. The
increase in operating expenses compared with the same quarter in the
prior year was mainly due to higher marketing spending.
-- Selling and marketing expenses were $6.0 million, compared with $6.8
million for the second quarter of 2006 and $3.9 million for the third
quarter of 2005. The sequential decrease was primarily due to
reductions of sales promotion and marketing related expenses under the
Company’s continuing cost control program. The increase in selling and
marketing expenses compared with the same quarter in the prior year
reflects higher user acquisition costs in a competitively growing and
challenging operating environment.
-- Product development expenses were $1.8 million, compared with $1.8
million for the second quarter of 2006 and $1.7 million for the third
quarter of 2005.
-- Other general and administrative expenses were $3.0 million, compared
with $2.7 million for the second quarter of 2006 and $2.7 million for
the third quarter of 2005. The increase is primarily due to an
increase in severance pay and personnel related expenses, provisions
made on long aging accounts receivables, and higher stock compensation
charges due to stock options granted during the second quarter.
-- Cash and cash equivalents, as well as short-term investments available
for sale totaled $46.9 million, compared with $61.8 million for the
second quarter of 2006. Cash flow generated from operations totaled
$1.7 million. The decrease was due to investment activities related to
our share buyback program, payment for a business acquisition and
prepayment for establishing a joint venture with Chinese Youth League
to produce interactive and wireless entertainment programs.
-- Days of sales outstanding (DSOs), the average length of time required
for the Company to receive payment for services delivered, were 126
days as of the end of the third quarter, compared with 104 days at June
30, 2006.
Chief Financial Officer Colin Sung added, “Our results during the
quarter directly reflect the steps we took earlier this year to restructure
our cost base and increase operational efficiencies. As the wireless market
recovers and continues to grow, we believe Linktone is well-positioned to
achieve a stronger competitive position and achieve superior shareholder
returns.”
Recent Business Highlights
Linktone has proven to be a pioneer in the development and promotion of
successful interactive television programming initiatives. In addition,
Linktone continues to broaden its portfolio of proprietary content and
content acquired via partnerships to deliver new services to the market.
Examples of this include:
-- Joint Venture with Shandong Satellite TV Subsidiary. Linktone is in
the process of establishing a joint venture (JV) with Zhongbang Culture
Media (ZCM), a subsidiary of Shandong TV Station (“SDTV”), one of the
leading television stations in China. Linktone will exclusively
operate wireless value-added services for SDTV, as well as co-
production and distribution of programs.
-- Co-Production of New Reality TV Show “China Vision”. Linktone, along
with ZCM, has entered into the co-production of the "China Vision"
television show, a city-to-city, provincial-to-provincial singing
competition.
-- Strategic Investment in Beijing Center National Radio Media (BCNRM).
Linktone has made a strategic investment in Beijing Center National
Radio Media, a nationwide advertising company, as part of its ongoing
strategy to develop interactive programming with traditional media
outlets such as television, radio, and print. BCNRM is the largest
advertising agency for China National Radio-1 and 2, which boasts the
broadest audience in China and also delivers content to the United
States, Hong Kong, and Macau.
-- Partnership with MTV China for WAP Services. Linktone has signed an
exclusive partnership with MTV China, a subsidiary of Viacom, one of
the leading global entertainment content companies. Linktone will
operate wireless application protocol (WAP) services for MTV China on
China Unicom’s platform, one of the two major mobile operator
platforms in China.
-- Donation to the China Welfare Fund. Linktone has pledged to be a
corporate donor to the China Welfare Fund. The funds donated by
Linktone will be used to help assist, create and maintain proper
facilities for the handicapped and disabled. In addition, Linktone
will develop and operate WAP and IVR services for the handicapped and
disabled.
Share Repurchase Program
On August 7, 2006, the Company’s shareholders voted to approve a new $20
million stock repurchase program. During the third quarter, the Company
repurchased 1,683,590 ADSs in the open market for an aggregate purchase
amount of approximately $8.5 million. Ordinary shares with respect to ADSs
repurchased during the second and third quarters will be retired by the
Company. The Company may also anticipate making additional repurchases for
approximately 12-15 months in a manner consistent with market conditions, the
Company’s corporate strategy and the interests of its shareholders.
