Ideanomics Inc (IDEX) 2014 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the YOU on Demand 2014 second quarter investor update call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session.

At this time, opening remarks, and introductions, I would like to turn the call over to Jason Finkelstein, Director of Strategy and IR at YOU on Demand. Please go ahead.

Thank you, operator, and good afternoon. Welcome to our second-quarter 2014 earnings conference call. Joining me today I am pleased to have Shane McMahon, Chairman; Weicheng Liu, CEO; and Mark Urbach, President and CFO.

We announced our financial results for the second quarter at approximately 4 p.m. Eastern Time today. The Q2 financial results and the webcast of this call are also available at the Company's corporate website at corporate.YOD.com.

Once Shane, Weicheng and Mark complete their prepared remarks, we will open up the line to analyst questions and then continue the Q&A session with questions received via email prior to and during the call. As previously instructed on our earnings call dial-in information press release, please email questions to IR at YOD.com, and we will do our best to address as many as possible, time permitting. The webcast of today's call will also be archived and available in the webcast and events section of the YOD corporate website for a minimum of 30 days.

We may make forward-looking statements during this call regarding the Company's future performance. Actual results may differ materially from these statements due to risks and uncertainties related to the business. These risks and uncertainties are detailed from time to time in the Management's Discussion and Analysis section of our corporate filings, copies of which may be obtained from the SEC or via our website.

All information discussed on this call is as of today, August 14, 2014, and YOU on Demand undertakes no obligation to update any statements or expectations from prior conversations. Regarding today's agenda, Shane will begin with quick overview of business development and Weicheng will discuss our strategy and services. Following, Mark will cover our second-quarter financials.

Thanks, Jason, and good afternoon, everyone. Similar to last quarter's call, YOU on Demand's CEO, Weicheng Liu, is joining us at 4:30 in the morning Beijing time, and we appreciate his flexibility in joining us. My remarks will be brief before I turn it over to Weicheng and Mark.

YOU on Demand is making great strides as we continue to evolve our movie and entertainment service platform, which integrates the best of Hollywood entertainment alongside all things movie-related via mobile and other devices and screens. YOU On Demand's platform service aspirations include providing the best functionality features that Netflix, IMDb, and Fandango provide to their loyal users, which will feature high-definition movies, box office ticketing services, and online database of information related to films, including actor biographies, plot summaries, and trivia. In essence, a fully immersive experience complete with social engagement for our users.

We're focused on creating the number one destination for movie fans. Our user interface is well on the way to being best-in-class, offering superb video and audio quality through the highest performing content delivery networks available. I am very excited about the potential future developments on the horizon and we look forward to communicating these to you all at the appropriate time.

With that, I would like to hand the call over to Weicheng Liu for some recent developments.

Thank you, Shane. Earlier this week, we successfully launched the YOU On Demand mobile app, Hollywood Domy, on popular app source and online channels in China such as in the mobile market, Mountain Lion mobile assistant, 360 mobile assistant, and PowWow mobile store. The purpose of this launch is twofold.

First, and foremost, we are looking to push V2 of the new cinema to as many smartphones and tablets as possible. Second, we are collecting user feedback data to make final tweaks to V3 of our app, which we plan to launch in Q4 2014. We are really excited about V3 and have been working around the clock to complete it.

We see this service as the cornerstone of our multi-screen leading entertainment platform with continuous adoption of the 4G and smartphones. We envision a day when a YOU Cinema subscriber can toggle back and forth between their smartphone device and their HDTV screen in the home.

From the big-screen TV standpoint, in May we launched our service on a Xiaomi box as part of our OTT deal with Future TV. Because of this success, YOU Cinema subscription service has had on the Xiaomi box, the YOU Cinema service quickly moved to the number one spot among all the end-user paid services on the Xiaomi box.

Not only does that enhance our brand exposure and the opportunity for greater sales, but the move has also earned the attention from other OTT device manufacturers and service providers. We just announced another OTT service launch with Dr. Peng Group, a public traded company on Shanghai Stock Exchange and the large independent broadband service provider in China with 8 million broadband subscribers.

YOU Cinema subscription service will go live on September 1 or as the transaction service as well as the mobile add-on will be made available at a later time. We are also in touch with several other OTT device vendors and will update our investors accordingly.

In addition, we are also in final stages of trial tests with several provincial telco operators for IP TV and a mobile service launch. We have had slight delays with build to sites on this project and the complex process of service integration with different operating units of those telcos. We're hoping to sign the full-fledged commercial agreements shortly, and will update investors accordingly.

