omniture

Hurray! Reports Third Quarter 2006 Unaudited Financial Results

Hurray! Holding Co., Ltd.
2006-11-17 12:04 350334

BEIJING, Nov. 16 /Xinhua-PRNewswire/ -- Hurray! Holding Co., Ltd.

(Nasdaq: HRAY), a leader in wireless music distribution and other wireless

value-added services, artist development and music production, and wireless

value-added services management software in China, today announced its

unaudited financial results for the third quarter ended September 30, 2006.

FINANCIAL HIGHLIGHTS:

-- Total revenues: $18.0 million, decline of 1.7% quarter-over-quarter

and growth of 9.2% year-over-year, exceeding previous guidance of

$16.0 million to $17.0 million

-- Wireless value-added services revenues: $16.4 million, decline of 1.1%

quarter-over-quarter and growth of 8.0% year-over-year

-- Software and system integration services revenues: $0.1 million,

decline of 76.1% quarter-over-quarter and 93.3% year-over-year

-- Recorded music revenues, which are from the new record label

businesses we entered this year: $1.5 million, growth of 10.9% quarter-

over-quarter

-- Net income: $1.6 million, decline of 5.6 % quarter-over-quarter and

decline of 68.0% year-over-year

-- Adjusted EBITDA (a non-GAAP measure which is defined as earnings before

interest, tax, depreciation, amortization and stock-based

compensation): $2.1 million, decline of 5.4% quarter-over-quarter and

decline of 55.8% year-over-year

-- Diluted earnings per ADS: $0.07

Commenting on the third quarter 2006 results, QD Wang, Chairman and CEO

of Hurray! stated: "We are pleased to report a very solid quarter which

exceeded our previous estimate with only 1.1% sequential decline in wireless

revenues despite significant regulatory change and challenging operating

environment. Our core business has demonstrated remarkable resilience as a

result of our successful execution of multi-platform, multi-channel and multi-

operator strategies. Our effort throughout past year in solidifying business

foundations and building a strong new management team began to pay off."

BUSINESS RESULTS

Total revenues for the third quarter ended September 30, 2006 were $18.0

million, representing a 1.7% decrease over $18.3 million for the preceding

quarter, and a 9.2% increase from $16.5 million for the third quarter in

2005.

Total wireless value-added services revenues were $16.4 million for the

third quarter of 2006, a decline of 1.1% as compared with $16.6 million in

the previous quarter and growth of 8.0% as compared with $15.2 million in the

third quarter of 2005.

2.5G services revenues were $7.4 million for the third quarter of 2006,

representing a decline of 9.6% as compared with $8.1 million for the previous

quarter and a decline of 20.3% as compared with $9.2 million for the third

quarter of 2005.

Of 2.5G services, WAP revenues were $5.2 million, a decline of 6.2% as

compared with $5.5 million in the previous quarter and a decline of 41.1% as

compared with $8.8 million in the third quarter 2005. The decline of WAP

revenues in the quarter was a result of new regulations implemented in the

quarter mandating free trial periods and double reminders for subscription

based services

MMS revenues were $0.8 million, a decline of 40.6% as compared with $1.3

million in previous quarter, and a growth of 88.3% as compared with 0.4

million in the third quarter of 2005. The decline of MMS revenues in the

quarter was a result of new regulations implemented in the quarter mandating

free trial periods and double reminders for subscription based services

Java(TM) revenues were $1.4 million for the third quarter 2006,

representing growth of 8.6% as compared with $1.3 million in previous

quarter. We acquired Shanghai Magma at the beginning of the year and have

consolidated its operations since first quarter 2006.

2G services revenues were $9.0 million for the third quarter of 2006,

representing growth of 7.1% as compared to $8.4 million for the previous

quarter and an increase of 52.1% as compared to $5.9 million for the third

quarter of 2005.

Of 2G services, SMS revenues were $5.5 million for the third quarter of

2006, representing an increase of 19.1% as compared with $4.6 million in the

previous quarter and an increase of 62.6% as compared with $3.3 million in

the third quarter of 2005. The increase in SMS revenues was due to our

increased direct media advertising efforts commenced earlier.