The timing and dollar amount of repurchase transactions will be
determined by the board and will be subject to Securities and Exchange
Commission Rule 10b-18 requirements. Purchases during “blackout periods”
under the company’s insider trading policy will be effected pursuant to Rule
10b5-1. Linktone plans to fund repurchases made under this program from
available working capital. As of September 30, 2006, Linktone had 24,202,394
ADSs outstanding.
Business Outlook
For the fourth quarter and year ending December 31, 2006, Linktone
expects gross revenue to be approximately $16.0 to $17.0 million due to
continuing impact of policy changes. The Company also anticipates GAAP net
income in the fourth quarter to result in approximately $0.02 to $0.03 per
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. All diluted per-share
computations for the third quarter 2006 were based on 25.8 million weighted
average ADSs outstanding on a fully-diluted basis. 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 stock-based compensation
expenses. Please note that the non-GAAP adjustments do not include
restructuring charges as restructuring is no longer considered an infrequent
or unusual event. 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 for the
three-month and nine-months ended September 30, 2005 and 2006 located after
the financial statements.
Today’s Conference Call
As previously announced, Linktone will host a conference call to discuss
second quarter 2006 financial results at 8:00 a.m. Eastern Time on November
17, 2006 (5:00 a.m. Pacific Time and 9:00 p.m. Beijing/Hong Kong Time). The
dial-in number for the call is 800-289-0572 for U.S. callers and 913-981-5543
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 December 1, 2006. To
access the replay, U.S. callers should dial 888-203-1112 and enter passcode
8878648; international callers should dial 719-457-0820 and enter the same
passcode.
In addition, 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 a leading provider of wireless interactive entertainment
products and services in China. Linktone provides a diverse portfolio of
services to wireless consumers, with a particular focus on media,
entertainment and communications. These services are promoted through the
Company’s own 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. Linktone categorizes China’
s wireless services landscape as “MAGIC” -- Music, Advanced Gaming,
Graphics, Instant Messaging and Community.
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: current or future changes in the policies of the
PRC Ministry of Information Industry and the mobile operators in China or in
the manner in which the operators enforce such policies; the risk that other
changes in Chinese laws and regulations, or in application thereof by other
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 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, September 30,
2005 2006
(audited) (unaudited)
Assets
Current assets:
Cash and cash equivalents 36,252,678 39,491,960
Short-term investments 41,580,530 7,403,197
Accounts receivable, net 15,945,662 19,762,010
Tax refund receivable 2,131,128 2,236,290
Deposits and other receivables 5,136,949 5,321,082
Deferred tax assets 811,014 718,578
Total current assets 101,857,961 74,933,117
Property and equipment, net 3,565,446 2,878,383
Intangible assets 2,234,185 2,569,724
Goodwill 10,171,219 16,477,056
Deferred tax assets 1,051,469 675,069
Other long-term assets -- 1,896,645
Total assets 118,880,280 99,429,994
Liabilities and shareholders’ equity
Current liabilities:
Tax payable 5,898,782 3,402,004
Accrued liabilities and other
payables 11,886,705 6,055,843
Deferred income 93,327 129,505
Deferred tax liabilities 881,279 588,050