Our Company continues to transition from two kinds of aggregation and distribution business into a business that is built around all things movie-related with innovations that are changing the way people consume content through social connections among movie fans.

We are on track to launch our YOU Kids service in Q4 2014 and will provide an update on that service on our Q3 call. In addition, we have multiple potential mobile and OTT distribution deals in various stages of negotiation that we will announce publicly at the appropriate time.

Now, I would like to turn the call over to Mark for our financials.

Good afternoon, everyone. Revenue for the period ending June 30, 2014, were $183,000, an increase of 33% over Q1 2014. Our gross loss for the quarter amounted to $674,000, down from $739,000 in the same period in the prior year.

Moving down the income statement, we continue to be very mindful of keeping corporate overhead at minimal levels and the 10.6% decline in total operating expenses for the quarter from last year for under $2.5 million reflects the continued success of this strategy.

The loss from operations of $3.2 million for the quarter was down from $3.5 million loss from operations in the comparable 2013 period. The net loss from continuing operations for the quarter was $1.1 million, which included a $1.5 million charge, and with fair value of warrant liabilities, versus $3.5 million net loss from continuing operations in the comparable 2013 period.

The net loss attributable to the YOU On Demand shareholders for the quarter amounted to $739,000, down from approximately $3.3 million net loss in Q2 2013. The reported per-share loss for the quarter was $0.05 on a diluted basis compared to $0.22 per share loss in the year ago Q2.

I mentioned on last quarter's call, [seeding of] increasing capital investment resulted in a much stronger balance sheet. Cash and cash equivalents increased from $3.8 million in December 31, 2013, to $15.6 million at June 30, 2014. We continue to target achieving cash flow positive status by midyear next year and will maintain a lean corporate overhead run rate of approximately $8 million a year in the interim.

This concludes our management team's prepared remarks. I would like to turn the call back to the operator and open up the lines for your questions. As a reminder, webcast participants are invited to email their questions at IR at YOD.com now.

(Operator Instructions) Jay Srivatsa, Chardan Capital Markets.

So, on Q2, could you give us a split between the mobile revenue and syndicated cable revenues, and highlight where the growth came from relative to Q1?

In terms of cable, (inaudible) from OTT for Q2 still pretty much have come to the table, the rest come from the OTT and the mobile. In terms of growth potential, OTT just landed the highest growth ratio for (inaudible) and cable (inaudible) flat rate.

Okay. Focusing on the OTT business, I know with Xiaomi you had initially over 1 million boxes installed with this for indie ramp. And can you give us an update on how many more boxes Xiaomi rolled out given the success of the product, and how you see that growing for the rest of the year?

Yes. We launched our service on Xiaomi box in May and very quickly our service moved to the number one spot on the Xiaomi box, and now all the sort of branded servers on the box including some of the largest Internet video and service providers in the country. As a result of that, we have multiple OTT device centers in test and labs, and also some service providers as well.

Today, earlier today we announced with [Option Pine Group] who -- the largest Internet broadband service provider in the country, worth about 8 million broadband homes service. The service will go live -- commence on September 1, and that will be the first of several other deals we plan to announce (inaudible). We will update our investors accordingly.

Okay. Can you give us an update on Huawei and the Huawei Mate? I think the last call you talked about more hardware product coming out of Huawei potentially by the end of the year. Can you give us an update on where things are at?

Yes. Our initial launch of the mobile app with Huawei was sort of a set (inaudible). But limited to just one model and involved over 2000 users. So to the extent of user feedback data, and identify some of the functions and user experiences of (inaudible) unique to the Huawei contest before we kind of expand that service or preinstall.

We are also looking to integrate in our service with one of their own embedded services so that there will be an internal sponsor and the driver behind the growth of a combined service to the end-users. We do anticipate to launch our specially tailored app on a full array of Huawei phones and the tablets but (inaudible) yet.

Okay. In terms of cable, looks like growth -- I think it looks like you mentioned it is flat. The question is what needs to happen for that business to get off the ground and become really meaningful for you? Or do you expect to shift your resources more to the mobile and OTT side and deemphasize your efforts on the cable side given the slow growth?

Cable is still a significant market longer term. The government -- China's government actually has been trying to get a national company and deploying a lot more resources to build out that business. Until then, (inaudible) the mobile and OTT being faster growing opportunities. So we have shifted resource to focus more on the OTT and mobile.

