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Executives

Matthew Zhao - IR Officer

Chen Yuan Yuan - IR, Christensen IR

Haibin Charles Qu - Acting CEO

Yao Johnson Li - Acting CFO

Analysts

Eddie Leung - Bank of America

Hurray! Holding Co. Ltd. (HRAY) Q1 2010 Earnings Call June 2, 2010 ET

Operator

Good day, ladies and gentlemen, and welcome to your first quarter 2010 Hurray! Holding conference earnings call. (Operator Instructions)

And now, I'd like to hand the conference over to Matthew Zhao, Investor Relations Officer.

Matthew Zhao

Hello from Hurray! to Beijing. Our team today includes Mr. Haibin Charles Qu, is our Acting CEO; and Mr. Yao Johnson Li is our Acting CFO. And I am currently in charge of Investor Relations at Hurray!

I remind you that our conference call may include forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act. Although we believe that the expectations reflected in our forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct.

Further information about these and other risks are included in our filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions or otherwise except as required by law.

About 4:30 p.m. in New York on June 1, we issued our earnings release. So we assume you have taken a moment to look at it. First, it is Mr. Qu Haibin Charles, our Acting CEO.

Haibin Charles Qu

Thank you, Matthew. Hello, everyone, and thank you for joining our meeting today. Let's talk about the business.

The operating environment of WVAS industry remained tough in the first quarter, as a series of regulation which was enacted by the telecom companies in the fourth quarter 2009 essentially remain in case, so that will add up in the first quarter of this year.

I had mentioned in fourth quarter end of fiscal year 2009 earnings call. Same for first quarter after 2009, all the major telecom operators, including China Mobile, China Unicom, China Telecom, had refined their measures to further improving overall performance of billing quality and the custom discussion with WVAS service.

We understand that laws and regulations aimed at supporting the China government's efforts in claiming of the internet and various environments which could be beneficial for the healthy growth of the WVAS industry and market in future. But however, it may still adversely affect Hurray!'s WVAS performance in the short run.

Moving to our music business, we achieved over seven quarters increase in the gross profit from our recorded music business compared to last quarter of 2009, although the segment revenue remained stable, which could be attributed to the change of product mix and could also be a result of the continuous realignment of results among the business line we took on since middle 2009.

With the completion of the acquisition of Ku6 in late January, Hurray! had been committed in investing in online video portal operation for further transforming Ku6 to an influential internet video/audio media platform in China. In spite of the industry environment of Hurray!'s, with right business segments, it seems to be positive on long term prospects for the online audio-video business. Therefore, we will continue to invest and developing in this arena; however, we may encounter sizeable cash flows and pressure on operating results of Hurray's in the short run, as it showed in the operating results for first quarter 2010.

The sale of Huayi Brothers Music Corporation to Beijing Huayi Brother Media Corporation and the asset sale and purchase transaction with the Shanda Interactive Media which were announced on May 14 and June 1 respectively could be seen as part of Hurray's repositioning through (inaudible) or both.

We would like to share more details of the future through (inaudible) with you why it's become corporate.

So now, let's have our Acting CFO, Johnson Yao, who will briefly cover our first quarter financial results. Then we'll be going through your questions.

Yao Johnson Li

Thank you, Charles, and thank you all for joining our conference and earnings call today. In the first quarter of 2010, our total revenues decreased 42% from the first quarter last year, and an increased sequentially 10.6% from the fourth quarter. Revenue in the first quarter this year included $1.2 million as advertising revenues from Ku6. We began consolidating Hurray!'s financial results on February 1, 2010. So Ku6 is included only for the two months of February and March 2010.

Total wireless value added services revenues decreased 77.9% in the first quarter 2010 from the first quarter last year and decreased sequentially 24.4% from the first quarter. The decreases were mainly due to the tough short-term business environment in WVAS industries as mentioned by Charles.

Recorded music revenues in the first quarter remained stable with last year's first and fourth quarters. Gross profit for Hurray! was $3.2 for the first quarter 2010 compared with the a gross profit of $1.9 million in the first quarter 2009 and a gross profit of $1.2 million in the fourth quarter of 2009. The gross loss contributed by the recently acquired the Ku6 was $5 million in the first quarter this year.

The gross profit margin for Hurray! was a negative 46.9% in the first quarter compared with a positive 16.4% in the first quarter of the year and a positive 20.1% in the fourth quarter. The primary reason for the negative margin in the first quarter over the fourth quarter last year was a loss from the Ku6 business that was partly offset by higher margin performances in both wireless business and music operations.

