Ideanomics Inc (IDEX) 2014 Q4 法說會逐字稿

Good morning, everyone, and welcome to the YOU On Demand fourth-quarter and full-year 2014 investor earnings call. (Operator Instructions)

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

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

We announced our financial results at approximately 7 AM Eastern Time today. The 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 Marc complete their prepared remarks, we will open up the lines to analysts' questions and then continue the Q&A session with questions received via email both prior to and during our call.

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 could be obtained from the SEC or via our website.

All information discussed on this call is as of today, March 30, 2015, and YOU On Demand undertakes no obligation to update any statements or expectations from prior conversations.

Regarding today's agenda, Shane will begin with a quick overview of business development and Weicheng will discuss our strategy and services. Finally, Marc will cover our financials. Shane, please go ahead.

Thank you, Jason. As many of you have already read in our press release this morning, YOU On Demand continues to execute on its strategy with both Q4 year-over-year and quarter-over-quarter top-line revenue growth of 536% and 55%, respectively.

In 2014 and our first quarter of 2015, we made tremendous strides with both OTT and mobile as we streamlined and enhanced our service. We were also able to expand our distribution via wide-ranging partnership agreements, both on the content and distribution sides of the business.

Moving forward, and specific to our mobile app, we will continue to improve on it through multistream functionality, personalization, and increased interactive and social features. In a moment, Weicheng will delve into more specifics about distribution, our mobile app development, and synergies between OTT and mobile for multiscreen viewing.

Separately, the Company today has announced that effective March 31 its President and Chief Financial Officer, Mr. Marc Urbach, is resigning from his position at YOU On Demand as part of the Company's previously announced plans to ensure that key personnel and positions are stationed in Beijing where operations are centered. Marc will continue to support the finance function for the next six months and be heavily involved in the interviewing, hiring, and transitioning of a new China-based CFO.

During Marc's tenure he has made significant and vital contribution to the Company's growth and development. He was instrumental in our successful uplisting to NASDAQ in 2012 and the building of the Company's financial systems, internal controls, and infrastructure. On both behalf of the Company and personally, I would like to thank Marc for his significant contributions to the Company and we all wish him the best in his future endeavors.

In all areas of our strategic priority we managed to achieve solid progress in recent months. Our user interface is well on its way to being best-in-class, offering superb video and audio quality through the highest-performing content delivery networks available. Our efforts to accelerate top-line growth by focusing on mobile-driven and OTT-centric growth strategy are beginning to gain steam.

And with that I would like to hand it over to Weicheng.

Thank you, Shane. We are pleased to have finished 2014 with another quarter of solid revenue performance, marking a successful completion of the year of both growth and transition.

With our strategic entry into the mobile and Internet space we started to build top-line traction from the second half of 2014, and we expect to continue this growth trajectory with sequential growth quarter over quarter. Internally, we have also streamlined operations, implemented cost-cutting measures, and increased focus on our products and service delivery capabilities.

We, and our partners, firmly believe that YOU On Demand is now well sufficient to leverage the many positive trends impacting the media and entertainment industry across China and the significant impact technology is having on how content is consumed. As Shane mentioned, we have made great progress on a number of fronts, particularly with YOU On Demand's OTT and mobile growth strategy. In fact, we expect to see OTT and mobile drive more than two-thirds of our 2015 revenues.

In the OTT space we provide our own (inaudible) service, YOU Hollywood, via partnerships with licensed streaming video platforms. Consumers can then watch our premium content on either their Internet-enabled smart TVs or through an OTT device, such as the very popular Xiaomi box and [Bamei] box in China. So far we have announced partnerships with FutureTV and more recently Galaxy Internet TV. Both are officially licensed OTT platform operators owned or controlled by national media institutions and individually each has many OTT device partners.

In August, we also announced the launch of our YOU Hollywood service with Dr. Peng Group, the largest independent residential broadband service provider in China, covering 8 million broadband homes across China. With partnership, users can sign up for YOU Hollywood service alone or upgrade to a bundled annual service which includes both superfast 100-megabit broadband connectivity and the YOU Hollywood service.

This is significant for many reasons, but in particular, when broadband service is offered alongside our service, YOU on Demand can benefit from the strong marketing muscle of the provider. In these partnerships YOU On Demand and our partners jointly manage programming and operations, leveraging YOU On Demand's rich experience in branding, marketing, and curating movie content. We are very pleased and optimistic about the sales of our packaged subscription and transaction services on those platforms, and expect to sign up additional partnerships in 2015.

