Ku6 Media Reports Unaudited Financial Results for the Third Quarter of Fiscal Year 2012

BEIJING, Dec. 7, 2012 /PRNewswire/ --  Ku6 Media Co., Ltd. ("Ku6 Media" or the "Company,"NASDAQ: KUTV), a leading internet video company, focused on User Generated Content ("UGC") in China, today announced unaudited financial results for the third quarter of fiscal year 2012, ended September 30, 2012.

Third Quarter 2012 Highlights ⁽¹⁾

• Total revenues were US$3.06 million (RMB19.21 million) in the third quarter of 2012, representing an increase of 0.9% from US$3.03 million in the second quarter of 2012 and a decrease of 27.7% from US$4.23 million in the third quarter of 2011.
• GAAP net loss was US$3.25 million (RMB20.43 million), as compared to a net loss of US$1.47 million in the second quarter of 2012 and US$12.98 million in the third quarter of 2011. Non-GAAP net loss, which the Company defines as net loss excluding share-based compensation expenses, was US$3.26 million (RMB20.46 million) in the third quarter of 2012, as compared to non-GAAP net loss of US$1.53 million in the second quarter of 2012 and US$12.52 million in the third quarter of 2011.
• Basic and diluted loss per ADS was US$0.07 (RMB0.44) in the third quarter of 2012, as compared to US$0.03 in the second quarter of 2012 and US$0.26 in the third quarter of 2011.
• Cash and cash equivalents were US$12.55 million (RMB78.84 million) as of September 30, 2012.
• Net cash used in operating activities was US$1.92 million (RMB12.07 million) in the third quarter of 2012, as compared to US$1.41 million in the second quarter of 2012 and US$8.81 million in the third quarter of 2011.
• In July 2012, the Company paid US$8.07 million (RMB50.73 million) to repurchase and immediately retire an aggregate of 269,409,276 ordinary shares and 79,717 ADSs.

Mr. Jeff Shi, Chief Executive Officer of Ku6 Media, commented, "I am pleased to announce our third quarter's earnings release. We have been focused on creating an interactive online video community based on our value generating user base and devoted to improving our user experience by improving our community. During the third quarter, we launched user growth system, revamped our major website, optimized the search and recommendation functions, and also enhanced our CDN system. Both the quality and quantity of our value generating users have been growing rapidly."

Third Quarter 2012 Financial Results

Total revenues were US$3.06 million (RMB19.21 million) in the third quarter of 2012, representing an increase of 0.9% from US$3.03 million in the second quarter of 2012 and a decrease of 27.7% from US$4.23 million in the third quarter of 2011.

In the second quarter of 2011, the Company started to generate advertising revenues primarily from performance advertising services using a system called Application Advertisement ("AA"). The performance advertising revenue was realized through an affiliated advertising agent which is under common control of Shanda Interactive Entertainment Limited, the Company's majority shareholder. The Company generated 94.6% of total revenues in the third quarter of 2012 through this affiliated advertising agent, as compared to 94.8% of total revenues in the second quarter of 2012.

Cost of revenues was US$3.66 million (RMB23.02 million) in the third quarter of 2012, remained flat compared to the second quarter of 2012, decreased 33.2% from US$5.48 million in the third quarter of 2011. Gross loss was US$0.61 million (RMB3.81 million) in the third quarter of 2012, as compared to a gross loss of US$0.63 million in the second quarter of 2012 and a gross loss of US$1.25 million in the third quarter of 2011. Non-GAAP gross loss, which is herein defined as a gross loss excluding share-based compensation expenses, was US$0.58 million (RMB3.63 million) in the third quarter of 2012, as compared to a non-GAAP gross loss of US$0.66 million in the second quarter of 2012 and US$1.22 million in the third quarter of 2011.

Operating expenses were US$2.85 million (RMB17.91 million) in the third quarter of 2012, representing an increase of 73.3% from US$1.64 million in the second quarter of 2012 and a decrease of 74.7% from US$11.28 million in the third quarter of 2011. Non-GAAP operating expenses, which is herein defined as operating expenses excluding share-based compensation expenses, were US$2.88 million (RMB18.11 million) in the third quarter of 2012, as compared to non-GAAP operating expenses of US$1.67 million in the second quarter of 2012 and US$10.85 million in the third quarter of 2011. The sequential increase was mainly attributable to (1) a net increase of US$0.61 million (RMB 3.82 million) in litigation expenses due to the second quarter reversal of accrued liabilities related to favorable settlements of copyright infringement and (2) a US$0.47 million (RMB2.95 million) change in bad debt expense due to the decreased collection of accounts receivable previously written down.

