BEIJING, Dec. 2 /PRNewswire-Asia/ -- Linktone Ltd. (Nasdaq: LTON), one of the leading providers of wireless interactive entertainment services to consumers in China, today announced its unaudited financial results for the third quarter ended September 30, 2008.
Results for the Third Quarter
-- The Company recorded revenues of $20.3 million, compared with $19.1
million in the second quarter of 2008 and $13.3 million in the third
quarter of 2007.
-- The Company recorded wireless value-added services ("WVAS") and other
revenues of $16.6 million, compared with $14.5 million in the second
quarter of 2008 and $11.3 million in the third quarter of 2007.
-- GAAP net loss of $2.3 million, compared with net loss of $10.6 million
in the second quarter of 2008 and net loss of $2.8 million in the third
quarter of 2007.
-- GAAP net loss per fully diluted American Depositary Share (ADS) of
$0.06, compared with net loss per fully diluted ADS of $0.26 for the
second quarter of 2008 and net loss of $0.12 for the third quarter of
2007.
-- Non-GAAP net loss* of $1.6 million, compared with non-GAAP net loss of
$4.4 million in the second quarter of 2008 and non-GAAP net loss of
$2.5 million in the third quarter of 2007.
-- Non-GAAP net loss per fully diluted ADS of $0.04, compared with non-
GAAP net loss of $0.11 in the second quarter of 2008 and non-GAAP net
loss of $0.10 in the third quarter of 2007.
* Non-GAAP measures exclude certain share-based compensation expense and
impairment charges. Please refer to the table at the end of this
release titled "Non-GAAP reconciliation" which provides a reconciliation
between GAAP and non-GAAP financial measures.
Mr. Michael Li, Linktone's Chief Executive Officer, said, "Our number one priority remains returning Linktone to profitability. This quarter we took decisive action to further streamline operations and increase our focus on our core WVAS business. We terminated our exclusive advertising partnership with Tianjin Satellite Television ("TJSTV"), following our decision to end our relationship with the Chinese Youth League Internet, Film and Television Centre with regard to Qinghai Satellite Television ("QSTV"). This further reduced our exposure to the traditional media business in China, which is facing strong headwinds from the slowing global economy. We took an impairment charge of $0.6 million this quarter related to TJSTV."
Mr. Li continued, "With one of the strongest distribution networks for wireless services in the industry and an integrated services platform, we believe that Linktone is very well positioned to leverage the WVAS growth opportunity in China, and prepare for 3G wireless entertainment services. We are also looking to expand into the ASEAN market, starting with Indonesia, a relatively under-penetrated mobile market with enormous growth potential. We are confident of our international expansion plans for Indonesia, due to our ability to combine Linktone's expertise in the Chinese WVAS market with the dominant position of our majority shareholder, MNC, in the Indonesian media industry to create synergies and position the Company for long-term growth and profitability. We are hoping to start this operation soon and expecting tangible results in the early part of 2009."
Third Quarter Revenue Mix
Linktone's third 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 $10.2 million, representing 50% of total revenues, compared with $6.9 million or 36% for the second quarter of 2008. The sequential increase in revenue was primarily due to an improved business environment. Sales in the Company's SMS services in the third quarter more than doubled quarter-over-quarter, due to the seasonal popularity of SMS services during the summer school vacation months as well as increased sales and marketing efforts to promote SMS services during the quarter. This growth was only partially offset by decreases in revenue from other data related services, which were not as heavily promoted by the Company this quarter as the Company focused on the promotion of SMS to take advantage of summer usage. The revenue breakdown of data-related service is as follows:
-- Short Messaging Services (SMS) revenue represented 47% of total gross
revenues, compared with 21% for the second quarter of 2008. SMS revenue
was $9.5 million for the third quarter of 2008, compared with $4.0
million for the second quarter of 2008.
-- Multimedia Messaging Services (MMS) revenue represented 1% of total
gross revenues, compared with 10% for the second quarter of 2008. MMS
revenue was $0.2 million for the third quarter of 2008, compared with
$2.0 million for the second quarter of 2008.
-- Wireless Application Protocol (WAP) revenue represented 1% of total
gross revenues, compared with 3% for the second quarter of 2008. WAP
revenue was $0.3 million for the third quarter of 2008, compared with
$0.6 million for the second quarter of 2008.
-- Java gaming (Java) revenue represented 1% of total gross revenues,
compared with 2% for the second quarter of 2008. Java revenue was $0.2
million for the third quarter of 2008, compared with $0.3 million for
the second quarter of 2008.
