Ideanomics Inc (IDEX) 2015 Q4 法說會逐字稿

Good afternoon, everyone and welcome to the YOU On Demand Q4 and full-year 2015 investor earnings call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. 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.

Thank you, operator. Good morning and good evening to all of our listeners and speakers. Welcome to our fourth-quarter and full-year 2015 earnings conference call. Joining me today, I'm pleased to have Bruno Wu, Chairman; Shane McMahon, Vice Chairman; Mingcheng Tao, CEO; and Grace He, VP of Finance. Once all speakers have completed their prepared remarks, we will open up the lines to analyst questions and then continue the Q&A session with questions received via email both prior to and during the 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 can be obtained from the SEC or via our website.

All information discussed on this call is as of today, March 30, 2016 and YOU On Demand undertakes no obligation to update any statements or expectations from prior conversations.

Regarding today's agenda, Shane will begin with opening remarks followed by Mr. Tao, our new CEO. Then Mr. Bruno Wu will discuss the vision and strategy for the Company for 2016 and beyond, and finally, Grace will cover our financials. Shane, please go ahead.

Thank you, Jason and good morning, everyone. The final quarter of 2015 was both encouraging and eventful for YOU On Demand. After announcing on the last earnings call a nonbinding proposal from Bruno Wu's Sun Seven Stars, one of the biggest private media and investment companies in China, both parties working diligently and expeditiously completed the signing of the first part of the deal agreements in a period of time of almost less than five weeks with Sun Seven Stars putting forward a $10 million investment in YOU On Demand at $2.20 per share of common stock receiving two-year warrants to purchase an additional 1.8 million shares of YOD at $2.75 per share and receiving a six-month promissory note, which is automatically converted into an additional 9.2 million shares of YOD in exchange for license rights to a large library of content controlled by Sun Seven Stars, a momentous deal on many levels.

More recently, we have revamped, refreshed and fortified our executive leadership roster with new hires for CEO, CFO and finally President of E-commerce, a newly crafted position for our expanded strategy. With all that being said, I want to take this opportunity to reiterate my unrelenting passion for YOU On Demand, a Company that I founded and my intention to continue assisting this experienced and capable team in pushing the boundaries and scope of the original anytime and anywhere video distribution vision, something that Bruno will speak about momentarily. Now I would like to turn the call over to our new CEO, Mr. Mingcheng Tao.

Thank you, Shane. First, I want to say how honored and thrilled I am have to be the choosing for these exciting opportunities and to be a part of such an experienced and hard-working team. I see a bright future for YOU On Demand and I am looking forward to leading the team that will be tasked with both expanding it and reshape it.

Through this position, I am determined to the future has while this business foundation, as well as the written shareholders' value to YOU On Demand as patient shareholders. Second, I am very pleased to be report that we are back to the strong top-line increased revenue progressing for both the full years at 175% growth and the quarter four versus quarter three at 241% growth. A solid indication of the business model already in place. Grace will take more to the contribution breakdown for the revenues when she speaks later.

I know that the last several years have been frustrating for our shareholders from operating growth perspective and that is an issue that is concerned about the (inaudible) of the invest communications. On behalf of YOU On Demand, let me be clear, Bruno, myself and the rest of the management team are here to amplify that growth prospect of the Company and make sure that we are communicating with you every step for the way.

As the new management team lays out our execution plans for our new vision of YOD, we are also review of our distribution management agreements and separating them into groups based on those that are not performing as we had hoped. Those that beginning to perform and those that we are actively looking to expand and [previous] of the attempt to create some exclusivity with. So are looking forward to updating our investors on the status of those deals in the near future.

With the strong team now in place and a wider, yet focused (inaudible) YOU On Demand (inaudible) ahead of us, I would now like to turn the call over to Mr. Bruno Wu. Thank you.

Thank you. And thanks to everyone for joining our call. The Sun Seven Stars team had actually been looking into connect with YOD for several years prior to the recent deal. As the Sun Seven Stars team continued to examine and comprehend the foundation, platform and services that YOD has been building over the last several years, we became more and more convinced to commit to the evolution of the YOD service.

Towards the beginning of our analysis, we simply saw a golden opportunity to marry Sun Seven Stars' strong leadership position in content ownership with YOD's multiplatform distribution channels with its brand and Hollywood partnerships to shape YOD into the leading services offering to the next generation in China's high-growth paid content space.