Operating loss was US$3.46 million (RMB21.71 million) in the third quarter of 2012, representing an increase of 51.9% from US$2.28 million in the second quarter of 2012 and a decrease of 72.4% from US$12.53 million in the third quarter of 2011. Non-GAAP operating loss, which reflects the exclusion of share-based compensation expenses, was US$3.46 million (RMB21.75 million) in the third quarter of 2012, as compared to the non-GAAP operating loss of US$2.34 million in the second quarter of 2012 and US$12.07 million in the third quarter of 2011.

Net loss was US$3.25 million (RMB20.43 million) in the third quarter of 2012, representing an increase of 120.9% from US$1.47 million in the second quarter of 2012 and a decrease of 75.0% from US$12.98 million in the third quarter of 2011. Non-GAAP net loss, which reflects the exclusion of share-based compensation expenses, was US$3.26 million (RMB20.46 million) in the third quarter of 2012, as compared to US$1.53 million in the second quarter of 2012 and US$12.52 million in the third quarter of 2011. The sequential increase in net loss was primarily attributable to (1) a US$0.73 million (RMB4.59 million) decrease in government subsidy benefits in the third quarter of 2012; (2) the US$0.61 million (RMB3.82 million) net increase in litigation expenses due to the second quarter reversal of accrued liabilities related to favorable settlements of copyright infringement and (3) the US$0.47 million (RMB2.95 million) of changes in bad debt expense. 

Net loss attributable to Ku6 Media was US$3.25 million (RMB20.43 million) in the third quarter of 2012, as compared to US$1.47 million in the second quarter of 2012 and US$12.98 million in the third quarter of 2011. Non-GAAP net loss attributable to Ku6 Media, reflecting the exclusion of share based compensation expenses, was US$3.26 million (RMB20.46 million) in the third quarter of 2012, as compared to the non-GAAP net loss attributable to Ku6 Media of US$1.53 million in the second quarter of 2012 and US$12.52 million in the third quarter of 2011.

Net loss attributable to Ku6 Media per basic and diluted ADS was US$0.07 (RMB0.44) in the third quarter of 2012, as compared to US$0.03 in the second quarter of 2012 and US$0.26 in the third quarter of 2011. Weighted average ADSs used to calculate basic and diluted net loss per ADS were 48.3 million in the third quarter of 2012, 50.2 million in the second quarter of 2012 and 50.2 million in the third quarter of 2011.

Adjusted EBITDA loss, which is herein defined as net loss attributable to Ku6 Media before interest income, interest expenses, income taxes, depreciation and amortization (excluding amortization and write-down of licensed video copyrights), further adjusted for share-based compensation expenses, equity in loss of affiliates and other non-operating items, was US$2.58 million (RMB16.23 million) in the third quarter of 2012, as compared to adjusted EBITDA loss of US$1.48 million in the second quarter of 2012 and US$10.58 million in the third quarter of 2011. The increase was primarily due to the increase in operating expenses.

As of September 30, 2012, the Company had US$12.55 million (RMB78.84 million) in cash and cash equivalents, compared to US$23.28 million as of June 30, 2012. The decrease was primarily due to the cash payment for share repurchase in the amount of US$8.08 million (RMB50.80 million) in the third quarter of 2012.

Recent Business Developments

The Company's Repurchase and Immediate Retirement of Ordinary Shares and ADSs

On July 12 2012, the Company's shareholders approved, at the Annual General Meeting, a repurchase (and retirement thereafter) of certain of the Company's outstanding shares. This repurchase was settled with cash on July 30, 2012. In this transaction, the Company repurchased and immediately retired in the aggregate 269,409,276 ordinary shares formerly held by Mr. Shanyou Li (the original founder and former CEO), Mr. Zhizhong Hao (Former Senior VP), Ms. Xingye Zeng (Former VP of Sales) and Kumella Holdings Limited (an investment entity controlled by Mr. Shanyou Li), at a price of US$ 0.0291 per share, representing a premium to the Company's current per share price (in total, such repurchase amounting to approximately US$7.84 million). The Company also repurchased and immediately retired 79,717 ADSs (each ADS representing 100 ordinary shares) held by Mr. Shanyou Li at a price of US$2.91 per ADS (in total, approximately US$0.23 million), which represented a premium to the then-current share price.

Given the volatile nature of the Company's per-ADS price as an appropriate measure of fair value and the susceptibility of the per-share price to significant changes on small trading volumes, the Company engaged with an independent financial advisor to assist its management in determining the appropriate range indicative of the fair value per ADS. The repurchase price paid fell within an appropriate indicative range of fair value. The Company recorded this transaction via a charge to additional paid in capital for the repurchase amount.