Delivery of streaming video to TV screens via OTT devices is highly regulated in China. Only a handful of licenses to operate OTT platform has been granted to state-owned media organizations such as CCTV, China National Video, and a few top provincial TV stations. Even further, our OTT devices and smart TVs are [mandated] to be registered and connected to these platforms.

And with the latest development policies, those platforms are absolutely restricted from both allowing live TV program channel and connecting to any Internet video websites directly or indirectly. This is what makes YOU On Demand a success in already signing two partnerships with OTT platform operators so significant. YOU On Demand is uniquely positioned to capitalize on this market as we have rights to operate on OTT platforms from Hollywood studios, legitimate [censorship] approval of our content from the relevant government bodies, and solid partnerships with these licensed platform operators.

With the government's heightened efforts in the enforcing of policies, we see YOD benefiting from both higher barriers to entry of potential competitors and a stronger controlled over-the-top environment. We, therefore, anticipate to sign up with more OTT platforms and our revenues from OTT to accelerate in 2015.

In the mobile space, as investors are aware, we announced a strategic partnership with Huawei, one of the global leaders in making telecom infrastructure improvement around mobile devices. The bundle (inaudible), YOU On Demand mobile app, is Huawei's bestseller, made for the purpose of testing the user needs and refining the product. Since then, we have gone through several updates of the mobile app and close to ready to release our YOU Cinema version 3.

We are in close discussions with Huawei and expect to launch the new mobile app on more Huawei devices later this year, which will include not only the upcoming smartphones but OTT devices as well.

We also announced an important partnership with Southern Media Corporation, or SMC, one of the largest media conglomerates in the country, with a strong influence in southern China. With SMC, in the fourth quarter of 2013 we launched our mobile app on the 3GTV mobile video platform that currently serves more than 6 million 3G mobile users in the Guandong Province. And, as SMC also owns one of the national OTT licenses, as discussed earlier, we are in close discussions with them to extend our cooperation into OTT and multiscreen service offerings.

In addition to these announced deals, we are also in testing and final negotiations with major Chinese mobile carriers to deliver our mobile app bundled with their 4G and carrier-grade Wi-Fi data services on a nationwide basis. We will share with our investors when this trial becomes commercial launch.

Mobile is a much more dynamic and competitive market space. Unlike OTT, where the big name Internet video websites are far from reaching TV screens directly or indirectly, they all have their own free mobile apps as an extension of the desktop web services and compete for [idle] traffic with advertising. Some of these apps provide limited Hollywood movies as paid subscription services, but the conversion rates for paying users is extremely low.

In light of this environment, our mobile growth strategy is to continue focusing on our B2B2C, or business-to-business-to consumer, deals; as well as our OTT service bundling for the first half of 2015, so as to build up a set of core users who are willing to pay for the mobile service. This will serve as the springboard for our B2C mobile app service launch in the second half of 2015, which is anticipated to be for both Android and iPhone users through public [ATT] stores.

One of the most exciting things happening at YOU On Demand has to be the development and the launch of the YOU On Demand mobile app, the key to our multiscreen growth strategy with OTT. Over the past year our R&D and product teams, headed up by CTO, Kevin Lin, has been working with tremendous speed to bring the YOU On Demand mobile apps to market.

As far as content, in 2014 we signed extensions to some of our studio deals with both Disney and Miramax for rights to mobile distribution. And about two months ago we signed a licensing agreement with 20th Century Fox Television Distribution for multi-platform distribution, including mobile, over-the-top, digital cable, and IPTV, all very exciting and very significant developments for YOU On Demand.

I would like to reiterate how pleased I am with the revenue growth in the recent quarter. We have an exciting year ahead of us and, as always, we will share future developments with our investors as they come to fruition. Our company continues to transition from a pure content application and distribution business into a business that is built around all things movie related with innovations that are changing the way people consume content or social [connections] amongst movie fans.

I would now like to turn the call over to Marc for our financials.

As Shane mentioned earlier, the revenues in Q4 of $997,354 we saw Q4 year-over-year through quarter-over-quarter of top-line revenue growth of 536% and 55%, respectively. Revenues for the full year were approximately $2 million. Our gross loss for the year ended December 31, 2014, was approximately $794,000 as compared to $2.8 million during 2013. The decrease in gross loss of approximately $2 million, or 72%, was mainly due to increased revenue related to the VOD business.