But, technology kind of changes through that landscape as well. Most of the cable companies are also locked in so-called (inaudible) mode. So (inaudible) take the DVD -- take the cable piece from the [travel clocks] that adding that OTT knowledge of input as well. So some of those cable companies figured it would be better to just leverage the broadband pipe from consumers' home and carve the upgrade their cable infrastructure in the two-way.

Now that creates a whole new opportunity for companies like the YOD, where we have, number one, all the (inaudible) rights for cable, IP TV, mobile, whatever, and LTP. Number two, our technology is ready for that as well. But, I would say it is going to take some time for cable to see significant growth. And right now our strategy is to stay in the cable space (inaudible) for next two years for cable to do something around probably (inaudible) each year. But (inaudible) in terms of growth, in terms of OTT and mobile (inaudible) next two to three years.

In terms of your full year guidance, looking at the first half it appears you have over $2.5 million to earn in the next two quarters. Can you tell us where you expect that to come from in order to for you to be able to meet the guidance? And how confident are you achieving the guidance you give for that?

Yes. Our revenue (inaudible) for Q3 and Q4 due to the fact that we have a number of significant deals that are in trials, and it takes time to reach a commercial launching. I am very confident in my teams' ability to execute in reaching our goals. If there were any trials, there would only be a timing issue. But the result will be shown in subsequent quarters.

Okay. In terms of your efforts for the telecom operators, I think the last quarter you had mentioned you were working with several telecom operators. What happened with them? And when do you hope to do -- get some operators signed up?

We are actually -- our trials with several provincial operators are going fairly well. We thought we have a rather complex internal server, working units you have to get, things all workout. But (inaudible) probably sooner than that and start announcing some of the deals. Plus, hopefully the nationwide is still an option as well.

Okay. I'm sure you saw the announcement that Abbadabba, taking a stake on Yuku in order to -- for them to get a play on the online video business. Has YOU on Demand been approached maybe these larger companies in China or outside? And, if not, what do you need to do in order to make yourself attractive to some of these larger companies who are actively taking stakes in the online radio play?

Well, we have our own predicament and our own strategy in place. I cannot speculate on -- I am not (inaudible) to some of the press. We are, from time to time, [setup] and people coming and talking to me. But, my focus right now is to execute our strategy.

I said last time, our positioning is not that different from those Internet video companies. They are basically driven by the eyeball economy, so sort of driven by the Internet traffic. They are building a media service, so making money (inaudible). And we are providing a commercial service.

It is actually an e-commerce service. We provide (technical difficulty) service. We start adding more and more value-added services into our offering. So eventually it looks more like the membership service, where you can get a lot of instant services albeit around movies (inaudible). We build our subscriber base that way.

Now, we really will create the significant value through our business and I am not excluding any opportunity, but we are open. It is just that we are indeed different from the channel also in the comprehensive view of the website. They compete on the variety. They compete on, I would say, massive media content. They also shift the focus more on the program content. We focus on web, we -- we have clear (inaudible).

Okay. Last question on becoming cash flow positive, I think in the previous call you had cited potentially Q1. Today you seem to suggest it's going to be midyear. What has changed to move the cash flow timing and what needs to occur in order for you to keep your original guidance of Q1?

Sure. We think that -- we are doing a lot of deals with a lot of big companies and we are extremely optimistic as Weicheng has already gone through.

Some of the deals have taken slightly longer if we are dealing with large, complex -- some government, some agencies. It is why we haven't changed our revenue guidance. The revenue will still be there. The growth is still there. And, if anything, I think we are more excited because there is -- the amount of people approaching us is a little bit overwhelming sometimes for some of our team.

So I still think we will be there next year. It may be mid-year next year, a few months' delay, possibly. But we are still very confident. And as someone who has been in the Company for a lot of years, I don't think I have ever been more excited about the stuff that we are doing right now.

We will now turn the call back to Jason Finkelstein.

Thank you operator. For now, let's move into questions that have been emailed to us by investors, both before and during the call. As will be our standard practice from this call going forward, we organize the questions by topics as we receive them.

So the first question is, as far as the move to KPMG as your auditor, how did that come about? What was the impetus? Was that the request of a potential partner or investor?

I will answer that. That was certainly -- there was no problems with UHY. UHY did a great job, but obviously, in this regulatory market and in the investor world, big four is certainly an extra vote of confidence. The fact that they were willing to take us on is a vote of confidence.