Cooperation with NetEase

In September 2012, the Company entered into an agreement with NetEase, Inc. ("NetEase,"NASDAQ: NTES), a well-known internet company in China. Pursuant to the agreement, Ku6 Media will provide technology support for the video related activities on NetEase's microblog platform, including video uploading and video sharing. Meanwhile, NetEase's microblog users will be given access to Ku6 Media video contents via embedded Ku6 Media video players.

Share Repurchase Program of 2011

Pursuant to a share repurchase program announced December 30, 2011, the Company's Board of Directors have authorized the Company to repurchase up to an aggregate of US$3.2 million of its outstanding ADSs from time to time following the date thereof, based on market conditions. As of September 30, 2012, the Company has repurchased 11,100 ADSs from open market under this program.

Conference Call Information

Ku6's management team will be hosting a corresponding conference call at 8:00am EST on Friday, December 7, 2012 (9:00pm Beijing time on the same day).

A replay will be available from 1:00am December 8, 2012 EST for 7 days.

A live and archived webcast of the conference call will also be available at http://www.media-server.com/m/p/z2v9kooi

About Ku6 Media Co., Ltd.

Ku6 Media Co., Ltd. (NASDAQ: KUTV) is a leading internet video company in China, focusing on User Generated Content ("UGC"). Through its premier online brand and online video website, www.ku6.com, Ku6 Media provides online video uploading and sharing service, video reports, information and entertainment in China. For more information about Ku6 Media, please visit http://ir.ku6.com.

Forward-looking Statements

This news 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 "believes," "could," "expects," "may," "might," "should," "will," or "would," and by similar statements. Forward-looking statements are not historical facts, but instead represent only the Company's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of its control. It is possible that the Company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Some of the risks and important factors that could affect the Company's future results and financial condition include: continued competitive pressures in China's internet video portal market; changes in technology and consumer demand in this market; the risk that Ku6 Media may not be able to control its expenses in the future; regulatory changes in China with respect to the operations of internet video portal websites; the success of Ku6 Media's ability to sell advertising and other services on its websites; and other risks outlined in the Company's filings with the Securities and Exchange Commission,including the Company's  annual report on Form 20-F. Ku6 Media does not undertake any obligation to update this forward-looking information, except as required under law.

About Non-GAAP Financial Measures

To supplement Ku6 Media's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Ku6 Media uses the following measures defined as non-GAAP financial measures by the SEC in evaluating its business: non-GAAP gross profit or loss, non-GAAP operating expenses, non-GAAP product development expenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP operating loss, non-GAAP net loss, non-GAAP net loss attributable to Ku6 Media and adjusted EBITDA loss.  We define non-GAAP gross profit or loss, non-GAAP operating expenses, non-GAAP product development expenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP operating loss, non-GAAP net loss and non-GAAP net loss attributable to Ku6 Media as the respective nearest comparable GAAP financial measure excluding share-based compensation expenses. We define adjusted EBITDA loss as net loss attributable to Ku6 Media before interest income, interest expenses, income taxes, depreciation and amortization (excluding amortization and write-down of licensed video copyrights), further adjusted for share-based compensation expenses, equity in loss of affiliates and other non-operating items. We present non-GAAP financial measures because they are used by our management to evaluate our operating performance. We also believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our consolidated results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies. A limitation of using non-GAAP financial measures is that non-GAAP measures exclude share-based compensation charges that have been and will continue to be significant recurring expenses in Ku6 Media's business for the foreseeable future.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP financial measures" at the end of this release.

Reconciliations of Non-GAAP results of operations measures to the nearest comparable GAAP financial measures (*)

(Amounts in thousands of United States dollars ("US$") and Renminbi ("RMB"), unaudited)

1.      Non-GAAP Gross Profit (Loss)

2.      Non-GAAP Operating Expenses

3.      Non-GAAP Product Development Expenses

4.      Non-GAAP Sales and Marketing Expenses

5.      Non-GAAP General and Administrative Expenses

6.      Non-GAAP Operating Loss

7.      Non-GAAP Net Loss

8.      Non-GAAP Net Loss Attributable to Ku6 Media Co., Ltd.

9.      Adjusted EBITDA Loss

*  For more information on the Non-GAAP financial measures, please see the section captioned "About Non-GAAP Financial Measures" in the earnings release.

SOURCE Ku6 Media Co., Ltd.