But I expect YOD to become so much more. My vision and strategy are as follows. Since my team has come in, we have been steering YOD in direction where we can leverage and optimize its current operations as a premium content VOD service, providing its service only in China, but to evolve it into a global mobile-driven consumer management platform for both enterprises and consumers.

By establishing the world's premier multimedia social networking and e-commerce-enabled network, YOD, through its expanded cloud-based ecosystem of connected screens, combined with strong partnerships with leading global providers, will be capable of delivering a vast array of YOD-branded products and services to B2B customers and end-user customers anytime, anywhere across multi-platforms and its devices.

Our new business structure will be segmented into four distinct service verticals, each of which will feed the growth and utility of the next through brand awareness, cross-promotion, cross-selling and big data mining. The verticals are as follows. Vertical number one, the pay content group or YOD's traditionally subscription-based and single use transactional cloud-based services offering. This will be amplified and enhanced to include a broader spectrum of content.

For these pay services, management anticipates the addition of over 100,000 movies from various producers on a revenue-sharing basis. The content offering will also be expanded to include a globally marketed education content platform and the Chinese focused gaming platform that directs YOD to become a leader in the development of the online gaming ecosystem, particularly in the area of e-sports and fantasy sports.

Vertical number two, multi-channel network group. Management is expecting the availability of over 70,000 channels of both traditional and next-generation television and content programming representing all genres of entertainment, sports, gaming and education. All provided for the first time by YOD through a free-to-the-viewer advertising and e-commerce-supported and transactional platform in [concert] with customized content packaging that utilizes proprietary and exclusive mobile app technology, personalizing and optimizing each viewer's experience.

Vertical three will be video commerce group. This brand-new vertical includes strategic (inaudible) partnerships with multiple commercial product sales channels integrated into the YOD environment and providing users with user-specific tailored e-commerce functionality engineered to encourage immediate and seamless purchasing transactions. Leading this effort will be Mr. [Bing Yao], who will become President of YOD's newly formed e-commerce group. We introduced Mr. Bing Yao and his expertise in this area to the market last week.

And vertical number four will be consumer and customer management group, a full-service business-to-business enterprise platform solution offering database storage, analytical global computing, deployment and application services such as global partnership distribution platform, a virtual content network operations platform, mobile app advertising, marketing and management and analytics.

This vertical will also include a partnership with global data and virtual currency exchanges offering a broad range of digital services. For example, for the customer, virtual gift card management and consumer data collection and for businesses, big data exchange systems, analysis and management.

This more diversified and robust business model will see YOD become a total consumer management platform with both B2B and B2C solutions and offerings. And now the opportunity to not only implement this model in an efficient and expeditious manner, but also to attain my level expectations of financial performance. Mrs. Mei Chen, our recently hired CFO, will make sure our assets and financial resources are utilized effectively on a path to achieving the vision I have laid out.

In the coming weeks, investors should look for a new YOD business overview in investors presentation, as well as several press releases on partnership deals.

Lastly, to our current and patient investors, a priority for me this year is to communicate more consistently with all of you. We have a shared vision and expectations for this Company and account all of you as my partners in attaining those goals. I personally intend to make certain that this Company brand and publicly-listed securities attain the attention it's due along with a fair valuation, the vision I have shared, along with the concrete steps we have already taken serve as proof of my personal commitment to this growth.

With that, I would like to turn the call over to Grace for financials. Thank you, everyone.

Thank you, Bruno and good morning, everyone. Revenue for the 12 months ended December 31, 2015 was $4.606 million compared [$1.963] million for the same period in 2014, an increase of 135% year-over-year. Revenue for the fourth quarter of 2015 was $1.623 million compared to $476,000 in third quarter of 2015, a 241% quarter-over-quarter increase. The year-over-year increase in revenue of approximately $2.643 million was attributable to an increase in revenues generated from our paid video programming and content distribution services, specifically in the cable, internet protocol television, or IPTV and over the top, or OTT, distribution channels.

In 2015, the Company entered into contracts with 10 new distribution partners, including four new mobile and OTT distribution partners. Revenue generated from mobile and OTT channels accounted for approximately $1.597 million or 35% of total revenues for the year ended December 31, 2015. The remaining revenue was attributed to cable and IPTV distribution channels and to a lesser extent other content delivery services.