Audio-related services accounted for 29% or $5.8 million of total revenues, compared with 37% or $7.0 million for the second quarter of 2008. The revenue breakdown is as follows:
-- Interactive Voice Response services (IVR) revenue decreased to 15% of
total gross revenues, compared with 22% for the second quarter of 2008.
IVR revenue was $3.0 million for the third quarter of 2008, compared
with $4.2 million for the second quarter of 2008. The sequential
decrease reflects a reduction in the number of joint projects with
business partners for the production of interactive programs broadcast
over local radio stations this quarter.
-- Color Ring-Back Tones (CRBT) revenue decreased to 14% of total gross
revenues, compared with 15% for the second quarter of 2008. CRBT
revenue was $2.8 million for the third quarter of 2008, which was
unchanged from $2.8 million for the second quarter of 2008.
Advertising service revenue accounted for 18% or $3.7 million of total revenues in the third quarter of 2008, compared with 24%, or $4.6 million for the second quarter of 2008. The sequential decrease was primarily due to the termination of partnership agreements with QSTV.
Impairment in the value of the Company's assets in connection with its agreements with TJSTV
As previously announced, the Company's affiliated companies terminated their agreements with TJSTV in September 2008. The termination of these agreements resulted in an impairment charge of $0.6 million with respect to the Company's investment in TJSTV, which is reflected in the Company's consolidated statement of operations and comprehensive income for the third quarter.
Margins, Expenses and Balance Sheet Items
Linktone's key operating benchmarks and balance sheet items for the third quarter of 2008 include the following:
-- Gross margin was 32% of net revenues, or gross revenues minus business
tax, compared with 9% for the second quarter of 2008 and 40% for the
third quarter of 2007. The sequential increase was due to two primary
factors. First, the Company experienced a quarter-over-quarter decline
in cost of services resulting primarily from a reduction in the number
of WVAS joint cooperation projects which lowered the amount of revenue
sharing with third parties. At the same time, the Company increased
its advertising spending to promote its WVAS services, which spending
resulted in higher selling and marketing expenses as mentioned below.
Second, the gross loss from the Company's advertising services declined
following the termination of the QSTV project.
-- Operating loss was 12% of net revenues, compared with operating loss of
58% for the second quarter of 2008 and operating loss of 22% in the
third quarter of 2007. The sequential decrease in operating loss was
primarily due to an impairment charge of $6.0 million incurred in the
second quarter of 2008 in connection with the termination of the
partnership agreements with QSTV.
-- Operating expenses totaled $8.7 million, compared with $12.4 million in
the second quarter of 2008 and $7.9 million for the third quarter of
2007. Excluding the impairment charges of $0.6 million for the third
quarter and $6.0 million for the second quarter of 2008, the Company's
other operating expenses for the third quarter and the second quarter
totaled $8.1 million and $6.4 million, respectively, representing a 27%
increase. The sequential increase in operating expenses excluding
impairment charges was primarily attributable to the increase in
selling and marketing expenses as the Company increased its advertising
spending for the WVAS business in the third quarter.
-- Selling and marketing expenses were $4.7 million, compared with $3.2
million for the second quarter of 2008 and $3.2 million for the third
quarter of 2007. The sequential increase was due to an increase in
advertisements on traditional and new media to promote SMS services.
-- Product development expenses were $0.9 million, compared with $0.7
million for the second quarter of 2008 and $1.4 million for the third
quarter of 2007.
-- Other general and administrative expenses were $2.5 million, compared
with $2.5 million for the second quarter of 2008 and $3.3 million for
the third quarter of 2007.
-- Cash and cash equivalents, as well as short-term investments available
for sale, totaled $104.2 million, compared with $105.3 million for the
second quarter of 2008 and $ 41.6 million for the end of December 2007.
The increase $62.6 million from the end of December 2007 was mainly due
to the strategic investment of $68.4 million received from MNC in April
2008, offset by cash outflow from operation of Linktone's advertising
business.
-- Days sales outstanding (DSOs), the average length of time required for
the Company to receive payment for services delivered, were 77 days at
the end of the third quarter of 2008, compared with 69 days at the end
of the second quarter of 2008.
Fourth Quarter 2008 Outlook
For the fourth quarter ending December 31, 2008, Linktone expects gross revenue to be approximately $16.5 million to $17.5 million. The lower revenue projection revenue compared to total revenue for the third quarter is mainly due to the reduction of its advertising revenue.
