BEIJING, May 22 /Xinhua-PRNewswire/ -- Hurray! Holding Co., Ltd.
(Nasdaq: HRAY), a leader in artist development, music production and wireless music distribution and other wireless value-added services in China, today announced its unaudited financial results for the first quarter ended March 31, 2008.
(Logo: http://www.prnasia.com/sa/200611091912.jpg )
FINANCIAL HIGHLIGHTS:
Highlights for First Quarter 2008
-- Total revenues: $13.2 million, representing a decline of 16.7%
quarter-over-quarter and 19.5% year-over-year; below our previous
guidance of $13.5-14.5 million
-- Wireless value-added services ("WVAS") revenues: $11.0 million,
representing a slight increase quarter-over-quarter and a decline of
26.3% year-over-year
-- Recorded music revenues, which are from our record label businesses:
$2.2 million, representing a decline of 54.1% quarter-over-quarter
and growth of 47.9% year-over-year
-- Net income: $4.9 million
-- Adjusted EBITDA (a non-GAAP measure which is defined as income from
continuing operations before interest, tax, depreciation,
amortization, stock-based compensation, provisions for impairment of
goodwill and other intangible assets and gain on reduction of
acquisition payable): $1.3 million
-- Diluted earnings per ADS: $0.22
Commenting on the first quarter results, QD Wang, Chairman and CEO of Hurray! stated: "We missed our guidance for Q1 primarily due to the performance of our music business which was impacted by the cancellation of certain planned as well as anticipated concerts in preparation for the Beijing Olympics. However, our WVAS business stabilized and margins improved partly as a result of seasonal factors as well as improved operating efficiency. We further streamlined our organization structure to reduce our costs in an effort to get back on the path to profitability. We enjoy a strong cash position, which provides us with the financial resources to execute our strategy to become a leading entertainment content production and distribution house in China. "
BUSINESS RESULTS
Total revenues for the first quarter ended March 31, 2008 were $13.2 million, representing declines of 16.7% from $15.9 million for the preceding quarter, and 19.5% from $16.5 million for the first quarter in 2007.
Total wireless value-added services revenues were $11.0 million for the first quarter of 2008, representing a slight increase as compared to $11.0 million in the previous quarter and declines of 26.3% as compared to $14.9 million in the first quarter of 2007. Our short messaging services ("SMS") benefited from favorable seasonality with a number of holidays falling within this quarter, principally Chinese New Year offsetting declines in our interactive voice response business ("IVR ").
Recorded music revenues, which represent revenues of our controlled music companies Freeland Music, Huayi Brothers Music and Hurray! Secular Bird, were $2.2 million, representing a decline of 54.1% as compared to $4.9 million in the previous quarter and growth of 47.9% as compared to $1.5 million in the first quarter of 2007. Typically, the first quarter represents a seasonally low period in the music business and our activity was further reduced by the impact of event cancellations related to planning for the Olympics, which will be held in August. We now believe this situation will continue through the Olympics increasing uncertainty over the next few months.
Total gross margin was 36.5% for the first quarter of 2008 as compared to 28.5% for the previous quarter and 32.8% for the first quarter of 2007.
Gross margin for wireless value-added services was 35.0% for the first quarter of 2008, as compared to 26.9% in the previous quarter and 30.9% for the first quarter of 2007. Margins improved as we have higher margins in our SMS services compared to IVR.
Recorded music gross margin was 43.8% for the first quarter of 2008 as compared to 32.0% in the previous quarter and 51.0% for the first quarter of 2007.
Total gross profit was $4.8 million for the first quarter of 2008, representing growth of 6.9% as compared to $4.5 million for the previous quarter and a decline of 10.4% as compared to $5.4 million for the first quarter of 2007.
Total operating expenses were $4.7 million for the first quarter of 2008, representing a sharp decline of 87.4% as compared to $37.1 million for the previous quarter and growth of 7.3% as compared to $4.4 million for the first quarter of 2007. The decrease quarter-over-quarter is mainly due to the $31.1 million of impairment charges for our wireless business in the previous quarter.
As previously advised in our earnings release on March 6, 2008, we recorded a gain of $5 million from the agreed reduction of our final payable to the former shareholders in Shanghai Magma.
Income tax expense was $0.7 million in the first quarter 2008, as compared to $0.3 million in the first quarter of 2007, and benefit for $0.4 million in the previous quarter.
Net income was $4.9 million for the first quarter of 2008.
Adjusted income (loss) before interest, tax, depreciation, amortization and stock-based compensation (adjusted EBITDA), was $1.3 million for the quarter, an increase of 245.7% as compared with $0.9 million loss in the previous quarter and decline of 33.7% as compared with $1.9 million in the first quarter of 2007. Reconciliations of net income (loss) under U.S. generally accepted accounting principles (GAAP) and adjusted EBITDA are included at the end of this release.