Our gross profit for 2015 was $932,000 as compared to a gross loss of $793,000 in 2014. The increase in gross profit was mainly due to an increase of revenue that outpaced increases in cost of revenue. Cost of revenues, which saw an uptick on the year, was attributable to the acquisition of new content to meet our increasing business demands and to a lesser extent increase in content costs related to new theatrical releases. Our selling, general and administrative expenses for the year ended December 31, 2015 increased approximately $778,000 or 10% to $8.237 million compared to $7.459 million for the year ended December 31, 2014.

Salaries and personnel costs are the primary components of selling, general and administrative expenses. For the year ended December 31, 2015, salaries and personnel costs accounted for 42% of our selling, general and administrative expenses. For 2015, salary and personnel costs total $3.491 million, a decrease of $331,000 or 9% as compared to $3.822 million for 2014. The decrease was primarily due to our continuous shift in resources to China as part of our long-term cost savings and operations (inaudible) initiative.

The other major component of SG&A expenses included technology, marketing, rent and regulatory expenses. For the year ended December 31, 2015, these costs totaled $4.746 million, a net increase of $1.109 million or 30% as compared to $3.637 million in 2014. The increase was primarily attributable to increased end marketing expenses and severance payments. Our marketing spendings are primarily related to promotion of our direct-to-customer services on our newer distribution platforms.

Professional fees, which are generally related to public company reporting and corporate governance expenses, totaled $654,000 for 2014 and $715,000 for December 31, 2015, an increase of $62,000 or 9%. The increase in professional fees was related to transition to a new audit form in the second quarter of 2014. Net loss was $1.963 million for the fourth quarter 2015 compared to $2.351 million in the comparable 2014 period.

Basic and diluted loss per share for the fourth quarter 2015 was $0.08 as compared to $0.10 loss per share in the same quarter in 2014. Net loss for the 12 months ended December 31, 2015 was $8.541 million compared to $13.024 million in the comparable fiscal 2014 period. For the 12 months ended December 31, 2015, basic and diluted loss per share was $0.34 as compared to $1.58 (sic -- see press release, $1.47) loss per share for the same 12-month period in 2014.

As of December 31, 2015, the Company had cash of approximately $3.8 million and total current assets of approximately $10.1 million. More details of YOU On Demand's fourth-quarter and fiscal 2015 year financials can be found in our Form 10-K of our corporate filings, copies of which can be obtained from the SEC or via our website.

This concludes our management team's prepared remarks. I'd like to turn the call back to the operator and open up the line for analyst questions. Thank you.

Thank you. We will now be conducting a question-and-answer session. As a reminder, this conference is being recorded. (Operator Instructions). Marc Estigarribia, Chardan Capital Markets.

Thank you. Just want to say congratulations, Shane and Grace, for really building up the Company to date and passing it off to good hands, I'm sure. We will learn a lot about the business going forward from Bruno, so congratulations for taking this on.

Also want to thank Jason Finkelstein for really helping us understand and keeping us posted with the developments of the Company, so just want to thank you -- thank your Company for that.

A little bit I guess on the financials. We are looking at the fourth-quarter numbers. Can we get just a little bit more color please on -- I think, from our calculations, there was $1.7 million of revenues, around $700,000 of gross profit, which is around 42%. The OpEx was around $2.5 million, so we are trying just to understand what happened in the fourth quarter with the revenue pop and what's going on with the OpEx in terms of why was it so sizable in the quarter. Just trying to get an understanding of that and what we should expect for the next quarter or sort of a run rate for 2016, please.

Yes, I will take on that question. I think what you'll see in the fourth quarter is a very strong quarter with revenues that we've been building up throughout the year, back on track from the third quarter.

In terms of your question about OpEx, I think our OpEx has remained relatively stable throughout the year. As mentioned on our call earlier, we had some uptick year-over-year in advertising marketing spending, which is in line with our revenue growth, as well as spendings and severance payments that went out in the first quarter of 2015. So I think the fourth quarter is a very strong quarter primarily because of our revenue growth.

Thank you. Can you just dive in a little bit more on the main drivers, the incremental growth fourth quarter on the top line please?

Sure. Well, I stated in our most recent 10-K report, earnings for our mobile and OTT channels comprised of 35% of our total revenues for 2015. Our mobile and OTT continues to show strong growth potential as evidenced by the 164% year-over-year growth, which outpaced our total year-over-year revenue of 135%.