IVR revenues decreased 10.4% to $2.6 million for the third quarter of

2006, as compared with $2.9 million for the previous quarter and increased

13.8% as compared with $2.3 million for the third quarter of 2005.

RBT revenues were $0.9 million for the third quarter 2006, representing

growth of 4.1% as compared with $0.9 million in the previous quarter, and

growth of 254.0% as compared with $0.3 million for the third quarter of 2005

Software and system integration services revenues were $0.1 million for

the third quarter of 2006, representing a decrease of 76.0% as compared with

$0.4 million for the previous quarter and a decrease of 93.2% as compared

with $1.3 million for the third quarter of 2005. The decline of software

revenue is due to continued delays by the mobile operators in expanding or

building out their 2.5G and 3G data infrastructure pending the issuance of 3G

licenses.

Recorded music revenues, which represent revenues of our controlled music

companies Hurray! Freeland Music and Huayi Brothers Music, were $1.5 million,

an increase of 10.9% as compared with $1.4 million in previous quarter. The

growth of recorded music revenues in the third quarter is due to increased

new releases by our two music label companies in the quarter.

Total gross margin was 37.5% for the third quarter of 2006 as compared

with 37.0% for the previous quarter and 51.1% for the third quarter of 2005.

Gross margin for wireless value-added services was 36.9% for the third

quarter of 2006, as compared with 36.0% in the previous quarter and 48.3% for

the third quarter of 2005.

Gross margin for 2.5G services was 48.2% for the third quarter of 2006,

as compared to 50.4% for the previous quarter and 61.9% for the third quarter

of 2005. The decrease in 2.5G gross margin was due to a revenue mix shift

from higher margin subscription based revenues to lower margin per-use based

revenues in response to the new regulations.

Gross margin for 2G services was 27.7% for the third quarter of 2006, as

compared to 22.1% for the previous quarter and 27.0% for the second quarter

of 2005. 2G gross margin expanded as revenues ramped up in the quarter.

Software and system integration services gross margin was 22.7% for the

third quarter of 2006, as compared to 48.9% for the previous quarter and

84.5% for the third quarter of 2005. Software gross margin contracted as

revenues decreased.

Recorded music gross margin was 45.1% for the third quarter of 2006 as

compared to 45.7% in the previous quarter, reflecting increased costs

associated with new releases.

Total gross profit was $6.8 million for the third quarter of 2006,

representing a decline of 0.3% as compared with $6.8 million for the previous

quarter and a decline of 19.8% as compared with $8.4 million for the third

quarter of 2005.

Total operating expenses were $5.6 million for the third quarter of 2006,

representing an increase of 1.9% as compared to $5.5 million for the previous

quarter and an increase of 38.1% as compared to $4.1 million for the third

quarter of 2005. The increase in operating expenses in the quarter is mostly

due to employee severance expenses associated with previously adopted cost

control measures.

Interest income for the third quarter of 2006 was $0.7 million the same

as the previous quarter. Income tax was $0.2 million for the third quarter of

2006, in line with the previous quarter.

Net income was $1.6 million for the third quarter of 2006, representing a

decrease of 5.6% as compared to $1.7 million for the previous quarter, and a

decrease of 68.0% as compared to $5.0 million for the third quarter of 2005.

Net margin was 8.9% for the third quarter of 2006 as compared to 9.3% for the

previous quarter and 30.5% for the third quarter of 2005.

Adjusted earnings before interest, tax, depreciation, amortization and

stock-based compensation (adjusted EBITDA), was $2.1 million for the quarter,

a decline of 5.4% as compared with $2.2 million in the previous quarter and a

decline of 55.8% as compared with 4.8 million in the third quarter of 2005.

Reconciliations of net income under U.S. generally accepted accounting

principles (GAAP) and adjusted EBITDA are included at the end of this release.