Operating expenses, including the operating expenses of Ku6 of $2.0 million and one-time compensation expenses of $1.3 million, were $7.3 million for the first quarter 2010, up 47.2% from $5.0 million in the first quarter 2009, and up sequentially 17.3% from $6.3 million in the fourth quarter.

Net loss attributable to Hurray! was $10.4 million for the first quarter of 2010, mainly coming from the net loss of $7.1 million from Ku6 operations. The net loss in last year's first quarter was $2.1 million, and in the first quarter last year the net loss of $4.6 million. As a result, diluted loss per ADS was $0.37 in the first quarter, compared with the diluted loss of $0.09 in the first quarter year and the diluted loss of $0.21 in the fourth quarter last year.

As of March 31, 2010, the Company had $52 million in cash and cash equivalents.

We have come to the end of our prepared remarks. Now we will be happy to answer your questions.

Haibin Charles Qu

Hello, Mr. Solomon, we are going to answer the Q&A session. Please start.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Eddie Leung with Bank of America.

Eddie Leung - Bank of America

Could you share with us more color on your strategies in online video, both on the revenue side and on your cost side? And questions would be, how you will go to differentiate Ku6 from other sector video sites in China right now?

Chen Yuan Yuan

Hello, Eddie. This is Chen from Christensen. We are the IR company of Hurray!, and Mr. Qu and Johnson are going to answer your questions in Chinese, and I'm going to translate that back into English.

Yao Johnson Li

(Interpreted)

Chen Yuan Yuan

Well, first, currently the company is at a stage of integrating the entire investment of Ku6, and the company would like to transform Ku6 from just a video product into a radio and video product going forward.

Yao Johnson Li

(interpreted)

Chen Yuan Yuan

Now, Mr. Qu would like to add in more comments. First, Charles, today the radio and online radio and video business going to have a bright future in the coming few years.

Haibin Charles Qu

(interpreted)

Chen Yuan Yuan

And in this market there are enough growth room for a company like Ku6 to grow in the future.

Haibin Charles Qu

(interpreted)

Chen Yuan Yuan

Going forward, we are trying to integrate all the resources, and leverage from all the resources we have, also trying to improve the management efficiency of the company going forward, so that Ku6 will further develop in the future.

Haibin Charles Qu

(interpreted)

Chen Yuan Yuan

I think Eddie, does that answer your question?

Eddie Leung - Bank of America

Can I have one follow up question? I think the management mentioned that they would like to do more integration across different products. Should we expect the integration to actually extend to sum up the other subsidiaries under Shanda?

Haibin Charles Qu

(interpreted)

Chen Yuan Yuan

Well, Eddie, probably you already found out in yesterday's press release regarding the deal between Hurray! and Shanda. There is asset being transferred from Shanda to Ku6, and you would see the intention to integrate all the business which can create a strategy between Shanda and Ku6. And going forward, the management of Hurray!, we're trying to maximize the shareholders' value in the long-term and would take a open attitude to all the facts, create values for shareholders.

Haibin Charles Qu

(interpreted)

Chen Yuan Yuan

Charles added two points. The first one is that Hurray! as a (limiting) company would have independent Board of Directors, and all the management or all the operations exactly under the supervision of the Board.

Haibin Charles Qu

(interpreted)

Chen Yuan Yuan

Well, based on the first point added by Charles, he would like to say, going forward bear in mind that we are trying to focus on our business; bear in mind that we are going to create value for shareholders. So our choice is not only limited to the transactions between Hurray! and Shanda; we would take very open attitude to all the transactions or further plans, would create value for all the shareholders for Hurray!.

Operator

(Operator Instructions) There are no further questions in queue.

Matthew Zhao

All right, so we have come to the end of our answers to all the questions. So now Mr. Qu will like to give you our closing remarks.

Haibin Charles Qu

Thank you, Matthew. On behalf of everyone at Hurray! I thank you for your attention, especially for this early hours and for your investment, which has been very important to our development and to our potential for the success. As we evolve into a company that is focusing its energy aggressively developing Ku6 and related online radio business, we very much look forward to the day we will be reporting the attractive returns you expect from us. We expect to deliver.

So I think it's the time for communication. Thank you for the time.

Matthew Zhao

Okay. So that's the end of the conference call for third quarter of Hurray! in 2010. Thank you to everyone. Have a good night.

Operator

This concludes the presentation. You may now disconnect. Good day.

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