We also continued to show solid cable and IPTV revenues, which is not surprising given that's where the business started and we can expect benefits from our early planting of these seeds to continue to blossom.

So from management's side, I think our mobile-driven focus does not take away resources from our big screen business; rather we see them as complementary product offerings whereby users can choose between our content on both large and small screens.

So thank you for that. And just is that more subscription or transactional one-offs? How is that measured or how should we model that for the fourth quarter (multiple speakers)?

I would say they are definitely more subscriptional and also we have more expanded revenue distribution channels and we remarked that in our 10-K as well, including 10 new distribution partners in 2015 that we started working with at YOD.

Okay, thank you. And on the OpEx side, can you just break up a little bit on the -- and I know it's mostly advertising and marketing -- what percentage of that is marketing and should we expect that OpEx to stay stable and flat for 2016?

Well, I would say it's definitely mostly marketing and promotion as to your question and our OpEx has remained relatively stable at about $2 million per quarter for the past few quarters. We will continue to, of course, curve OpEx spendings as we ramp up the business, but where we call in for resources to fund the Company's growth, to fund future revenue growth, of course, we will be looking to put resources to work what makes money.

Great, thank you. Bruno, maybe this is a question for you on strategy in terms of the four distinct verticals. I'm sure there is a cross-promotional with the opportunity here, there's more channels involved. How does the content play -- I'm just trying to understand -- I think you are bringing, from what I read in the press releases in the past, you are bringing content to the table as well. What is the strategy on the content in terms of distributing on your platform, maybe some economics on acquiring the content, the content that you bring to the table. Instead of obviously producing it, I'm sure you are looking to buy it. So I'm just trying to understand the economics there, please?

Thanks, Marc. I think this is a very important question. First of all, we are looking for the four verticals. Three of the four verticals are content-oriented. Of course, the pay content vertical, MCN, the multichannel network, is Internet television and traditional television-based, free content vertical, if you want. So it's pay content, free content and the commerce content. These are the three content verticals versus a consumer and customer management platform, that which is the fourth vertical.

So let me explain one by one what these verticals are. First of all, in the pay content vertical, we are primarily at the current stage focusing on three clusters of pay content, if you want. Number one is the movie pay content. Historically, the Company has primarily focused itself on the limited range of VOD -- basically pay-per-view-based content, which is buying big studio titles nonexclusively for the Chinese market. Now this is good if you want a brand enhancer, but it also brings a few major, major issues.

Number one is we know that studios are selling content to all players in China on a nonexclusive basis and they up the price year after year. Not that we don't appreciate our partnership with our good partners at the studios, but if you only work on the studio content in a movie area, you are between a rock and a hard place. You can never win. Besides, the major Internet companies starting with Baidu, Alibaba and Tencent, who are spending hundreds of millions buying this content and offering them for free.

So basically in China everybody is a Netflix but for free. That's why it's very difficult for these guys to make money. They may make money overall, but with the video portal, video website side of the business, I think nobody has a timetable on when this division of their business will make money. We certainly, YOD, does not nearly have not even close to a fraction of the resources that they have towards buying the studio content, therefore we have to either pay content area, we have to shift our focus elsewhere. How to differentiate ourselves, differentiate ourselves and to put ourself in a very sweet position in the blue ocean.

That's why we mentioned that we intend to build the world's leading, if not the largest, movie cloud by sharing on the revenue-sharing basis by building a model that's revenue-sharing with primarily independent producers of the movies. We know that the world makes somewhat close to 40,000 titles in new movies a year and the big studios altogether, I'm not sure whether even 100 of it at the six largest studios new releases a year. I'm not accounting, but I think it's probably safe to say it's around 100, so it's a very, very -- 100 over 40,000 is a very, very small portion.

So therefore, our job lies in how do we represent the independent producers. How do we discover and recommend good movies. But most importantly, group those movies in thematic focused verticals and silos that would appeal to everybody. Therefore, we decided to launch the four verticals in a thematic HBO manner, if you wanted, a -- into family and kids first. So family and kids is across the board not only in China, but worldwide the most popular genre.