The net loss from continued operations of $13.3 million for the year increased from $13.2 million loss from operations in the comparable 2013 period. The loss per share on a fully diluted basis for 2014 was $1.47, compared to $0.54 income per share loss in 2013, which included $0.35 income per share from discontinued operations.

As of December 31, 2014, we had cash and cash equivalents of approximately $10.812 million. More detail from YOD 2014 financials can be found in Form 10-K of our corporate filings, copies of which can be obtained from the SEC or via our website.

Finally, if I may comment briefly of my departure from YOU On Demand. I am extremely proud of what the entire YOU On Demand team has accomplished since we first set out on this endeavor. Building a successful company and brand anywhere in the world can be a daunting task and attempting to do so in China only adds to the challenge. Yet, here, YOU On Demand is poised for success and growth.

I want to personally thank Shane, Weicheng, the Board, our investors, and the entire YOU On Demand team for this wonderful and challenging opportunity. I look forward to assisting the Company for some time as YOU On Demand finalizes its search for a Chinese-based CFO.

In the interim, our VP of Finance, Ms. Grace He, will take over day-to-day financial responsibilities while we complete the CFO hiring process. Grace has over eight years of experience in working with US-listed Chinese-based companies and has been working closely with me over the last year and a half to oversee our finance, accounting, risk management, and internal control functions in China. She is highly equipped to manage all aspects of YOU On Demand finance and regulatory reporting, as well as contract discussions and negotiations with our current and future Chinese distribution partners.

This concludes our management teams prepared remarks. I would like to turn the call back to the operator and open up the lines for our questions.

As a reminder, webcast participants are invited to email us their questions at ir@yod.com. Thank you.

(Operator Instructions) Jay Srivatsa, Chardan Capital.

Congratulations on a good Q4. Let me ask by -- let me start by asking, what was the revenue mix in Q4 between OTT and handset and cable?

Jay, this is Weicheng. Particularly to Q4 2014, well, in general we provide our revenue into B2B, B2C business. B2B includes the cable and the IP TV while the service is delivered within a closed network. We do not carry any further liability, end-user liability beyond that point, so it's kind of considered as B2B. Whereas in the B2C there is mobile and OTT we are heavily involved in operating the service, marketing, and customer care.

So if we provide around that line I would say for the entire year it was roughly one-third from cable and IPTV -- sorry, one-third from mobile and OTT, two-thirds from cable and IPTV. But to the Q4 that is kind of -- the mobile and the OTT [saw the most] growth faster and we do anticipate going into 2015 the mobile and OTT will drive two-thirds, if not more, of revenue growth.

Okay. So clearly a shift in the strategy here. Tell us a little bit about the mobile side. Looks like there's been some changes on how the handset works relative to the applications. What does it do to your strategy to continue to address the mobile platform?

Well, first of all, we invest in our future so mobile is something -- it's like today, people carry their mobile phone 14 hours a day. That is the first contacting point you have with consumers. So we have the strategy called mobile driven and OTT-centric, because for the long-term deal, especially with high-quality video like movies, people still prefer to watch the entire movie on a larger screen.

But as we see, and evidenced by the number we receive back, those people do spend a lot of time on their mobile phone to watch part of the movie contents on their mobile phone, on their mobile device. Because of that, we continue to improve our mobile platform with a lot rather unique service components. That is kind of one place where we drive our user base, and then -- sort of that [delivered] user. Not only the mobile experience, but an immersive experience that combines both OTT and mobile.

Okay. On the OTT side, what are some of the developments you expect going forward? Do you expect to sign up more customers on this year, or do you expect more expansion of the current customers? And likewise, on the mobile side, beyond Huawei, what type of traction have you got with other manufacturers?

Okay, so first on the OTT side, we will basically push for both. Expanding our (inaudible) platform partnerships. At the same time focusing on (inaudible) sign up more users, more active users on the existing platforms. We think 2015 the revenue from OTT will grow particularly strong with our existing partnerships, plus we are in close discussion to sign up more.

On our mobile site, we do have a strategic partnership with Huawei. We continue to revise our mobile app that is totally, uniquely designed for Huawei to satisfy their need to meet their particular customer needs. At the same time, we are not limiting ourselves to just one partner.

We are open -- we are actually in discussions with many other partners; not only the handset manufacturers, but also a lot consumer service providers who need the premium content to supplement, or to bundle with their consumer services to build a good customer ecosystem. Once we have more detailed commercial launch, we will make it public.

