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Linktone Reports Unaudited Third Quarter2010 Financial Results
Nov 30, 2010 (05:11 PM EST)


BEIJING, Nov. 30, 2010 /PRNewswire-Asia-FirstCall/ -- Linktone Ltd. (Nasdaq: LTON), one of the leading providers of wireless interactive entertainment services to consumers in China, today announced its unaudited financial results for the third quarter ended September 30, 2010.

UNAUDITED RESULTS FOR THE THIRD QUARTER

  • Gross revenues of $19.8 million, representing 17% sequential increase compared with $16.9 million in the second quarter of 2010, and 43% year-over-year growth compared with $13.8 million in the third quarter of 2009.
  • Gross profit of $6.9 million, up 19% sequentially compared with $5.8 million in the second quarter of 2010, and growing 33% annually compared with $5.2 million in the third quarter of 2009.
  • Operating income of $1.0 million, compared with operating loss of $0.8 million for the second quarter of 2010 and loss of $0.1 million for the third quarter of 2009.
  • GAAP net income of $0.6 million, compared with $0.1 million in the second quarter of 2010 and $0.7 million in the third quarter of 2009.  
  • GAAP net income from continuing operations of $0.6 million, compared with $0.1 million in the second quarter of 2010 and $0.6 million in the third quarter of 2009.
  • GAAP net income per fully diluted American Depositary Share ("ADS") of $0.02, compared with break-even in the second quarter of 2010 and GAAP net income of $0.02 per fully diluted ADS in the third quarter of 2009.
  • Non-GAAP net income* of $0.7 million, compared with break-even in the second quarter of 2010 and $0.4 million in the third quarter of 2009.
  • Non-GAAP net income per fully diluted ADS of $0.02, compared with $0.00 in the second quarter of 2010 and $0.01 in the third quarter of 2009.
  • Cash and cash equivalents as well as short-term investments available for sale totaled $89.2 million, or $2.12 per fully diluted ADS, as of September 30, 2010, compared with $88.1 million as of June 30, 2010.

*Non-GAAP measures exclude share-based compensation expense and impairment charges. Please refer to the table at the end of this release titled "Non-GAAP Reconciliation" which provides a reconciliation between GAAP and non-GAAP financial measures.

RECENT BUSINESS DEVELOPMENTS

  • In September 2010, Linktone converted the mandatory convertible bond issued to it by PT Inti Idaman Nusantara ("IDN") into a 51% equity interest in IDN.  IDN, which has been renamed PT Linktone Indonesia, specializes in providing telecom value added services ("VAS") in Indonesia.

Chief Executive Officer Hary Tanoesoedibjo stated, "As a result of effective marketing initiatives and our efforts to differentiate our services during the highly competitive season of summer school vacation, we achieved another strong quarter, with revenue from all segments of VAS data-related services, audio-related services and sales of licensed edutainment and entertainment products achieved sequential growth. Our healthy cash balance remains a valuable asset as we continue to assess opportunities for growth, expansion and diversification."

THIRD QUARTER REVENUE MIX

Linktone's third quarter revenue mix includes VAS data-related services (SMS, MMS, WAP, and Java), VAS audio-related services (IVR and CRBT), sales of licensed edutainment and entertainment products, and others (casual game and enterprise services).

Data-related services revenue was $11.4 million, representing 58% of gross revenues, compared with $9.7 million or 58% of gross revenues for the second quarter of 2010. The sequential increase was primarily due to seasonal factors with business volume increasing during the summer school vacation period, as well as the contribution from PT Linktone Indonesia, in which Linktone acquired a majority stake during the quarter, as discussed above.

Data-related services breakdowns are as follows:

  • Short Messaging Services ("SMS") revenue represented 51% of gross revenues, which was unchanged compared with the second quarter of 2010.  SMS revenue was $10.0 million for the third quarter of 2010, compared with $8.6 million for the second quarter of 2010.  $0.5 million of the SMS revenue for the third quarter represents revenue generated by PT Linktone Indonesia in September 2010.  
  • Multimedia Messaging Services ("MMS") revenue represented 4% of gross revenues, compared with 2% for the second quarter of 2010. MMS revenue was $0.8 million for the third quarter of 2010, compared with $0.3 million for the second quarter of 2010.
  • Wireless Application Protocol ("WAP") and Java Gaming ("Java") revenue represented 3% of gross revenues compared with 5% for the second quarter of 2010. Java revenue was $0.6 million for the third quarter of 2010, compared with $0.8 million for the second quarter of 2010.

Audio-related services accounted for 20% of gross revenues, or $3.8 million, compared with 18% of gross revenues, or $3.0 million, for the second quarter of 2010. The sequential increase was primarily due to the seasonal factor as mentioned above.