The other three are suspense/horror/scary movies, sci-fi and action because those three together with romantic comedies are the top four genre that the millennials love in most parts of the world. We take out romantic comedy because that kind of content does not travel cross-border. They are very much language and culture background-restricted. But the other three, we aggregate.

So in other words, we are in the middle of building a 100,000 movie strong, if not more, cloud, which in size leading the world primarily taking content to formerly these four verticals that appeal to across all and to the millennials and to do this on a revenue-sharing basis with our content suppliers, so that's the movie content.

After all, you know why HBO/Cinemax/Showtimes of the world became successful, not because they were rebroadcasters of studio content. Studio contents were just like teasers and they put icing on the cake. But how do we make the cake delicious and tasty is the key and that's how we -- our ability to curate, our ability to discover and recommend content and is also changes the model that means that we can now get into going from the original VOD model, pay-per-view model, to a monthly subscription model.

And secondly, in the pay content cloud is education. Technical and vocational professional education is the key. Chinese market alone, 2015, the size was, according to official statistics, is about RMB240 billion in size and not very many OTT, if any, video and multimedia-based content providers that are addressing this market. Certainly there are over 2000 government-issued certificates and diplomas that are associated with the vocational education and professional education. So in the middle of formulating partnerships again to address this market for China and we intend to expand ex-China on this.

And thirdly, in the pay content again, another focus that we are going to have is in the area of gaming. In the United States market, we know that, in e-sports alone, e-sports is quite a many times over the size of movie box office in the United States. In China, according to the State Administration of Sports, the movie was about RMB40 billion last year. The e-sports in the gaming area is already approaching RMB30 billion, but it's growing so fast. Therefore, we like to become the aggregator, the biggest crowd in China. That's in China. The rest of the service we intend to take them global.

Now how do we view the biggest cloud for e-sports, game content for the Chinese market and to beef it up with this ability for monetizing with ways like solutions like fantasy sports is what we are focusing on and what we like to build out in 2016 by formulating some key partnerships with important US and European players, utilizing their experience, their know-how and their platform to monetizing Asia starting from China. So that's plow number one, vertical number one, the pay content.

Number two is, of course, is MCN, multichannel networks. So if you want, the vertical number one more or less shares some resemblance and similarity to the Netflix approach. But number two is more like a YouTube or Hulu approach is the MCN approach, multichannel network approach, with free content. Now we are in the middle of aggregating through partnership, thank God, more than 70,000 MCN channels into about 60 categories of interest from A-Z starting from animals and animation all the way down to Z. So these 70 channels span over 60 categories vertical, so they are out there to capture vertical demographics.

So it is our task to how do we distribute to the maximum audience, how do we segregate and capture audience on a vertical demographic basis and how do we convert eyeballs not only into advertising sponsorship revenue because it's free content, but also convert into commerce revenue. And I think we have a very good solution that we can try and we are going to share with all of you in due course. But we are definitely going to build a leading, what I call, free content crowd with 70,000 ex-primary content channels. We know there are several hundred thousand MCN channels in this space, but we have already curated and picked up north of 70,000 good ones.

Cloud number three is -- our vertical three is commerce cloud, video commerce content cloud. I think this will be the biggest driver in revenue in the next 24 months because revenue for cloud one and two will grow exponentially very, very fast compared with what we've been doing the past several years, but commerce will grow even faster. The reason is that the -- there's a very big trend of incoming B2B commerce into China in big bulk merchandising and consumer products importing.

If we capture, and in the area of Shanghai free-trade zone alone, with one company called DIG in Shanghai free-trade zone, we intend to turn them into a partner. There are two primary free-trade zones in China who are doing very well in that area. One is Tianjin free-trade zone. The other is Shanghai free-trade zone. In Tianjin, my Company acquired -- a division of my Company acquired the cross-border trading exchange in Tianjin, which is the leader in cross-border trade. We are by far the leader in Tianjin if not in the country.

But the Company DIG in Shanghai alone, that did about last year RMB1.3 trillion in import divided into some 90 plus verticals starting from wine, watches, cosmetics, automobiles, all consumer products in verticals. It is our intention to support these vertical operators with multiple capability enhancements through online financing facilitation capability, to mediate a marketing capability, to technical capability and to the what we call placing and distribution capability to make their business grow bigger.

