SHANGHAI, China, May 24 /Xinhua-PRNewswire/ -- Linktone Ltd.
(Nasdaq: LTON), one of the leading providers of wireless interactive
entertainment services to consumers and advertising services to enterprises in
China, today announced its unaudited financial results for the first quarter
ended March 31, 2007.
(Logo: http://www.prnasia.com/sa/20061101171222-64.jpg )
Results for the First Quarter
-- The Company recorded revenues of $14.2 million, compared with $14.0
million in the fourth quarter of 2006 and $23.0 million in the first
quarter of 2006.
-- GAAP net loss of $3.4 million, compared with net income of $0.4 million
in the fourth quarter of 2006 and $2.3 million in the first quarter of
2006.
-- GAAP net loss per fully diluted American Depositary Share (ADS) of
$0.14, compared with net income per fully diluted ADS of $0.02 for the
fourth quarter of 2006 and $0.09 for the first quarter of 2006.
-- Non-GAAP net loss of $3.0 million, compared with non-GAAP net income of
$0.8 million in the fourth quarter of 2006 and $2.6 million in the
first quarter of 2006.
-- Non-GAAP net loss per fully diluted ADS of $0.13, compared with non-
GAAP net income of $0.03 in the fourth quarter of 2006 and $0.10 in the
first quarter of 2006.
-- The Company recorded advertising service revenues of $0.6 million,
compared with $0.3 million in the fourth quarter of 2006. There was no
such revenue for the first quarter of 2006.
Chief Executive Officer Michael Li said, "Although we continue to face a
challenging regulatory environment in our wireless value added services
business which has primarily caused Linktone's financial underperformance over
the last several quarters, we are beginning to see the benefit of investments
we are making in our cross-media strategy. We believe our cross-media
strategy will enhance our business by focusing on the development of new and
traditional media channels while using our core wireless platform to reach a
broader audience, and we feel confident this strategy will propel the
Company's future growth in China's new media space. This is a period of great
opportunity for Linktone as we begin to take advantage of China's booming
television and advertising market."
Li further added, "Advertising spending in China continues to be a secular
growth story, with total advertising expenditure over US$10.2 billion in 2005,
and it showed no signs of slowing in 2006. Furthermore, growth trends in
China's media market continue to show favorable demographics as evidenced by
strong economic, disposable income and consumption numbers. We believe that
other major events in China, particularly the Beijing Olympics, the
anticipated full scale roll-out of 3G wireless standard, and the World Expo
Shanghai in 2010, will also spur future growth in this market. With a robust
advertising market in China yielding strong growth year-over-year, we believe
that bundling our wireless service expertise with new and traditional media
creates enormous cross-selling opportunities and further diversifies our
revenue stream."
First Quarter Revenue Mix
Linktone's first 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 $9.1 million, representing 64% of total
revenues, compared with $9.2 million or 66% for the fourth quarter of 2006.
Data-related service breakdowns are as follows:
-- Short Messaging Services (SMS) revenue represented 50% of total gross
revenues, compared with 46% for the fourth quarter of 2006. SMS
revenue was $7.1 million for the first quarter of 2007, compared with
$6.4 million for the fourth quarter of 2006. The sequential increase
was primarily attributable to an increase in SMS volume during the
first quarter which included school holidays and the Spring Festival.
-- Multimedia Messaging Services (MMS) revenue represented 5% of total
gross revenues, compared with 11% for the fourth quarter of 2006. MMS
revenue was $0.7 million for the first quarter of 2007, compared with
$1.5 million for the fourth quarter of 2006. The sequential decrease
was primarily due to a reallocation of marketing resources from MMS to
SMS thereby decreasing MMS marketing initiatives.
-- Wireless Application Protocol (WAP) revenue represented 2% of total
gross revenues, compared with 6% for the fourth quarter of 2006. WAP
revenue was $0.3 million for the first quarter of 2007, compared with
$0.9 million for the fourth quarter of 2006. The sequential decrease
was primarily due to certain difficulties encountered in promoting some
WAP products in certain provinces in the early part of the first
quarter.