And it is just something we had always talked about, moving to big four. And at this time, while getting close to hypergrowth, we wanted to have a firm like KPMG represent us. We are excited to have them, get a great first quarter. They are learning our business or they learned our business, and then we have a great relationship with them. And we are excited to be able to say that KPMG is our auditor going forward.

Great. Second question. Is Mr. Ha active in the strategic growth of YOU On Demand through his relationships or is he more of a silent partner?

This is Shane. I will take that. Yes, he is. We have had several meetings with his team and we are looking forward to -- we are creating strategy. In fact, we are scheduled to do an Asian roadshow in Q4 of this year.

Great. Is YOU On Demand in any conversations or testing any of its CNE partners like China Mobile, China Unicom, or China Telecom?

We are actually in talks with two of those three that you mentioned.

Okay. Next question. How is YOU On Demand being promoted and increasing brand awareness for adoption in China? Can you elaborate a little bit on the marketing going on?

Well, where these other limited financial resources we have to have the better rates to get our money amount there, well, we do have some (inaudible) strong as (inaudible) to promote our service and ourselves on the same core (inaudible) to build a viral growth, but I am not certainly ready to discuss that openly.

One thing I can do, though, is say in deals, some of our marketing strategy in terms of to build the (inaudible) through partnerships. One -- you need three examples. One is under a -- refigured in China or in Asian countries where (inaudible) it is kind of an important piece of the culture. So we build and there (inaudible) own product to allow our partners to take our movies to one or two, whatever, at the kids, to some of the (inaudible) conventional business things like hotel chains, whatever.

Indeed, we do find that we are with a nationwide Wi-Fi service provider to the hotels where we could partner with and get our service into the consumers. One, it looks like we have got money, we get revenue, we get paid. And, number two, we got our money out and our app download into -- with consumers; mobile phones or tablets.

The second example we partner with or exchange resources with the traditional media for -- from exposure. And we find that we are with (inaudible) the national movie channel, where we take the most popular show we have on a channel, which is like a Lu Chen program, say twice a Lu Chen, to play the Hollywood movies typically is not that new. It has a very common number one rating program on CCTV 6.

They have the TV rights and we have the mobile rights, which is a perfect combination. So what we do is we take the content from them, because they have translated the content into Chinese to us. We have a special (inaudible) program directors, actors, commentators to build out the program, not just the movie itself. So that will become available on our mobile app.

At some time there will be 2R code on the TV screen where people can stand up to our code to reach our mobile app, and that is probably mutually beneficial. We also have in V3 -- we will have interactive features, so people will be able, while watching the movie on the TV screen to actually pull up information about the movie, the actions, whatever, on the thing.

So that is one other example. Maybe in Q3 or Q4 when our V3 version is launched we will be able to show more of our marketing strategy.

Great. Thank you. Next question. What is your view in terms of the competitive landscape as far as content acquisition?

Well, the competition for content in China is pretty much driven by an eyeball economy and maneuvered among those big websites. Every way computing on the popularity or the variety, whatever is popular, they need to get the content. That drives the price up and down.

And some of the -- like our studio partners, they also ride on the roll of cost. The price can go up and go down. It depends on what we are chasing after.

Now, but like I said, we have a clear position and we have a clear goal. We are not chasing after the high rate title war. We basically focus on (inaudible) our business. We get our business based on the [web presented].

Great. As far as content spend, is there any forecast for internal budget that you can share with us for this year?

Sure. Currently, as you could see in our financial statements, where we are spending between $3 million and $4 million on content, we are always looking for new and unique content. We have some great content partners right now in place.

I would anticipate that in the growth phase we are in right now to remain reasonably constant, because we are -- like I said, we have a great library to launch on all these different platforms. But, having said that, if it is something new and unique comes on, like we just bought the rights to some of the kids' content to launch our kids' platform. We're always looking. We're looking at different types of content, but we are -- we will be reasonably consistent between the $3 million and $4 million range for the foreseeable future.

Great. Well that's the time we have for questions today. Shane, would you like to make any closing remarks?

Sure. I would like to thank everyone for joining us today. We are excited to be sharing lots of announcements over the next few months. Again, we are elated with the Company's direction of where we are headed, and would like to thank investors from the past and the present who have been there part of our growth.

And I would also like to thank Weicheng and Mark -- especially Weicheng for joining us so early. And we all look forward to updating all of you on the call, on YOU On Demand's ongoing process and as we also host our 2014 Q2 call. Have a great night.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.