In other words, these guys in the B2B business, we like to turn their B, second B from bigger B to medium B from medium B to smaller B, therefore help them to enhance sales capability and increase the number of distributors and wholesalers, if you want. Therefore, exchange for on the revenue-sharing basis, exchange for a cut of their business.

So this is what we intend to do with cloud number three because we are lesser interested in getting to B2C in that area, although we are going to have tremendous capability, what we call B2C enhancement-enabling capabilities with technical tools, marketing, so on and so forth. But we do not intend to get into B2C side of business where there is a lot of price-cutting, a lot of logistic headaches inventory. We didn't do any of those. We just liked it in-house, our model and B2B at the top.

So -- and then we get into vertical four, which is what we call consumer and customer management. I think that tomorrow our media is no longer only about content management, it is more so about customer/consumer/community management. It is how do we manage the consumers, understanding the data and the exchange of data amounts to peer vertical demographic-focused consumer groups.

So if we -- here is our philosophy. If we look at the total expenditure of media as a pyramid, the traditional media or media to date only scratched onto the tip of the pyramid, which is advertising and fee-based income. The middle part of the pyramid I believe is commerce-based. So e-commerce, which we get a transactional-based fee, revenue-sharing, which is even bigger is the bottom of the pyramid, which is data and transactional-based revenue, financial service-driven revenue.

So in order to be a good manager and operator of tomorrow's digital media business, particularly mobile-driven digital media business, not only we have to understand how we look down from top of the pyramid, we believe that we are vertical content operators, that we use vertical component to capture vertical audience and adjust their needs and get e-commerce and financial revenue, transactional revenue out of them, but we also have to understand from the point of view of placing ourselves from the bottom of the pyramid looking up, understanding that another way of looking at this is how do we acquire users at cheaper price. So we see ourselves as a financial service and transactional service operator acquiring loyal and vertical sticky users using the cheapest method.

We all know that in the United States it costs quite a bit -- I don't know the figure -- but it costs quite a bit to acquire an effective, for example, credit card user. In China, this number is very high. The largest bank told me -- one of the largest banks told me that their cost is about RMB400, which is about $60 per effective customer, active customer. So if we can share also into that kind of expenditure, financial spending, not only by sharing the cost of acquiring a customer by the bank, but also -- well, banks are many, many other transactional financial services -- but also share their ongoing transactional revenue, I think we will be developing much more ways to monetizing our business. So that's why we built our entire ecosystem this way, if I make myself clear.

The other very important thing I forgot to mention is in that fourth vertical, we intend to be a leader in terms of -- a leader in the world in terms of distribution, in terms of numbers of users we cover. Our current revenue is limited because of the fact that our universe is small because that we also only pay-per-view business only in China, so we can only cover users by several millions.

In the future, by end of 2016, we intend to grow our footprint into several hundred millions, not just in China, but also ex-China because I think our entire strategy of three clouds plus one platform, 3+1, will take us everywhere. As matter of fact, we are going to play in the US market as well. We are going to play in the European market as well. So we are going to -- it is our intention to completely take YOD from a China only company to a global player. Marc, I hope that answers your question.

Very thorough. I really appreciate that. Thank you, Bruno, very much. When you said several hundred million, did you mean revenues or did you mean users?

Users and revenues will come. We certainly hope that we can grow this from several million to several hundred million in revenue as well.

Right, right. So Bruno, thank you very much for that thorough response and it was very helpful to get the strategy. On the medium term, long term for the Company, I think the investment community will definitely welcome that, but what can we expect in the short term? Is there any visibility for catalysts into next quarter in terms of implementing this new strategy for 2016? What are the milestones that we should be looking for in the next three months, six months to get this strategy going?

Marc, to us, this is a strategy that is more so a plan in execution. We did not start planning on this until after we bought into YOD, but we've been planning on this for the last minimum 3.5 to 4 years. So along all those four verticals, our resources are ready. We are already in the way of implementing. It is our goal to put to spend the next six months to entirely put this strategy in place, everything I just mentioned about. No promise, but six months, we want to put all of them into motion.

Three months, all four sections, all four verticals into motion, but six months to fully embody them with everything I just mentioned about and to keep everything I mentioned operational. So the next 12 months, for FY 2016, there are few benchmarks we need to be looking for. One is I think to me there are three -- to me personally, if I talk to Mr. Tao and the management team, there are three very, very key indicators of performance.