Fully diluted earnings per ADS were $0.07 based on a weighted average of

21.7 million diluted ADSs for the third quarter of 2006. This figure compares

to $0.08 based on a weighted average of 22.5 million diluted ADSs for the

previous quarter and $0.22 based on a weighted average of 22.5 million

diluted ADSs for the third quarter of 2005.

As of September 30, 2006, the company had outstanding 21.5 million basic

ADSs and 21.7 million fully diluted ADSs, excluding share options granted

above the average market value of Hurray! stock for the quarter as their

effect would have been anti-dilutive.

As of September 30, 2006, the company had $73.4 million in cash and cash

equivalents.

In the third quarter of 2006, Hurray! made the following progress in

strengthening its core wireless value added services:

-- Wireless value-added services revenues generated from the China Mobile,

China Telecom and China Netcom accounts grew to $11.2 million for the

quarter, representing 68.1% of total wireless value added services

revenues.

-- Wireless value-added services revenues generated from SMS, IVR, RBT,

MMS, and Java(TM) platforms grew to $11.2 million for the quarter,

representing 68.3% of total wireless value added services.

-- Wireless value-added services revenues generated from operator-

independent marketing, promotion and distribution such as Internet

marketing alliances, direct media advertising and handset vendor

partnerships reached approximately 30.8%, or $5.0 million, of total

wireless value-added services revenues.

The following tables compare key operating data for the company’s

wireless value added services business for the third quarter 2006 and third

quarter 2005:

Third quarter 2006 revenue breakdown by operator and by service platform:

China China China China

Unit: $ million Mobile Unicom Telecom Netcom Total

SMS $3.8 $1.7 $ -- $ -- $5.5

IVR 1.1 0.6 0.7 0.2 2.6

RBT 0.5 0.4 -- -- 0.9

2G Revenues 5.4 2.7 0.7 0.2 9.0

WAP 2.8 2.4 -- -- 5.2

MMS 0.7 0.1 -- -- 0.8

Java 1.4 -- -- -- 1.4

2.5G revenues 4.9 2.5 -- -- 7.4

Total $10.3 $5.2 $0.7 $0.2 $16.4

Third quarter 2005 revenue breakdown by operator and by service platform:

China China China China

Unit: $ million Mobile Unicom Telecom Netcom Total

SMS $0.3 $3.0 $ -- $ -- $3.3

IVR 1.5 0.6 0.2 -- 2.3

RBT 0.1 0.2 -- -- 0.3

2G Revenues 1.9 3.8 0.2 5.9

WAP 2.8 6 -- -- 8.8

MMS 0.3 0.1 -- -- 0.4

Java -- -- -- -- --

2.5G revenues 3.1 6.1 -- -- 9.2

Total $5.0 $9.9 $0.2 $ $15.1

Third quarter 2006 revenue contribution % by operator and by service

platform:

China China China China

Mobile Unicom Telecom Netcom Total

SMS 69.3% 30.7% --% --% 100.0%

IVR 41.4 24.3 26.7 7.6 100.0

RBT 58.7 40.5 0.3 0.5 100.0

2G Revenues 60.0 29.8 7.9 2.3 100.0

WAP 53.1 46.9 -- -- 100.0

MMS 86.8 13.2 -- -- 100.0

Java 100.0 -- -- -- 100.0

2.5G revenues 65.4 34.6 -- -- 100.0

Total 62.4% 32.0% 4.3% 1.3% 100.0%

Third quarter 2005 revenue contribution % by operator and by service

platform:

China China China China

Mobile Unicom Telecom Netcom Total

SMS 9.4% 90.6% --% --% 100.0%

IVR 66.6 26.8 6.6 -- 100.0

RBT 29.8 70.0 -- 0.2 100.0

2G Revenues 32.7 64.7 2.6 -- 100.0

WAP 32.0 68.0 -- -- 100.0

MMS 65.9 34.1 -- -- 100.0

Java 99.6 0.4 -- -- 100.0

2.5G revenues 33.6 66.4 -- -- 100.0

Total 33.3% 65.7% 1% --% 100.0%

BUSINESS HIGHLIGHTS

Hurray! continued executing its strategy to focus on music and game

related digital entertainment content, with the following highlights:

* Hurray! released a series of new songs, including:

-- “Don’t you think I am hurt enough” (Nan Dao Ni Hai Xiang Wo Shang

De Bu Gou Shen) by Zhang Zhenyu of Hurray! Freeland

Music.