Total current liabilities 18,760,093 10,175,402
Long-term liabilities
Other long term liabilities 30,276 59,779
Total liabilities 18,790,369 10,235,181
Shareholders’ equity
Ordinary shares ($0.0001 par value;
500,000,000 shares authorized,
257,317,900 and 242,023,940 shares
issued and outstanding as of
December 31, 2005 and September
30, 2006) 25,732 26,086
Additional paid-in capital 78,674,885 76,667,301
Treasury stock (0 and 18,835,900
ordinary shares outstanding of
December 31, 2005 and September
30, 2006) -- (9,914,363)
Statutory reserves 2,007,776 2,007,776
Accumulated other comprehensive
income (loss):
Unrealized loss on investment in
marketable securities (95,979) (162,462)
Cumulative translation
adjustments 822,816 1,743,911
Retained earnings 18,654,681 18,826,564
Total shareholders’ equity 100,089,911 89,194,813
Total liabilities and shareholders’
equity 118,880,280 99,429,994
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In U.S. dollars, except share data)
Three months ended 9 months ended
September September September
September 30, June 30, 30, 30, 30,
2005 2006 2006 2005 2006
(unaudited) (unaudited)(unaudited) (unaudited) (unaudited)
Gross
revenues 20,499,759 23,266,835 19,641,841 53,025,728 65,867,145
Business tax (757,859) (966,985) (789,984) (2,220,088) (2,825,527)
Net revenues 19,741,900 22,299,850 18,851,857 50,805,640 63,041,618
Cost of
services (7,620,935) (8,229,609) (7,262,223)(18,125,870)(23,927,655)
Gross profit 12,120,965 14,070,241 11,589,634 32,679,770 39,113,963
Operating
expenses:
Product
development (1,719,575) (1,773,164) (1,784,676) (4,277,996) (5,848,568)
Selling
and
marketing (3,879,607) (6,783,846) (5,952,193) (9,863,111)(18,021,248)
Other
general
and
adminis-
trative (2,700,432) (2,736,346) (3,033,535) (8,575,256) (9,498,580)
Total
operating
expenses (8,299,614)(11,293,356)(10,770,404)(22,716,363)(33,368,396)
Income from
operations 3,821,351 2,776,885 819,230 9,963,407 5,745,567
Interest
income 334,119 476,444 320,780 1,325,870 1,309,889
Other income 242,398 370,992 88,670 683,006 710,561
Income
before tax 4,397,868 3,624,321 1,228,680 11,972,283 7,766,017
Income tax
expense (347,067) (478,469) (283,623) (990,904) (1,322,466)
Minority
interest -- (57,554) 17,505 -- (54,595)
Net income 4,050,801 3,088,298 962,562 10,981,379 6,388,956
Other
comprehensive
income: 995,270 78,801 557,766 881,276 854,612
Comprehensive
income 5,046,071 3,167,099 1,520,328 11,862,655 7,243,568
Earning per
ordinary
share:
Basic 0.02 0.01 0.00 0.04 0.02
Diluted 0.01 0.01 0.00 0.04 0.02
Earning per
ordinary
ADS:
Basic 0.16 0.12 0.04 0.43 0.25
Diluted 0.15 0.12 0.04 0.40 0.24
Weighted
average
ordinary
shares:
Basic 257,936,653 262,413,947 255,841,065 256,479,385 258,748,345
Diluted 277,280,453 265,785,127 257,861,062 274,238,184 265,466,754
Weighted
average
ADSs:
Basic 25,793,665 26,241,395 25,584,107 25,647,939 25,874,835
Diluted 27,728,045 26,578,513 25,786,106 27,423,818 26,546,675
LINKTONE LTD.
NON-GAAP RECONCILIATION
(In U.S. dollars, except share data)
Three months ended Nine months ended
September June September September September
30, 2005 30, 2006 30, 2006 30, 2005 30, 2006
(unaudited) (unaudited) (unaudited) (unaudited)
(unaudited)
Net income 4,050,801 3,088,298 962,562 10,981,379 6,388,956
Stock based
compensation
expense 555,042 372,382 401,526 1,623,238 1,085,037
Adjusted net
income 4,605,843 3,460,680 1,364,088 12,604,617 7,473,993
Non-GAAP
diluted
earnings per
share 0.02 0.01 0.01 0.05 0.03
Non-GAAP
diluted
earnings per
ADS 0.17 0.13 0.05 0.46 0.28
Number of
shares used
in diluted
per-share
calculation 277,280,453 265,785,127 257,861,062 274,238,184 265,466,754
Number of ADSs
used in diluted
per-share
calculation 27,728,045 26,578,513 25,786,106 27,423,818 26,546,675