-- Java gaming (Java) revenue represented 7% of total gross revenues,
compared with 3% for the fourth quarter of 2006. Java revenue was $1.0
million for the first quarter of 2007, compared with $0.4 million for
the fourth quarter of 2006. The strong sequential increase was due to
an enhanced product portfolio and effectiveness in promotion after a
re-organization in the fourth quarter of 2006 between our own original
Java team and the acquired team from Ojava.
Audio-related services accounted for 31%, or $4.3 million of total
revenues, compared with 29% or $4.1 million for the fourth quarter of 2006.
Breakdowns are as follows:
-- Interactive Voice Response services (IVR) revenue increased to 20% of
total gross revenues, compared with 19% for the fourth quarter of 2006.
IVR revenue was $2.8 million for the first quarter of 2007, compared
with $2.7 million for the fourth quarter of 2006.
-- Color Ring-Back Tones (CRBT) revenue increased to 11% of total gross
revenues, compared with 10% for the fourth quarter of 2006. CRBT
revenue was $1.5 million for the first quarter of 2007, compared with
$1.4 million for the fourth quarter of 2006.
Advertising service revenue accounted for 4% or $0.6 million of total
revenues in the first quarter of 2007, compared with 2%, or $0.3 million for
the fourth quarter of 2006. The sequential increase was primarily the result
of more advertising contract wins as Linktone demonstrated the successful
cooperation with Qinghai Satellite Television since January 2007. Qinghai
Satellite Television has approximately 200 million viewers in 23
municipalities and 20 advertisers on QTV as of March 31, 2007.
Margins, Expenses and Balance Sheet
Linktone's key operating benchmarks and balance sheet items for the first
quarter of 2007 include the following:
-- Gross margin was 44.4% of net revenues, or gross revenues minus
business tax, compared with 62.5% for the fourth quarter of 2006 and
61% for the first quarter of 2006. The sequential decrease in gross
margin was due to costs in connection with establishing and operating
the exclusive advertising agent relationship with Qinghai Satellite
Television, as well as costs related to the cooperation project with
Shanghai Dong Fang Long New Media Co., Ltd. which is described below.
The corresponding revenues from these projects during this initial
phase of deployment were nominal in the first quarter of 2007 compared
with their related costs.
-- Operating loss was 30% of net revenues, compared with operating loss of
0.6% for the fourth quarter of 2006 and operating margin of 10% in the
first quarter of 2006. The sequential decrease was primarily related
to costs for the Company's cross media strategy investments. In
addition, reduced wireless value added service revenue generation from
the Company's promotion activities and increased competition and
regulation adversely affected net revenue without a corresponding
reduction in costs.
-- Operating expenses totaled $10.1 million, compared with $8.5 million in
the fourth quarter of 2006 and $11.3 million for the first quarter of
2006. The sequential increase was primarily attributable to increased
promotional spending via TV channels for the Company's wireless value
added services.
-- Selling and marketing expenses were $5.6 million, compared with $4.7
million for the fourth quarter of 2006 and $5.3 million for the first
quarter of 2006. The sequential increase was due to higher costs
related to promotional expenses and marketing initiatives during the
Spring Festival and school holidays in China.
-- Product development expenses were $1.5 million, compared with $1.5
million for the fourth quarter of 2006 and $2.3 million for the first
quarter of 2006. These expenses remained unchanged sequentially due to
management's continued effort to control headcounts and expenses.
-- Other general and administrative expenses were $2.9 million, compared
with $2.3 million for the fourth quarter of 2006 and $3.7 million for
the first quarter of 2006. The sequential increase was primarily due
to consulting fees related to our cross-media strategy and an increase
in provision for doubtful accounts receivable.