-- “Husband PK Wife” (Lao Gong PK Lao Po) by Yang Chengang of Hurray!

Freeland Music.

-- “Tell Me If You Still Love Me” (Gao Su Wo Ni Hai Ai Wo Ma) by Chen

Xu of Hurray! Freeland Music.

-- “Our First Encounter” (Chu Ci Yu Ni Xiang Yu) by Ai Dai of Hurray!

Freeland Music.

-- “Body Language” (“Shen Ti Yu Yan”), “Personal Secret” (“Ge

Ren Mi Mi”), and “Girl in Your Dream” by Jane Zhang of Huayi

Brothers Music.

-- “I love Teresa Teng “ (“Wo Ai Deng Li Jun”) by Yu Quan and Jane

Zhang of Huayi Brothers Music in memory of late super pop star

Teresa Teng.

-- Latest single “I Love World Cup” (Wo Ai Shi Jie Bei) by Huang Zheng

of Huayi Brothers Music.

* Hurray! signed up S.Wing, an up-and-coming pop band in China, which

composed and produced the latest hit “QQ Love” (QQ Ai) by Hurray!

Freeland Music.

* Hurray! launched successful marketing programs to promote the new

releases simultaneously over Internet and wireless platforms.

Consequently, “Personal Secret” became popular hits and ranked Top 2

for many consecutive weeks in the second quarter on Baidu’s new

release music search platform. In addition, “I Love World Cup”

ranked Top 3

on Baidu’s top100 music search platform and “Don’t you think I am

hurt enough” ranked Top 15 on China Mobile’s music portal.

* Hurray! became official right owner of “Mice Love Rice” under PRC

copyright law through court ruling.

* Shanghai Magma, our wholly owned game developer and publisher now has a

portfolio of over 200 titles of in-house developed games covering six

major categories from action, puzzle, role-play, strategy, cards, to

sports games. In the third quarter, Magma games ranked No. 1 in China

in terms of revenues generated on China Mobile’s game portal.

* Music related revenues from ringtones, ringbacktones, and truetones

downloads or playbacks embedded in our WAP, MMS, SMS, IVR and RBT

services are approximately 40.0%, or $6.6 million, of total wireless

value-added services revenues for the quarter.

* Total music related revenues, representing revenues from our recorded

music and our wireless value-added services with music content, were

$8.1 million or about 45.0% of total revenues for the quarter.

Including revenues from mobile games, the percentage reached about 54%

in the quarter.

"In summary, over the past one year, we have not only significantly

strengthened the basic foundations of our core business, but also have built

clear market leadership in music and game development and distribution in

China. We will continue aggressively pursuing our vision to transform

Hurray! into a leading digital entertainment company." concluded Mr. Wang.

Business Outlook

For fourth quarter 2006, Hurray! expects its total consolidated revenues

to be between $17.0 and $18.0 million, reflecting our latest assessment of

the residual impact of new operator policies implemented in the third quarter.

Business Optimization Program

In the quarter, Hurray! completed the business optimization program that

started in the second quarter, realigning resources to new and growth areas

while cutting cost in certain areas of our business. The program has resulted

in an approximately 20% reduction in our total headcounts and has

significantly improved our operating efficiency.

Revision to Magma Acquisition Agreement

In order to bring Shanghai Magma’s talented management team onboard and

help manage overall Hurray! business, we agreed with the selling shareholders

of Magma to fix the remaining consideration payable under earn-out

arrangement at $10.5 million. Of which $4.5 million was paid in October 2006

and $6 million will be payable on December 31, 2007.