Use of Non-GAAP Financial Measures
The reconciliation of GAAP measures with non-GAAP measures for net loss and net loss 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 loss and net loss per fully diluted ADS, excluding the effect of share-based compensation expense and provisions for impairment, provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis, independently of share-based compensation and items not indicative of the Company's future ongoing operating results. 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 third quarter 2008 financial results at 8:00 p.m. Eastern Time on December 1, 2008 (5:00 p.m. Pacific Time on December 1, 2008 and 9:00 a.m. Beijing/Hong Kong Time on December 2, 2008). The dial-in number for the call is 800-240-5318 for U.S. callers and 303-262-2131 for international callers. Chief Executive Officer Michael Li and Chief Financial Officer Jimmy Lai 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 December 15, 2008. To access the replay, U.S. callers should dial 800-405-2236 and enter passcode 11122646#; 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://www.linktone.com/press_release.jsp . 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 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 strong distribution network, integrated service platform and multiple marketing sales channels, as well as 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: Linktone's ability to expand into the ASEAN market, including the Indonesian market, and create synergies with MNC; changes in the policies of the PRC Ministry of Industry and Information and/or the telecom operators in China or in the manner in which the operators interpret and enforce such policies, including policies which reduce the prices the Company may charge customers; the risk that other changes in Chinese laws and regulations, including without limitation tax and media-related laws or laws relating to the usage of telecom value-added services, 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 telecom value-added services market in China and any new markets it enters for whatever reason, including competition from other service providers or penalties or suspensions for violations of the policies of the telecom operators; the risk that Linktone will not be able to realize meaningful returns from strategic partnerships, including its planned strategic cooperation with MNC, or may be required to record additional provisions for impairments in the value of the Company's investments in such partnerships; 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,
2007 2008
(audited) (unaudited)
Assets
Current assets:
Cash and cash equivalents 39,325,584 91,572,405
Restricted cash 320,938 96,704
Short-term investments 2,315,334 12,662,395
Accounts receivable, net 10,164,756 15,308,204
Tax refund receivable 710,683 1,636,191
Deposits and other receivables 12,772,061 4,484,673
Deferred tax assets 1,161,652 921,975
Total current assets 66,771,008 126,682,547
Property and equipment, net 2,258,814 1,083,899
Intangible assets 1,691,554 236,022
Goodwill 14,611,620 14,584,212
Deferred tax assets 608,676 144,866
Other long-term assets 4,403,266 616,477
Total assets 90,344,938 143,348,023
Liabilities and shareholders' equity
Current liabilities:
Tax payable 2,774,827 4,218,481
Accrued liabilities and other payables 9,273,532 11,677,249
Deferred income 857,812 240,698
Deferred tax liabilities 644,958 505,246
Total current liabilities 13,551,129 16,641,674
Total liabilities 13,551,129 16,641,674
Minority interests 108,066 --
Shareholders' equity
Ordinary shares ($0.0001 par value;
500,000,000 shares authorized,
240,291,330 and 420,636,230 shares
issued and outstanding as of December
31, 2007 and September 30, 2008) 24,029 42,063
Additional paid-in capital 72,202,172 136,834,675
Statutory reserves 2,360,408 2,360,408
Accumulated other comprehensive income:
Cumulative translation adjustments 4,717,115 7,200,876
Accumulated losses (2,617,981) (19,731,673)
Total shareholders' equity 76,685,743 126,706,349
Total liabilities and shareholders' equity 90,344,938 143,348,023