-- Income tax benefit was $0.3 million for the first quarter of 2007,
compared with $0.1 million for the fourth quarter of 2006 and a tax
expense of $0.6 million for the first quarter of 2006. The income tax
benefit for the first quarter of 2007 relates to recognition of
deferred tax assets from net operating losses incurred by certain
affiliated companies of Linktone for the quarter which will be utilized
to offset taxable income in future quarters.
-- Cash and cash equivalents, as well as short-term investments available
for sale, totaled $48.4 million, compared with $52.5 million for the
fourth quarter of 2006. Net cash outflow from operations totaled $3.9
million. This was mainly due to cash paid for our investments related
to our cross-media strategy.
-- Days sales outstanding (DSOs), the average length of time required for
the Company to receive payment for services delivered, were 107 days as
of the end of the first quarter of 2007, compared with 142 days at
December 31, 2006.
According to the Company's policy, diluted earnings or loss per share is
calculated by dividing net income or loss by the weighted average number of
ordinary and dilutive ordinary equivalent shares outstanding during the period.
Ordinary equivalent shares consist of ordinary shares issuable upon the
exercise of outstanding options. Because the inclusion of options to purchase
ordinary shares has an anti-dilutive effect for a loss period, such ordinary
equivalent shares have been excluded in the diluted share calculation for the
first quarter of 2007. Therefore, the number of diluted weighted average ADSs
equals the number of basic weighted average ADSs (23.9 million).
Recent Business Highlights
-- Wireless and Internet Veteran Joins Linktone Board of Directors - Allan
Kwan, who is a Venture Partner with Oak Investment Partners, has joined
the Board of Directors of Linktone. Prior to joining Oak, Kwan served
in various executive roles at Yahoo! Inc. spanning six years. Kwan
succeeds David Wang who is resigning from the Board due to other
commitments, and will serve as a Class I Director of the Company.
-- Cooperation Agreement with Shanghai Dong Fang Long New Media Co., Ltd.
("DFL"), a subsidiary of Shanghai Media Group ("SMG") - Linktone,
through an affiliated entity, entered into a contract with DFL, a
subsidiary of Shanghai Media Group, to provide interactive wireless
value added services for selected television and radio stations and
related internet portals under SMG.
Second Quarter 2007 Outlook
For the second quarter ending June 30, 2007, Linktone expects gross
revenue to be approximately $13 to $14 million. The Company anticipates GAAP
net loss in the second quarter of 2007 to be approximately $0.13 to $0.15 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 first quarter 2007 financial results at 8:00 p.m. Eastern
Time on May 24, 2007 (5:00 p.m. Pacific Time on May 24, 2007 and 8:00 a.m.
Beijing/Hong Kong Time on May 25, 2007). The dial-in number for the call is
800-811-0667 for U.S. callers and 913-981-4901 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 June 7, 2007. To access the replay, U.S. callers should dial
888-203-1112 and enter passcode 4803184; international callers should dial
719-457-0820 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 DFL, 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, March 31,
2006 2007
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents 51,445,086 46,737,055
Short-term investments 1,012,230 1,669,765
Accounts receivable, net 12,371,700 12,145,649
Tax refund receivable 784,506 1,477,717
Deposits and other receivables 3,813,562 5,705,158
Deferred tax assets 1,020,608 1,248,210
Total current assets 70,447,692 68,983,554
Property and equipment, net 2,852,735 2,679,844
Intangible assets 2,162,993 1,972,957
Goodwill 16,518,898 16,584,212