Note to the Financial Information

The financial information in this press release has been extracted from

the financial information prepared using the recognition and the measurement

basis of accounting principles generally accepted in the United States of

America.

Conference Call

The company will host a conference call to discuss the third quarter

results at

Time: 9:00 pm Eastern Standard Time on November 16, 2006

or 10:00 am Beijing/Hong Kong Time on November 17, 2006

The dial-in number: 866-362-4666 (US)

617-597-5313 (international)

Password: 94491794

A replay of the call will be available from November 16, 2006 until

November

23, 2006 as follows:

888-286-8010 (US)

617-801-6888 (international)

PIN number: 32481131

Additionally, a live and archived web cast of this call will be available

at:

http://phx.corporate-ir.net/playerlink.zhtml?c=187793&s=wm&e=1406655

or http://www.hurray.com/english/home.htm

About Hurray! Holding Co., Ltd.

Hurray! is a leading provider of music and music-related products such as

ringtones, ringbacktones, and truetones to mobile users in China through SMS,

IVR, RBT, WAP, MMS and Java wireless value-added services platforms over

mobile networks and through the Internet. The company also provides a wide

range of other wireless value-added services to mobile users in China,

including games, pictures and animation, community, and other media and

entertainment services.

In addition, Hurray! is a leader in artist development, music production

and offline and online distribution in China through its majority controlled

record labels Huayi Brothers Music and Hurray! Freeland Music.

Hurray! also designs, develops, sells and supports a service provisioning

and management software for mobile operators in China to manage wireless

value-added services.

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," "believes" 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: continued competitive pressures in China’s wireless value-added

services market; changes in technology and consumer demand in this market;

the risk that Hurray! may not be able to control its expenses in future

periods; Hurray!’s ability to succeed in the music development, production

and distribution business, with which it has only limited experience; changes

in the policies of the mobile operators in China or the laws governing

wireless value-added services; the state of Hurray!’s relationships with

China’s mobile operators and the risk that Hurray! may be subject to further

sanctions and penalties from them in future periods; and other risks outlined

in Hurray!’s filings with the Securities and Exchange Commission, including

its registration statement on Form F-1, as amended. Hurray! does not

undertake any obligation to update this forward-looking information, except

as required under applicable law.

Hurray! Holding Co., Ltd.

Unaudited Condensed Consolidated Balance Sheets

As of September As of December 31,

30, 2006 2005(1)

(Unaudited)

(in thousands of U.S. dollars)

Assets

Current assets:

Cash and cash equivalents $ 73,398 $ 75,959

Accounts receivable 15,095 18,089

Note receivable 238 --

Prepaid expenses and other current

assets 2,543 1,859

Amount due from related parties 1,173 --

Inventories 338 437

Total current assets 92,785 96,344

Deposits and other non-current assets 797 1,502

Property and equipment, net 2,200 2,536

Acquired intangible assets, net 6,146 3,312

Goodwill 38,230 23,026

Non-current deferred tax assets 169 140

Total assets $ 140,327 $ 126,860

Liabilities and shareholders’ equity

Current liabilities:

Accounts payable $3,669 $3,731

Acquisition payable 10,349 154

Accrued expenses and other current

liabilities 2,689 3,210

Amount due to a related party 60 202

Income tax payable 232 90

Deferred tax liability 614 248

Total current liabilities 17,613 7,635

Minority interests 3,242 605

Shareholders’ equity:

Ordinary shares 108 111

Additional paid-in capital 72,876 77,336

Retained earnings 44,138 39,899

Accumulated other comprehensive

income 2,350 1,274

Total shareholders’ equity 119,472 118,620

Total liabilities and shareholders’

equity $ 140,327 $ 126,860

(1) December 31, 2005 balances were extracted from audited financial

statements.

Hurray! Holding Co., Ltd.