Audio-related service breakdowns are as follows:

  • Interactive Voice Response services (IVR) revenue increased to 12% of gross revenues, compared with 11% for the second quarter of 2010.  IVR revenue was $2.3 million for the third quarter of 2010, compared with $1.8 million for the second quarter of 2010.  
  • Color Ring-Back Tones ("CRBT") revenue was 8% of gross revenues, compared with 7% for the second quarter of 2010.  CRBT revenue was $1.5 million for the third quarter of 2010, compared with $1.2 million for the second quarter of 2010.

Sales of licensed edutainment and entertainment products in several Southeast Asian countries accounted for 21% of gross revenues, or $4.2 million for the third quarter of 2010, compared with 23% of gross revenues, or $3.9 million for the second quarter of 2010.  

MARGINS, EXPENSES AND BALANCE SHEET

Linktone's key operating benchmarks and balance sheet items for the third quarter of 2010 include the following:

  • Gross profit margin was 36% of net revenues, or gross revenues minus business tax, similar with that for the second quarter of 2010, and decreased compared with 39% for the third quarter of 2009.
  • Operating income margin was 5% of net revenues, compared with operating loss of 5% of net revenues for the second quarter of 2010 and loss of 1% for the third quarter of 2009. The sequential increase was primarily attributable to our VAS unit, which experienced higher sales volume during the strong sales season.
  • Operating expenses were $5.9 million, compared with $6.6 million for the second quarter of 2010 and $5.2 million for the third quarter of 2009. The sequential decrease was primarily due to a $0.5 million decrease in the selling and marketing expenses.  Operating expenses were reduced by a reversal of provision for impairment, representing cash collected from a loan receivable against which a full provision of the total loan balance was made in 2007.
  • Selling and marketing expenses were $2.2 million, compared with $2.7 million for the second quarter of 2010 and $3.1 million for the third quarter of 2009.  The sequential decrease was primarily attributable to decreased, but more effective, marketing activities conducted by our VAS unit compared with the second quarter of 2010.
  • Product development expenses were $0.6 million, compared with $0.7 million for the second quarter of 2010 and $0.9 million for the third quarter of 2009.
  • Other general and administrative expenses were $3.1 million, compared with $3.2 million for the second quarter of 2010 and $1.6 million for the third quarter of 2009.
  • Other income was $0.4 million, compared with $0.1 million for the second quarter of 2010 and $0.02 million for the third quarter of 2009.  The sequential increase was primarily due to subsidy income received from the local government based on business and corporate income taxes paid in prior quarters and last year.
  • Income tax expense was $1.4 million, compared with income tax benefit of $0.01 million for the second quarter of 2010 and income tax expense of $0.03 million for the third quarter of 2009.  The sequential increase was due to an adjustment to prior years and current year tax provisions as certain expenses which had been treated as deductible expenses for tax purposes were deemed non-deductible by the local tax authority in September 2010.
  • Cash and cash equivalents as well as short-term investments available for sale, totaled $89.2 million as of September 30, 2010, compared with $88.1 million as of June 30, 2010. The increase in cash was due to positive cash flow generated from operations of $0.4 million, a foreign exchange gain of $0.4 million as cash held in RMB and Indonesian Rupiah strengthened against the U.S. dollar and $0.3 million additional bank loan.

FOURTH QUARTER 2010 OUTLOOK

For the fourth quarter ending December 31, 2010, Linktone anticipates gross revenues to be in the range of $20.0 million to $21.0 million including revenue from our VAS services, distribution of licensed products and other services.

USE OF NON-GAAP FINANCIAL MEASURES

The reconciliation of GAAP measures with non-GAAP measures for net income or loss and net income or loss per fully diluted ADS included in this press release is set forth after the attached financial statements.  Linktone believes that the supplemental presentation of adjusted net income or loss and net income or loss per fully diluted ADS, excluding the effect of share-based compensation expense and provisions for impairment and their reversals, provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis, independently of share-based compensation and items not indicative of Linktone's future ongoing operating results.  Thus, the non-GAAP financial measures provide investors with another method for assessing Linktone's operating results in a manner that is focused on the performance of its ongoing operations.  Linktone management also uses non-GAAP financial measures to plan and forecast results for future periods.  Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results located after the financial statements.

DISCONTINUED OPERATIONS

As previously reported, Linktone terminated its partnership agreement with the Chinese Youth League Internet, Film and Television Centre with regard to Qinghai Satellite Television and its partnership agreement with Tianjin Satellite Television in 2008.  In the attached financial statements, the results of these advertising arrangements are reported separately as discontinued operations for both current and prior periods for the purpose of focusing on continuing operations and providing a consistent basis for comparing financial performance over time.