Deferred tax assets 691,321 497,734
Other long-term assets 5,475,631 5,348,479
Total assets 98,149,270 96,066,780
Liabilities and shareholders' equity
Current liabilities:
Tax payable 3,011,537 2,571,498
Accrued liabilities and other payables 5,109,264 6,106,767
Deferred income 247,823 565,434
Deferred tax liabilities 576,600 287,129
Total current liabilities 8,945,224 9,530,828
Long-term liabilities
Other long term liabilities 55,203 50,236
Total liabilities 9,000,427 9,581,064
Shareholders' equity
Ordinary shares ($0.0001 par value;
500,000,000 shares authorized, 239,215,930
shares issued and outstanding as of
December 31, 2006 and March 31,2007) 26,087 26,087
Additional paid-in capital 77,041,914 77,385,527
Treasury stock (21,655,010 ordinary shares
outstanding as of December 31, 2006
and March 31, 2007) (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 18,070
Cumulative translation adjustments 2,172,265 2,559,136
Retained earnings 18,893,450 15,514,946
Total shareholders' equity 89,148,843 86,485,716
Total liabilities and shareholders' equity 98,149,270 96,066,780
LINKTONE LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In U.S. dollars, except share data)
Three months ended
March 31, December 31, March 31,
2006 2006 2007
(unaudited) (unaudited) (unaudited)
Gross revenues 22,958,469 13,974,549 14,193,015
- WVAS and others 22,958,469 13,640,509 13,589,586
- Advertising -- 334,040 603,429
Business tax (1,068,558) (480,017) (564,138)
- WVAS and others (1,068,558) (454,485) (501,868)
- Advertising -- (25,532) (62,270)
Net revenues 21,889,911 13,494,532 13,628,877
- WVAS and others 21,889,911 13,186,024 13,087,718
- Advertising -- 308,508 541,159
Cost of services (8,435,823) (5,055,172) (7,582,088)
- WVAS and others (8,435,823) (4,726,782) (5,672,020)
- Advertising -- (328,390) (1,910,068)
Gross profit/(loss) 13,454,088 8,439,360 6,046,789
- WVAS and others 13,454,088 8,459,242 7,415,698
- Advertising -- (19,882) (1,368,909)
Operating expenses:
Product development (2,290,728) (1,523,506) (1,507,817)
Selling and marketing (5,285,209) (4,707,658) (5,623,855)
- WVAS and others -- (4,571,638) (5,092,596)
- Advertising -- (136,020) (531,259)
Other general and
administrative (3,728,699) (2,291,404) (2,945,717)
Total operating expenses (11,304,636) (8,522,568) (10,077,389)
Income/(loss) from operations 2,149,452 (83,208) (4,030,600)
Interest income 512,665 295,848 239,830
Other income 250,899 135,712 94,300
Income/(loss) before tax 2,913,016 348,352 (3,696,470)
Income tax benefit/(expense) (560,374) 55,283 317,966
Minority interest (14,546) -- --
Net income/(loss) 2,338,096 403,635 (3,378,504)
Other comprehensive income: 218,045 623,993 371,764
Comprehensive income/(loss) 2,556,141 1,027,628 (3,006,740)
Earnings/(loss) per ordinary
share:
Basic 0.01 0.00 (0.01)
Diluted 0.01 0.00 (0.01)
Earnings/(loss) per ordinary ADS:
Basic 0.09 0.02 (0.14)
Diluted 0.09 0.02 (0.14)
Weighted average ordinary shares:
Basic 258,013,901 239,315,460 239,215,930
Diluted 272,777,951 241,877,584 239,215,930
Weighted average ADSs:
Basic 25,801,390 23,931,546 23,921,593
Diluted 27,277,795 24,187,758 23,921,593
LINKTONE LTD.
NON-GAAP RECONCILIATION
(In U.S. dollars, except share data)
Three months ended
March 31, December 31, March 31,
2006 2006 2007
(unaudited) (unaudited) (unaudited)
Net income/(loss) 2,338,096 403,635 (3,378,504)
Stock based compensation expense 311,129 373,522 343,613
Non-GAAP net income/(loss) 2,649,225 777,157 (3,034,891)
Non-GAAP diluted earnings/(loss)
per share 0.01 0.00 (0.01)
Non-GAAP diluted earnings/(loss)
per ADS 0.10 0.03 (0.13)
Number of shares used in diluted
per-share calculation 272,777,951 241,877,584 239,215,930
Number of ADSs used in diluted
per-share calculation 27,277,795 24,187,758 23,921,593
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