Okay. Talking about revenue growth, in the past you have given guidance for -- revenue guidance for the year. What is your expectation for fiscal 2015?

For fiscal 2015 we are not ready. We are sort of reluctant to give a specific number at this point, but I do say we will continue on that sequential quarter-over-quarter growth. That is kind of something, a trajectory we built and, of course, it involves a lot hard-working and efforts, but as company CEO I do think that would be a trend for Company's top-line growth.

All right. Maybe a last question. Sorry to see Marc go, but what is the cash burn currently and when do you expect to turn profitable?

Sure. Similar to what Weicheng said, we are very excited about the revenue growth and we continue to cut costs, but we also -- as we build this business we will keep investing in R&D. Having said all that, I think that with all those moving parts and variables, until we get more visibility into them, we are cautiously optimistic. We're not going to give guidance as to when we are going to be cash flow positive, but we are certainly heading in the extreme right direction.

What about the burn? What is the current quarterly burn?

We burn about $2 million a quarter.

Okay. Maybe a last question for you, Shane. Stock has been pretty weak lately. What are some of the events or catalysts you expect will start to take the stock back up again to past levels?

One of the things is again just having transparency with our investors. One of the things is we will be putting out a lot more press releases, because we have a lot more deals that we had been having in the queue; just haven't been able to put them out yet. Again, as you can tell by this call, there is an immense amount of activity right now and we will be announcing all those things as we move forward.

Weicheng also just said we are on the -- kept the trajectory of quarter-over-quarter growth. So it's nice to see that the [boat] has been slow, but it's turned around and we have been -- we are very excited about its future.

Thank you. Good luck.

Thank you. I will now turn the floor back over to Jason Finkelstein.

Thank you, Jay, and thank you, operator. So now let's move into questions that have been emailed to us by investors, both before and during this call.

The first question for Shane. Over the past quarter have any suitors or other companies approached you?

Well, we are always open; have our eyes open and ears to the grindstone. But right now we are focusing on our strategy and creating a strong brand, so that's it. Focus on our strategy and continually move forward. If we have something to report, we definitely will.

Next question for Shane. Has YOU On Demand pursued or would be interested in pursuing deals with content providers other than full-length movie producers? Some of the examples they gave were Discovery Channel, Animal Planet, things of that nature.

The answer is, yes. Again, we already started with YOU Kids, which we will be talking about as the quarters unfold here, but we are open to all types of programming. Again, we started with movies to be the first focus and then from there, once you have eyeballs on your product, we are able to easily morph into different types of content, which we are all very accustomed to here in the United States.

Okay. Weicheng, what are your thoughts on Netflix mentioning the desire to enter the Chinese market?

Well, we don't like to comment on other companies' business or business strategy. I can only speak on our own experience that operating a media business in China is particularly challenging. You will need to have all the required licenses and permits from the government.

You will also need a strong team that has profound understanding of Chinese consumers' mindset and ways of conducting business. That has been our experience to achieve our business goals.

Okay. Weicheng, as far as marketing strategies, what is YOD doing to promote brand awareness?

We have regular product and service updates, marketing events, and interaction with our users through our official Weibo and WeChat accounts, which are two of the most popular social media platforms in China. In addition, we leverage our existing distribution partners by promoting our services on their platforms, or in the case of telco carrier partnerships, we bundle our service with their mobile and Internet data plans to make our name known, because those mobile apps carry our service brand.

Our brand and the services visibilities are demonstrated through strategically-placed promotion material and they are very commonly use a QR code. And we also rely on our distribution partners on all of that.

Great. And, finally, Weicheng, with so many distribution partners beyond cable, can you give an idea of the cost for a monthly subscription average in US dollars?

Well, it depending on the platform and the subscription package. But as a general rule of thumb, and I think for the larger screen user experience, the average (inaudible) per user revenue net to YOD is roughly, I would say, $2.50 to $3. And on the mobile side it is less, more like $1.50, something in that ballpark.

Great, thank you all. That's all the time we have for questions today. Shane, would you like to make some closing remarks?

Thank you all for joining us. Again, we are extremely excited about the direction the Company is headed in and the growth we have started to see. We will continue to execute on our strategy and shareholder value is a top priority for YOU On Demand. We look forward to updating all of you on our next call, 2015 Q1, which is in about 45 days.

Have a great day, everyone. Thank you all.

Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect your lines.