Unaudited Condensed Consolidated Statements of Operations

For the three months ended For the nine months ended

September 30, September 30, September 30, September 30,

2006 2005 2006 2005

(in thousands of U.S. dollars, (in thousands of U.S. dollars,

except share and per share except share and per share

data) data)

Revenues:

2G services $ 9,016 $ 5,928 $ 23,964 $ 14,030

2.5G services 7,367 9,239 23,443 27,454

Software and

system

integration

services 88 1,305 1,102 4,894

Recorded music 1,520 -- 4,398 --

Total revenues 17,991 16,472 52,907 46,378

Cost of

revenues:

2G services 6,521 4,325 18,107 8,162

2.5G services 3,814 3,522 12,273 11,163

Software and

system

integration

services 68 203 740 1,144

Recorded music 834 -- 2,354 --

Total cost of

revenues 11,237 8,050 33,474 20,469

Gross profit 6,754 8,422 19,433 25,909

Operating

expenses:

Product

development 538 693 1,783 1,840

Selling and

marketing 3,256 2,500 9,108 7,109

General and

administrative 1,810 866 5,483 2,602

Total

operating

expenses 5,604 4,059 16,374 11,551

Income from

operations 1,150 4,363 3,059 14,358

Other income,

net 69 14 320 984

Interest

income, net 684 505 1,988 847

Income tax

expense (154) 147 (685) (567)

Minority

interests (139) (445)

Net income $ 1,610 $ 5,029 $ 4,237 $ 15,622

Earnings per

share, basic $ 0.0007 $ 0.0023 $ 0.0019 $ 0.0076

Earnings per

ADS, basic $ 0.07 $ 0.23 $ 0.19 $ 0.76

Earnings per

share,

diluted $ 0.0007 $ 0.0022 $ 0.0019 $ 0.0075

Earnings per

ADS, diluted $ 0.07 $ 0.22 $ 0.19 $ 0.75

Shares used in

calculating

basic

earnings per

share 2,151,930,540 2,198,890,426 2,202,374,600 2,049,306,075

ADSs used in

calculating

basic

earnings per

ADS 21,519,305 21,988,904 22,023,746 20,493,061

Shares used in

calculating

diluted

earnings per

share 2,172,347,707 2,245,871,775 2,222,587,080 2,092,878,817

ADSs used in

calculating

diluted

earnings per

ADS 21,723,477 22,458,718 22,225,871 20,928,788

The use of non-GAAP financial measures:

To supplement its consolidated financial statements presented in

accordance with generally accepted accounting principles (“GAAP”) in the

United States, Hurray! uses non-GAAP measures of operating results and net

income, including in this press release earnings before interest, taxes,

depreciation and amortization, and before stock-based compensation expense

("adjusted EBITDA"), which are adjusted from results based on GAAP to exclude

certain expenses. Hurray!’s management believes the use of these non-GAAP

financial measures provide useful information to both management and

investors by excluding certain expenses that are not related to the Company’

s operations. These non-GAAP financial measures also facilitate management’

s internal comparisons to Hurray!’s historical performance and our

competitors’ operating results. Hurray! believes these non-GAAP financial

measures are useful to investors in allowing for greater transparency with

respect to supplemental information used by management in its financial and

operational decision making. The presentation of this additional financial

information is not intended to be considered in isolation or as a substitute

for the financial information prepared and presented in accordance with

GAAP. Please see below financial table for a reconciliation of adjusted

EBITDA.

Reconciliation of net income under GAAP to adjusted EBITDA for the

following periods:

For the three For the nine

months ended months ended

September September September September

30, 30, 30, 30,

2006 2005 2006 2005

(in thousands of (in thousands of

U.S. dollars, U.S. dollars,

except share and except share and

per share data) per share data)

Net income $1,610 $5,029 $4,237 $15,622

Add:

Interest expense -- -- -- 27

Income tax expense 154 (147) 685 567

Depreciation and amortization 886 425 2,656 1,298

Non-cash stock compensation expense 158 387 21

Less:

Interest income (684) (505) (1,988) (874)

Adjusted EBITDA $2,124 $4,802 $5,977 $16,661

Source: Hurray! Holding Co., Ltd.
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