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  • paultradestoday paultradestoday Sep 8, 2008 11:10 AM Flag

    Citis Analyst's Update Investor Day

    Part of the Q&A delt with AR. here is Citis report of that aspect. I'm less concerned than I was about AR backlog because they are working on it but this is still bigger than it should be. About 1% will be uncollectable (~$3.2Million USD), not too bad. Compared with other advertisers such as GOOG and SINA their backlog is 2-3 times bigger.

    Here is the Citi note on the discussion:
    In a nutshell, Focus explained that the high AR is a function of
    1. Very fast revenue growth;
    2. The shifting revenue mix over the past 12 months as the company
    acquired Interactive Agencies on the Internet side, with their far longer
    payment cycles as compared to OOH, and
    3. Longer AR from the CGEN acquisition.
    More specifically, of the total A/R in 2Q of US$321.4m, Digital OOH accounted
    for 65%, and Internet was 35%.
    DSOs declined form 127 days in Q1, 124 days in 2Q08.
    Below were the key points management made:
    Digital OOH
     Commercial and Residential – Commercial and Residential saw in increase in
    A/R of US$25m QoQ in 2Q08. However, revenues increased US$25m QoQ
    as well. Focus explained that when they show an advertisement on the
    network and complete the service, they don’t collect the fees the next day;
    rather, the A/R cycle is about 90 days. So the DSOs in Residential and
    Commercial Networks is "not bad," according to management.
     In-Store – Including CGEN, In-Store has above-average DSOs. CGEN is the
    problem, management explained, and CGEN has US$10m A/R when Focus
    bought them in 1Q. In 2Q, A/R increased US$10m QoQ. CGEN had a very
    long cash collection cycle with their preexisting customers, and Focus
    explained its a gradual process to improve it.
    In summary, on the Digital OOH side, AR increased by US$35m, with revenues
    increasing by US$25m and accounts payable increasing by US$25m. In
    general, the AR cycle for Digital OOH side is 90 days.
    The Internet cash collection cycle is 120-150 days, significantly longer than for
    Digital OOH. As Internet has grown as a percentage of revenues, the DSOs
    have increased. As Internet growth has been particularly strong over the past
    12 months, the longer cycle has also meant that AR has increased.
    Focus stated that management will continue to focus on improving AR on the
    Internet side, and the balance of DSOs should come down gradually, but for
    investors to not expect DSOs to fall below 100-110 days outstanding. Focus
    wants to reduce DSOs, but the absolute amount of AR will grow as it grows
    revenues. Also, cash collection is better in 2H than 1H, so Focus should get an
    improvement in the next two quarters.
    Finally, Focus explained, with respect to the quality of their AR, that they
    provision receivables into three categories: 180-270 days; 270-360 and 360
    days+. This is their bad dept provisioning policy. Focus noted that Bad Debt
    is 1.2 to 1% of revenues, and they have not seen any deterioration here. Focus
    stressed that they work with large advertisers, and that their credit is good…

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