Hurray! Q2 2009 Earnings Call Transcript

Hurray! Holding Co., Ltd. (HRAY)

Q2 2009 Earnings Call

August 12, 2009 9:00 pm ET

Executives

Christina Low - Investor Relations Officer

Songzuo Xiang - Chief Executive Officer, Director

Xiaoqing Guo - Chief Financial Officer, Vice President, Financial Controller

Analysts

Lu Chang - Private Investor

Presentation

Operator

Welcome to Hurray!’s 2009 second quarter earnings conference call. (Operator Instructions) I will now turn the call over to Christina Low, Investor Relations Officer. Please proceed.

Christina Low

Thank you and welcome, everyone to the second quarter 2009 earnings call. During this call, Dr. Songzuo Xiang, our Chief Executive Officer, and Xiaoqing Guo, Vice President and Chief Financial Officer, will discuss Hurray!'s financial results for the second quarter and business operations. After their remarks, we will open the call for your questions.

Before we begin, I would like to remind you that during the course of this call we will be making forward-looking statements, which are subject to risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated. Such risks and uncertainties include but are not limited to those outlined in our filings with the SEC, including our registration statement on Form F-1.

We do not undertake any obligation to update this forward-looking information except as required under applicable law.

With that, let me now turn the call to Dr. Xiang.

Songzuo Xiang

Thank you, Chris. Thank you all for joining us today. Let me begin by reviewing the [inaudible] results of our scheduled realignment of resources [of our business lines] this quarter.

During the second quarter, we trimmed off certain WVAS channels which have very low or negative margins and we are beginning to see some progress in improving the overall margins of our business. We have delivered a growth in the record music revenues as a result of improved integration of content and channels.

We are pleased to report some progress and we will insist on improving on our overall business activities on a continuous basis. We hope to [inaudible] in the next few quarters and to further enhance the efficiency of our operations.

We hope to achieve an operational break-even in the foreseeable future.

We aligned our resources along business lines. It’s very important and we are confident it will help us [inaudible] the company’s condition and get the company well-positioned for further growth.

Though there is a lot more still to do, we remain very dedicated to this effort. We believe the company’s strong cash, complementary distribution platforms, and the large content base will present the company with more opportunities to achieve synergies going forward.

Now I would like to turn the call over to our CFO, Xiaoqing Guo.

Xiaoqing Guo

Thank you, Dr. Xiang and thank you all for joining our earnings conference call. For the second quarter, overall consolidated revenues decreased 16.3% to $9.8 million, but we are pleased to report that overall gross profit increased 9.2% to $2.1 million, resulting in a consolidated gross margin of 21.3% versus 16.4% in previous quarters.

Gross margin for value-added services were 26.7% for the second quarter of 2009 versus 17.5% in the previous quarter. Recorded music gross margin was 14.4% for the second quarter of 2009 versus 14% in the previous quarter.

We recognize that the manner in which we delivered many of our value-added services as well as seeking to improve the profitability of our business, resulting in [inaudible] recording a number of charges and costs in this quarter. Currently, we have been working on improving our margins and are beginning to see some progress in improving the margins from our business with China Unicom and China Telecom, which has [weighted down] our results over the past year also.

Due to the company’s recent realignment, we had a decline in revenue of 29.1% to $5.5 million during the second quarter. However, recorded music revenue increased 9.4% to $4.3 million.

As mentioned by Dr. Xiang earlier, we have implemented a resources alignment which resulted in non-recurring and non-cash expense items, including provisions for accounts receivable and other current assets of $3.3 million and [inaudible] of $3 million and a write-down for intangible assets of $3.5 million.

Furthermore, severance costs for the realignment of $0.4 million and several transaction costs related to the Shanda tender offer of approximately $1.3 million was also [inaudible] in Q2.

Adjusted EBITDA was negative $5.7 million for the quarter ended June 30 of 2009. Excluding additional provisions for accounts receivable and other current asset expenses related to the tender offer deal and severance costs was negative $1.3 million. After the impact of non-controlling interest, which demonstrates an improvement compared to the previous quarter.

Turning to our balance sheet, the company had $59.1 million in cash and cash equivalents.

That concludes my financial discussion. Now we would like to open up the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of [Lu Chang]. Please proceed.

Lu Chang - Private Investor

Hello. I am an investor in fact from China and I just -- yeah, I know Mr. Xiang, for he is a very famous economist but I just want to know -- how about what is your opinion about Hurray!, about the future of Hurray!? Because I think it’s an Internet -- wireless Internet era and I just wonder how Hurray! gets such a kind of [inaudible] and so much time, I just want to -- I care about the [inaudible] but I care more about the future. So can you give me some view about the future? Thank you.

Songzuo Xiang (Translation)

As reported, Shanda respects the work of Hurray! for [its management] and their efforts in finding Hurray!’s strategies in this direction and we believe that Shanda’s user base, resources, and [inaudible] will facilitate a continued execution of these strategies. We believe that Hurray! and Shanda share a common vision to be leaders in digital entertainment in which the complementary content distribution platforms and their large user base will present both companies with opportunities to achieve synergies going forward.

Recently, there is a major changes to the board members of Hurray! -- however, we are very focused to ensure that there is a solid foundation and we are satisfied with the current process. We will complete our scheduled realignment of resources among our business line in the second quarter and we will continue to monitor our overall business activities on a continuous basis.

Well, the board currently is reviewing into this and they will fully respect the management’s suggestions and all other suggestions, in particular, the investors, and they may make suitable adjustments going forward that may power up Hurray!'s further growth we may share with you when we have something substantive.

Going forward, we believe that the China economy is turning better and especially in the telecommunication industry, which is growing very fast. Hurray! has a better chance in this development of China, which is growing very particularly in a good way. The business and content and distribution channels of both companies can be a shared resources and by continuing with Shanda, we could continue our business through this realignment of business resources, which would help both companies to achieve further successes in the future.

Operator

You have a follow-up question from the line of Lu Chang. Please proceed.

Lu Chang - Private Investor

(Translation not Provided)

Songzuo Xiang (Translation)

Currently, Hurray! has two businesses -- one is a WVAS business and the other is the music business. We believe that through a realignment of resources in our business line, we could have a better opportunity in the business market. As we mentioned before, the WVAS market has experienced a very large change in the past where the operators have changed a policy frequently which actually results in a drop in business. Currently we have completed our realignment of business resources which this has enhanced our business management and operation efficiency. In the past, we have differences in booking our costs, which result in a drop of our gross profit. This also results in very low margins in different channels and business lines of our company. We have been working to resolve this problem.

Going forward, we will enhance our business lines, especially in our music business. We believe that Shanda has a lot of content and user base, which could provide a lot of assistance to Hurray!.

Currently we believe that our business line will be maintained and going forward, we will make suitable changes to our business lines and we will look into the contracts if we could further achieve success.

Currently Shanda, as a very mature and proven success company, they could provide a lot of assistance to Hurray!, especially in the management operations.

Operator

Ladies and gentlemen, the replay for this call will be available at 617-801-6888, as well as 888-286-8010. The access number is 85483627 and will be available until Friday, August 21, 2009. Thank you. This call has completed. You may now disconnect. Have a good day.

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