Fully diluted earnings per ADS was $0.22 based on a weighted average of 21.9 million diluted ADSs for the first quarter of 2008. This figure compares to a loss per ADS of $1.45 based on a weighted average of 21.7 million diluted ADSs for the previous quarter and earnings per ADS of $0.04 based on a weighted average of 21.8 million diluted ADSs for the first quarter of 2007.
As of March 31, 2008, the Company had $67.4 million in cash and cash equivalents. In the first quarter we improved our cash flows as a result of improved collections and positive cash flows from operations.
BUSINESS HIGHLIGHTS
The Company continued to develop and promote our existing and new artists, as well as producing new music. Through our promotional activities, Hurray! managed to improve our market recognition. Some examples of our successes in the first quarter are:
-- Hurray! released a series of new songs, including 5 albums, and
launched successful marketing programs to promote the new releases
simultaneously over Internet and wireless platforms. Subsequently,
"We agreed" ("Wo Men Shuo Hao De") by Jane Zhang was awarded
"Annual Karaoke Hit Champion" in the 15 Year's Exquisite Fashion
Gala.
-- Hurray! artists, including Jane Zhang, Wenjie Shang, BOBO and
Yu Quan ,received awards for their outstanding performances at various
prestigious music award ceremonies in Asia, including the 15 Year's
Exquisite Fashion Gala, Beijing Pop Music Award, and Second Annual
China Mobile M.Music Award.
-- Hurray! Freeland was awarded the 'Annual Best New Media and Music
Production Company' for the company's excellent achievements and
Hurray! Freeland artists, including Jing Han, Peng Jiang, Li Hu and
Zhenyu Zhang, also received various awards at the Xinghai Music
Award - Pop Music Annual Award Ceremony in Guangdong province.
Recently, the company signed up Hongjie Ni, a well-known artist from
the popular sitcom 'The Legend of Martial Art' ("Wu Lin Wai Zhuan").
-- Concerts were successfully held in Beijing for Huayi Brothers Music
artists, including Wenjie Shang and Yu Quan.
We also launched 4 new titles on China Mobile's game portal, including "Speed Lullaby", "YY Cat Fatiao City Adventure", "My Missile Career", and "Night Legend".
Business Outlook
For the second quarter 2008, Hurray! expects its total consolidated revenues to be between $13 and $14 million.
Closing of sale of software and systems integration business
In April, 2008, the final regulatory approvals were received and the sale of this business segment to one of its primary institutional share holders, TWM Holding Co., Ltd., a wholly owned subsidiary of Taiwan Mobile, was completed. The definitive agreements to sell software and systems integration business unit were signed on October 8, 2007. A payment of $4.3 million was received on closing. Further amounts are receivable in accordance with the sales agreement contingent on collection of accounts receivable and subsequent performance of the business.
Late adjustments for wireless value-added services revenue from China Unicom
At the time of the release of our preliminary results for 2007 and the fourth quarter of 2007, the Company included estimates of gross revenue and operator's cost from China Unicom in respect of the fourth quarter of 2007 based on information available at that time and our historical experience. Subsequently, the final amounts provided by China Unicom for that quarter differed from the amounts estimated and the Company has incorporated these amounts into the Company's 2007 annual report. The effect is to reduce WVAS revenues by $854,000 and cost of WVAS revenues by $511,000 which reduced gross profit by $343,000 and increased net loss for the year ended December 31, 2007 by $251,000. These adjustments have been reflected in the fourth quarter of 2007 results shown on this release.
Conference Call
The Company will host a conference call to discuss the first quarter results at
Time: 9:00 pm Eastern Standard Time on May 22, 2008
or 9:00 am Beijing/Hong Kong Time on May 23, 2008
The dial-in number: +1-866-543-6408 (US)
+1-617-213-8899 (International)
Password: 83885644
A replay of the call will be available from May 23, 2008 until May 30, 2008 as follows:
+1-888-286-8010 (US)
+1-617-801-6888 (International)
PIN number: 38334475
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=1829395 or http://www.hurray.com.cn/english/home.htm .
About Hurray! Holding Co., Ltd.
Hurray! is a leader in artist development, music production and offline distribution in China through its record labels Huayi Brothers Music, Freeland Music, New Run Entertainment, and Secular Bird. The Company, through (Fly Songs), also organizes concerts and other music events in China.
Hurray! is also a leading online distributor of music and music-related products such as ringtones, ringbacktones, and truetones to mobile users in China through the full range of 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.