LINKTONE LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In U.S. dollars, except share data)
Three months ended Nine months ended
September June September September September
30, 2007 30, 2008 30, 2008 30, 2007 30, 2008
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Gross
revenues 13,281,093 19,112,222 20,326,430 39,141,053 59,960,394
- WVAS and
others 11,345,121 14,505,327 16,586,641 35,018,532 47,624,083
- Advertising 1,935,972 4,606,895 3,739,789 4,122,521 12,336,311
Sales tax (582,363) (590,249) (660,323) (1,630,321) (1,910,770)
- WVAS and
others (421,637) (513,200) (632,288) (1,298,835) (1,751,145)
- Advertising (160,726) (77,049) (28,035) (331,486) (159,625)
Net revenues 12,698,730 18,521,973 19,666,107 37,510,732 58,049,624
- WVAS and
others 10,923,484 13,992,127 15,954,353 33,719,697 45,872,938
- Advertising 1,775,246 4,529,846 3,711,754 3,791,035 12,176,686
Cost of
services (7,569,436) (16,871,655)(13,443,890)(21,981,542)(46,801,940)
- WVAS and
others (4,257,479) (8,347,625) (7,481,147)(13,360,579)(23,910,814)
- Advertising (3,311,957) (8,524,030) (5,962,743) (8,620,963)(22,891,126)
Gross
profit 5,129,294 1,650,318 6,222,217 15,529,190 11,247,684
- WVAS and
others 6,666,005 5,644,502 8,473,206 20,359,118 21,962,124
- Advertising 1,536,711) (3,994,184) (2,250,989) (4,829,928)(10,714,440)
Operating
expenses:
Product
Development (1,408,733) (689,664) (917,231) (4,413,238) (2,389,121)
Selling and
marketing (3,197,992) (3,231,905) (4,634,306)(12,720,503)(11,722,860)
- WVAS and
others (2,476,933) (2,195,416) (4,029,935)(10,757,793) (9,132,388)
- Advertising (721,059) (1,036,489) (604,371) (1,962,710) (2,590,472)
Other general
and admini-
strative (3,314,468) (2,518,075) (2,524,312) (8,835,731) (7,750,640)
Provisions
for
impairment -- (6,014,946) (602,512) -- (6,617,458)
Total
operating
expenses (7,921,193) (12,454,590) (8,678,361)(25,969,472)(28,480,079)
Loss from
operations (2,791,899) (10,804,272) (2,456,144)(10,440,282)(17,232,395)
Interest
income 456,544 489,655 520,920 994,222 1,095,556
Other
income (18,434) 172,944 84,570 280,541 319,371
Loss
before
tax (2,353,789) (10,141,673) (1,850,654) (9,165,519)(15,817,468)
Income tax
expense (440,678) (441,671) (472,439) (201,616) (1,296,224)
Net loss (2,794,467) (10,583,344) (2,323,093) (9,367,135)(17,113,692)
Other
comprehensive
income: 467,888 866,690 39,112 1,608,167 2,483,761
Comprehensive
loss (2,326,579) (9,716,654) (2,283,981) (7,758,968)(14,629,931)
Loss per
ordinary
share:
Basic (0.01) (0.03) (0.01) (0.04) (0.05)
Diluted (0.01) (0.03) (0.01) (0.04) (0.05)
Loss per
ordinary
ADS:
Basic (0.12) (0.26) (0.06) (0.39) (0.48)
Diluted (0.12) (0.26) (0.06) (0.39) (0.48)
Weighted
average
ordinary
shares:
Basic 239,358,669 414,560,745 420,636,230 239,265,861 358,722,891
Diluted 239,358,669 414,560,745 420,636,230 239,265,861 358,722,891
Weighted
average
ADSs:
Basic 23,935,867 41,456,075 42,063,623 23,926,586 35,872,289
Diluted 23,935,867 41,456,075 42,063,623 23,926,586 35,872,289
LINKTONE LTD.
NON-GAAP RECONCILIATION
(In U.S. dollars, except share data)
Three months ended Nine months ended
September June September September September
30, 2007 30, 2008 30, 2008 30, 2007 30, 2008
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Net loss (2,794,467)(10,583,344) (2,323,093) (9,367,135)(17,113,692)
Stock based
compensation
expense 341,918 177,361 161,941 1,020,906 552,635
Provisions for
impairment 6,014,946 602,512 6,617,458
Non-GAAP net
loss (2,452,549) (4,391,037) (1,558,640) (8,346,229) (9,943,599)
Non-GAAP
diluted loss
per share (0.01) (0.01) (0.00) (0.03) (0.03)
Non-GAAP
diluted loss
per ADS (0.10) (0.11) (0.04) (0.35) (0.28)
Number of
shares used
in diluted
per-share
calculation 239,358,669 414,560,745 420,636,230 239,265,861 358,722,891
Number of ADSs
used in
diluted
per-share
calculation 23,935,867 41,456,075 42,063,623 23,926,586 35,872,289
For more information, please contact:
Investor Relations
Serena Shi
Linktone Ltd.
Tel: +86-10-51088234
Email: serena.shi@linktone.com
Brandi Piacente
The Piacente Group, Inc.
Tel: +1-212-481-2050
Email: brandi@thepiacentegroup.com