Number one is whether these four verticals are well implemented. Number two is whether our user bases are north of 200 million users. If we fall short of 200 million users passed by end of 2016 then it is a failure. So we need to expand from several million users passed into several couple hundred million for this year as a management target.

Number three indicator, of course, for us is, yes, I like to have good top lines, north of $100 million top line, if I could, but I like more to have a bottom line. So if we can successfully turn the Company into black, into profitability, while growing the Company in such a robust and rapid manner, in the meantime, we need to turn the Company profitable in 2016. It's another management target. So these are the three indicators I am looking for to the management team for 2016.

Very helpful. I really appreciate that, Bruno, for spelling that out. If I can throw in one more. I know that we have been on the call for a while, but wanted to throw in one more if I can. On the regulation side in China, with regard to -- I know there's content -- with regards to foreign content or locally produced content, if you can comment on that, but also comment more I guess on the relationships that you have that basically facilitates the strategy to be implemented and gives you an edge in terms of competitive advantage. Do you see that the same way as we do?

Yes, first of all, the soft regulation has very little effect upon YOD's business because we have completely transformed -- or let me put it this way, we are way over in transforming our business into primarily what we call B2B2C business. B2B2C business is very good for us for several reasons. Number one is we tell ourselves agnostic. We position ourselves as the king of content providing. We completely turn ourself into being agnostic to all channels or all B2C operators, whether you are an IPTV, whether you are a MSO or cable operator, whether you are a website like Baidu, Alibaba or Tencent, whether you are a manufacturer like Huawei or Lenovo, or there are 35, 40 manufacturers that we like to partner with and we will.

Whether you are a China Mobile or China Telecom that you want to launch 4G service or you have a video service and you -- like Verizon does or T-Mobile does and you want to partner and enhance your marketability with our content. We don't care. We like to have a B2B2C model whereas we settle with you to be in the middle. We only want to make sure that several things happen, including -- number one is our brand is being displayed to the consumer, to the C. Number two, no matter what revenue that happens with the consumer, we take a piece. That's all we care. And this avoids -- number one is a licensing and softer restriction issue. Number two is the marketing and user acquisition issue, user acquisition cost issue. Number three is the bandwidth and network and technical supporting cost issue. So we like to be as low cost as virtue as we could, just like our model how we structure with the independent movie providers. So that puts us into a very good position in China.

Of course, in China, it is -- there is more restriction about the percentage of foreign content, but, however, the definition of foreign content varies. For movie, I have to say that we have a very good green channel of being able to import for digital use foreign movies into China. Before MCN content, a lot of the MCN contents are universal, for example, music and sports, animals and animations and that kind of stuff are universal.

However, they won't be categorized in a lot of cases with foreign content because, in China, we add curation and moderation over it, so we intend to formulate an alliance through what we call a virtual content operating model. In other words, we build an essential kitchen in China for TV content. We are building essential kitchen for content as we work with many, many local channels and we carry them and distribute them in branded blocks. So it is almost like, in the United States, you have the network in the local affiliate model.

So -- but this is just China. We are going to go much beyond China in this year. As a matter of fact, by end of this year, if we have 100 million users in China, we intend to have another 100 million users ex-China, so 1 to 1 is our goal. Marc, did that answer your question?

It did. Very thorough. Thank you very much. Really appreciate it.

Thank you. I would now like to turn the floor back over to Jason Finkelstein for further questions.

Thanks, operator. So taking time into consideration, I'm just going to follow up with a couple of questions emailed by investors beforehand. So this question is for Mr. Tao. Coming from BesTV, can you comment on IPTV, over the top, mobile TV and Internet video service in China and how they fit into YOD's video on demand strategy?

Okay. I believe this is a good time to be a video content and mobile service (inaudible) in China. What we've seen from all that you mentioned, IPTV, OTT, mobile TV, we have started devising (inaudible) content [perform] in the market. What it translate into the great opportunity for YOD and for YOD, it's found its place to offering diversified content and particularly on the mobile devices synergies. And when we say mobile devices, we won't be mentioning -- everything focused the small smartphone, which is ideally using an implement bringing the content and service that using what drives to the fingertips on (inaudible) and screen size.

Thank you. For you, Grace. A prior press release from December 23 of last year stated that shareholder approval for the issuance of the remaining shares to Sun Seven Stars would be sought in Q1 2016. We are at the end of Q1 2016. Could you just give us an update on that?