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 March As of December
31, 2008 31, 2007(1)
(in thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents $67,377 $65,979
Accounts receivable 13,304 14,691
Prepaid expenses and other current assets 3,383 3,119
Amount due from related parties 695 464
Current deferred tax assets 146 748
Inventories 276 293
Receivable on disposal of subsidiary 4,151 4,151
Total current assets 89,332 89,445
Deposits and other non-current assets 845 849
Property and equipment, net 1,476 1,636
Acquired intangible assets, net 4,949 4,971
Investment in equity affiliate 2,444 2,421
Goodwill 5,586 5,621
Non-current deferred tax assets 601 650
Total assets $105,233 $105,593
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $2,831 $3,575
Acquisitions payable 1,189 7,102
Accrued expenses and other current liabilities 2,947 2,906
Amount due to related parties 211 256
Income tax payable 278 211
Current deferred tax liabilities 464 417
Total current liabilities 7,920 14,467
Long term payable 28 32
Non-current deferred tax liabilities 580 845
Total liabilities 8,528 15,344
Minority interests 4,855 4,667
Shareholders' equity:
Ordinary shares 109 109
Additional paid-in capital 74,259 74,067
Retained earnings 8,654 3,752
Accumulated other comprehensive income 8,828 7,654
Total shareholders' equity 91,850 85,582
Total liabilities and shareholders' equity $105,233 $105,593
(1) December 31, 2007 balances were extracted from audited financial
statements.
Hurray! Holding Co., Ltd.
Unaudited Condensed Consolidated Statements of Operations
For the three months ended
March 31, December 31, March 31,
2008 2007 2007
(in thousands of U.S. dollars, except share
and per share data)
Revenues:
Wireless value-added services $11,000 $10,998 $14,935
Recorded music 2,245 4,894 1,518
Total revenues 13,245 15,892 16,453
Cost of revenues:
Wireless value-added services 7,148 8,043 10,313
Recorded music 1,261 3,326 744
Total cost of revenues 8,409 11,369 11,057
Gross profit 4,836 4,523 5,396
Operating expenses:
Product development 390 459 548
Selling and marketing 2,401 3,410 2,436
General and administrative 1,887 4,077 1,377
Provision for goodwill impairment -- 29,165 --
Total operating expenses 4,678 37,111 4,361
Income (loss) from operations 158 (32,588) 1,035
Other income 73 290 --
Interest expense -- (45) (45)
Interest income 354 545 612
Gain on reduction of acquisition
payable 5,000 -- --
Income (loss) before provision
for income taxes, loss from
equity investment and minority
interests 5,585 (31,798) 1,602
Income tax expense (benefit) 709 (378) 261
Net income (loss) before
earnings from equity investment
and minority interests 4,876 (31,420) 1,341
Equity in earnings of
affiliate, net of tax 26 (14) --
Minority interests -- (291) (115)
Income (loss) from continuing
operations 4,902 (31,725) 1,226
Discontinued operations:
Loss from discontinued
operations, net of tax -- -- (270)
Gain on sale of subsidiary,
net of tax -- 159 --
Net income (loss) $4,902 $(31,566) $956
Net income (loss) per
share-basic
Income (loss) from
continuing operations $0.00 $(0.01) $0.00
Gain (loss) from
discontinued operations -- $0.00 $(0.00)
Net income (loss) $0.00 $(0.01) $0.00
Net income (loss) per
ADS-basic
Income (loss) from
continuing operations $0.23 $(1.46) $0.05
Gain (loss) from
discontinued operations -- $0.01 $(0.01)
Net income (loss) $0.23 $(1.45) $0.04
Net income (loss) per
share-diluted
Income (loss) from
continuing operations $0.00 $(0.01) $0.00
Gain (loss) from
discontinued operations -- $0.00 $(0.00)
Net income (loss) $0.00 $(0.01) $0.00
Net income (loss) per
ADS-diluted
Income (loss) from
continuing operations $0.22 $(1.46) $0.05
Gain (loss) from
discontinued operations -- $0.01 $(0.01)
Net (loss) income $0.22 $(1.45) $0.04
Weighted average shares used
in calculating basic
Earnings (loss) per share 2,178,147,264 2,173,784,440 2,167,890,217
Weighted average ADSs used
in calculating basic
Earnings (loss) per ADS 21,781,473 21,737,844 21,678,902
Weighted average shares used
in calculating diluted
Earnings (loss) per share 2,188,284,394 2,173,784,440 2,177,185,265
Weighted average ADSs used
in calculating diluted
Earnings (loss) per ADS 21,882,844 21,737,844 21,771,853
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 including provisions for impairment, 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 provides 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 (loss) income from continuing operations under GAAP to adjusted EBITDA for the following periods:
For the three months ended
March 31, December 31, March 31,
2008 2007 2007
(in thousands of U.S. dollars,
except share
and per share data)
Income(loss) from continuing operations $4,902 $(31,725) $1,226
Add (deduct):
Interest expense -- 45 45
Income tax (credit) expense 709 (378) 261
Depreciation and amortization 807 821 804
Non-cash stock compensation credit
(expense) 191 (149) 167
Provisions for impairment of goodwill
and other intangible assets -- 31,070 --
Gain on reduction of acquisition
payable (5,000) -- --
Interest income (354) (545) (612)
Adjusted EBITDA $1,255 $(861) $1,891
For more information, please contact:
Christina Low F.S.
Investor Relations Officer
Tel: +86-10-84555566 x5532
Email: IR@hurray.com.cn