CONFERENCE CALL

As previously mentioned, Linktone will host a conference call to discuss its third quarter 2010 results at 8:00 p.m. Eastern Time on November 30, 2010 (5:00 p.m. Pacific Time on November 30, 2010 and 9:00 a.m. Beijing/Hong Kong Time on December 1, 2010). The dial-in number for the call is 877-941-2068 for U.S. callers and 480-629-9712 for international callers. Company management will be on the call to discuss the quarterly results and highlights and to answer questions from participants. A replay of the call will be available through December 14, 2010. To access the replay, U.S. callers should dial 800-406-7325 and enter passcode 4384560#; international callers should dial 303-590-3030 and enter the same passcode.

Additionally, a live webcast of this call will be available on the Linktone web site at http://www.linktone.com/press_release.jsp.  An archived replay of the call will be available for 90 days.

ABOUT LINKTONE LTD.

Linktone Ltd. is one of the leading providers of wireless interactive entertainment services to consumers in China and Southeast Asian.  Linktone provides a diverse portfolio of services to wireless consumers and corporate customers, with a particular focus on media, entertainment, communications and edutainment.  These services are promoted through the Company's strong distribution network, integrated service platform and multiple marketing sales channels, as well as through the networks of the mobile operators in China and Indonesia.  Through in-house development and alliances with international and local branded content partners, the Company develops, aggregates, and distributes innovative and engaging products to maximize the breadth, quality and diversity of its offerings.  

FORWARD-LOOKING STATEMENTS

This press release contains statements of a forward-looking nature.  These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995.  You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," and similar statements.  The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: Linktone's ability to expand into Asian markets outside of China; changes in the policies of the People's Republic of China ("PRC") Ministry of Industry and Information and/or the telecom operators in China or in the manner in which the operators interpret and enforce such policies, including policies which reduce the prices the Company or Letang may charge customers; the risk that other changes in Chinese laws and regulations, including without limitation tax and media-related laws or laws relating to the usage of telecom value-added services, or in application thereof by relevant PRC governmental authorities, could adversely affect Linktone's financial condition and results of operations; Linktone's ability to cost-effectively market its services and products; the risk that Linktone will not be able to compete effectively in the telecom value-added services market in China or any new markets it enters such as the VAS market in Southeast Asia and the market for edutainment and entertainment products, for whatever reason, including competition or changes in the regulatory environment; the risk that Linktone will not be able to realize meaningful returns from its acquisitions or strategic partnerships or may be required to record additional provisions for impairments in the value of the Company's investments in such acquisitions or partnerships; the risk that Linktone will not be able to effectively manage entities that it acquires or effectively utilize their resources; and the risks outlined in Linktone's filings with the Securities and Exchange Commission, including its registration statement on Form F-1 and annual report on Form 20-F.  Linktone does not undertake any obligation to update this forward-looking information, except as required under applicable law.

Investor Relations

The Piacente Group, Inc.

Kristen McNally,

kristen@thepiacentegroup.com

Tel: 212-481-2050




LINKTONE LTD.

CONSOLIDATED BALANCE SHEETS

(In U.S. dollars, except share data)


December 31,

September 30,

2009

2010


(audited)

(unaudited)

Assets



Current assets:



    Cash and cash equivalents

79,477,153

80,548,656

   Restricted cash

-

567,071

    Short-term investments

19,702,747

8,668,799

    Accounts receivable, net

12,538,597

22,770,132

    Tax refund receivable

1,953,740

2,003,059

   Loans receivable from related parties

10,087,400

-

   Inventory

-

2,781,709

    Deposits and other current assets

2,382,402

3,288,201

    Deferred tax assets

1,176,933

870,041

Total current assets

127,318,972

121,497,668




Property and equipment, net

530,769

11,738,023

Intangible assets, net

106,039

5,430,074

Goodwill

12,084,212

20,729,407

Non-current assets held for sale

-

2,564,660

Deferred tax assets

23,264

141,249

Other long-term assets

364,276

18,270,377




Total assets

140,427,532

180,371,458




Liabilities and shareholders' equity



Current liabilities:



    Taxes payable

3,013,374

6,046,931

   Accounts payable, accrued liabilities and other payables

7,915,352

20,774,937

   Short-term loan

-

1,605,947

   Loan payable

-

3,896,558

    Deferred revenue

351,049

2,956,031

    Deferred tax liabilities

256,736

918,909

Total current liabilities

11,536,511

36,199,313




Long-term liabilities



    Other long term liabilities

-

5,969,169




Total liabilities

11,536,511

42,168,482




Shareholders' equity



Linktone Ltd. shareholders' equity:



     Ordinary shares ($0.0001 par value; 500,000,000 shares authorized, 420,756,430 shares and 421,130,130 shares issued and outstanding as of December 31, 2009 and September 30, 2010, respectively)

42,075

42,113

    Additional paid-in capital

137,838,890

137,533,401

    Statutory reserves

2,466,165

2,466,165

    Accumulated other comprehensive income:



       Unrealized gain on investment in marketable securities

437,250

452,120

       Cumulative translation adjustments

7,217,287

8,755,080

    Accumulated losses

(19,110,646)

(18,301,610)

Noncontrolling interest

-

7,255,707

Total shareholders' equity

128,891,021

138,202,976




Total liabilities and shareholders' equity

140,427,532

180,371,458





LINKTONE LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In U.S. dollars, except share data)


Three months ended

Nine months ended


September 30,

June 30,

September 30,

September 30,

September 30,

2009

2010

2010

2009

2010

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Gross revenues

13,828,853

16,871,810

19,780,932

46,858,738

55,603,486

Sales tax

(492,831)

(484,488)

(502,050)

(1,681,035)

(1,583,253)

Net revenues

13,336,022

16,387,322

19,278,882

45,177,703

54,020,233

Cost of services

(8,185,538)

(10,558,399)

(12,390,261)

(29,451,273)

(36,112,284)

Gross profit

5,150,484

5,828,923

6,888,621

15,726,430

17,907,949

Operating expenses:






    Product development

(931,718)

(717,857)

(581,933)

(2,530,779)

(2,120,917)

    Selling and marketing

(3,150,756)

(2,705,862)

(2,198,485)

(7,370,970)

(7,001,522)

    Other general and administrative

(1,553,203)

(3,227,486)

(3,157,567)

(6,016,645)

(8,674,526)

Reversal for impairment

395,257

58,628

36,914

395,257

110,190

Total operating expenses

(5,240,420)

(6,592,577)

(5,901,071)

(15,523,137)

(17,686,775)

Income/(Loss) from operations

(89,936)

(763,654)

987,550

203,293

221,174

Interest income

691,334

758,767

731,983

1,168,458

2,033,997

Other income

19,253

88,376

402,833

352,938

495,853

Income before tax

620,651

83,489

2,122,366

1,724,689

2,751,024

Income tax benefit/(expense)

(26,797)

14,636

(1,402,105)

(329,014)

(1,796,641)

Less: Net income attributable to non- controlling interest

-

(30,983)

(79,378)

-

(145,347)

Net income from continuing operations

593,854

67,142

640,883

1,395,675

809,036

Net income from discontinued operations

140,467

-

-

592,992

-

Net income

734,321

67,142

640,883

1,988,667

809,036

Other comprehensive income/(loss):

(79,248)

159,093

1,372,766

(150,599)

1,552,663

Comprehensive income

655,073

226,235

2,013,649

1,838,068

2,361,699







Basic income per ordinary share:






  Continuing operations

0.00

0.00

0.00

0.00

0.00

  Discontinued operations

0.00

0.00

0.00

0.00

0.00

   Total net income

0.00

0.00

0.00

0.00

0.00

Diluted income per ordinary share:






  Continuing operations

0.00

0.00

0.00

0.00

0.00

  Discontinued operations

0.00

0.00

0.00

0.00

0.00

   Total net income

0.00

0.00

0.00

0.00

0.00







Basic income per ADS:






  Continuing operations

0.02

0.00

0.02

0.04

0.02

  Discontinued operations

0.00

0.00

0.00

0.01

0.00

   Total net income

0.02

0.00

0.02

0.05

0.02

Diluted income per ADS:






  Continuing operations

0.02

0.00

0.02

0.04

0.02

  Discontinued operations

0.00

0.00

0.00

0.01

0.00

   Total net income

0.02

0.00

0.02

0.05

0.02







Weighted average ordinary shares:






   Basic

420,756,430

421,130,130

421,130,130

420,651,200

420,929,601

   Diluted

421,619,227

421,420,025

421,331,600

421,221,535

421,230,853







Weighted average ADSs:






   Basic

42,075,643

42,113,013

42,113,013

42,065,120

42,092,960

   Diluted

42,161,923

42,142,003

42,133,160

42,122,154

42,123,085





LINKTONE LTD.

NON-GAAP RECONCILIATION

(In U.S. dollars, except share data)


Three months ended

Nine months ended


September 30,

June 30,

September 30,

September 30,

September 30,

2009

2010

2010

2009

2010

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)







Net income

734,321

67,142

640,883

1,988,667

809,036

Stock based compensation expense

51,673

23,054

52,490

223,244

152,459

Reversal for impairment

(395,257)

(58,628)

(36,914)

(395,257)

(110,190)

Non-GAAP net income

390,737

31,568

656,459

1,816,654

851,305







Non-GAAP diluted income per share

0.00

0.00

0.00

0.00

0.00

Non-GAAP diluted income per ADS

0.01

0.00

0.02

0.04

0.02

Number of shares used in diluted per-share calculation

421,619,227

421,420,025

421,331,600

421,221,535

421,230,853

Number of ADSs used in diluted per-share calculation

42,161,923

42,142,003

42,133,160

42,122,154

42,123,085



SOURCE Linktone Ltd.