All right, we will come back to that one. She may be on mute. Bruno, thank you for laying out (multiple speakers) plan. When can shareholders expect an update on all the existing deals that they've already heard of over the last several years, just in general?

We are still in the middle examining and trying to understand what announcement is being made and to substantiate that. If some of the announcement of that [debt] we need to -- some point in time make clarifications on that. So we are still in the middle of figuring this out. But certainly we spend a lot more time in figuring out how do we execute deals that are pertinent and relevant to our strategy of implementing the new business model with four verticals.

But going forward, I think it is our general intention to make less announcements. Certainly we need to keep very open and transparent communication to shareholders. We like to bundle multiple silos of information if they fit into same category. For example, building vertical one or building vertical two as a category and we like to also do a better job explaining to shareholders about this is part of vertical one building for example, this is part of vertical four building and why we are doing this. Short but sweet and concise to make sure to communicate -- we communicate to the investors so they are on par and updated with what we do.

Yes, I know investors appreciate short and concise. Shane, can you provide some color on your current role and involvement at YOU On Demand as it relates to other interests and events investors may have seen you participating in publicly?

First off, YOU On Demand is my baby and the Company couldn't be in better hands than it is with Bruno and the team that we are assembling now. As Bruno mentioned, about three, maybe even four years ago, we tried to do a deal together. It didn't come to fruition, but sometimes things are just about timing and this is the right time. So the timing was correct.

What you are now seeing is the Company, YOU On Demand, is going to have a complete metamorphosis as Bruno went through very diligently and much laid out the plans of what's happening. So I couldn't be more excited about what's the direction of the Company. But specifically the speed of which things are going to happen because, again, to reiterate what Bruno said, Sun Seven Stars independently has been working on this strategy for about three plus years now. So the bulk of enrolling, they've been gearing, getting things ready and now the fact that we have YOU On Demand coming together with Sun Seven Stars, again, we are extremely poised for growth and speed to get there, so that's extremely exciting.

If you are referring to my involvement with WWE, again, I have full support of the YOU On Demand Board and have capacity to do both.

Great. Thank you. Some more questions. Grace, are you there now?

Yes, apologies about the line earlier.

No problem. I'm just going to repeat that question one more time for investors. So a prior press release from December 23, 2015 stated that shareholder approval for the issuance of the remaining shares to Sun Seven Stars would be sought in Q1 2016, which we are obviously at the end of. Can you just give us a brief update on that?

Sure, Jason. And for no other reason than timing and logistics, I believe the Company will seek shareholder approval for these shares sometime in the second quarter. As we've stated in our most recent 10-K report, the first part of the transaction was funded in the first quarter.

Okay, thank you. And Bruno, finally, with the recent higher as CFO and now President of Commerce, are there plans or is there a need to hire additional headcount in the US or China and what about the need for capital expenditures, briefly?

Yes, we have to -- it's all about people, so about capable people. You know that Mr. Tao ran -- all the management we hire are what we believe the best in the industry. If I can reiterate for the investors who have not fully read the press release, Mr. Tao ran BesTV, which is to now China's number one, if not the world's number one IPTV operator with 40 million users and very, very profitable. Merged into a group now well north of RMB100 billion in market cap.

Bing, who joined us, used to be Chief Technology Officer for Cisco -- I may be wrong with some details, but in that area -- and who ran before joining us China's largest cross-border website, cross-border e-commerce website as CEO. Mei, who joined us, was financial controller for Microsoft China and being in important positions with various biggest IT companies worldwide for the China region. We intend to beef up and hire more headcounts and we are in the middle of doing this right now through Mr. Tao and the team to strengthen every vertical in every department we do.

So the capital needs, yes, we will be looking for more capital expenditure needs, but certainly we try to minimize it by turning ourselves into a shared and virtual model as much as possible. And certainly the Company is backed financially by the Sun Seven Stars group who had no debt and cash strong, but, yes, we will be looking for more capital needs in the months to come.

Great. Well, I think that is a good place to stop at this point. I want to thank management, I want to thank Marc Estigarribia from Chardan Capital Markets and all the investors participating and listening to the call today. I want to wish Shane good luck this weekend. Please get home safe, Shane. And we will host our Q1 2016 earnings call in about 45 days from now in mid-May. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.