500.com Limited (NYSE:WBAI)
Q1 2014 Earnings Conference Call
May 7, 2014 8:00 AM ET
Christian Arnell - IR
Man San Law - Founder, Chairman & CEO
Zhengming Pan - CFO
Lei Zheng - COO
Good morning and welcome to the 500.com First Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode.
At this time, I would like to turn the conference over to Christian Arnell. Mr. Arnell, please go ahead.
Thank you, Keith. Hello everyone and thank you for joining us today for 500.com's first quarter 2014 earnings conference call. The company's results were released earlier today and are available on the company's IR website at 500.com as well as PR newswire services. We apologize for the delay in the call as we are having some technical difficulties getting it started.
On the call today from 500.com are Mr. Man San Law, Founder, Chairman and Chief Executive Officer; Mr. Zhengming Pan, Chief Financial Officer; and Mr. Lei Zheng, Chief Operating Officer.
Mr. Law will discuss 500.com's business operations and company highlights, followed by Mr. Pan who will go through the financials and guidance. They will all be available to answer your questions during the Q&A session that follows.
I remind you that this call may contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control which may cause the company's actual results, performance, or achievements, to differ materially from those in the forward-looking statements.
Further information regarding these and other risks, uncertainties, and factor is included in the company's filings with U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information future events or otherwise expect as required under law.
I will now read Mr. Law's prepared remarks form in English.
Hello, everyone, and welcome to 500.com's first quarter 2014 earnings conference call. I am extremely pleased to report another strong quarter of growth as we begin 2014 on a solid footing.
Net revenues increased 127% year-over-year to $14.4 million as our business continued to gain momentum. We handed handedly beat guidance with total purchase amount surpassing $169 million, a 95% year-over-year increase. We continue to focus on our mobile strategy, which remains one of our key priorities we have set for our business.
Traffic continued to grow during the quarter with total active users surpassing 1.1 million, while purchase through our mobile channels increased accounting for 26% of total purchases made. With mobile purchases now approaching one-third of total purchases, we will continue to invest in R&D, marketing, and our innovative mobile services as we reach out to a new user base to reinforce our leadership position.
We are on the final preparation stages for our world cup marketing campaign and a series of promotional on TVs which we are very excited for. The campaign and promotional activities will include products such as interactive games to track more users.
In summary, with mobile users growing very rapidly in China, we will continue to invest in advertising and marketing to build our brand image and promote our services.
I am confident that our strategy and partnership will help to sustain our leadership position and create bigger value for the shareholders in the long run. We are excited about the market opportunity and are confident that we have put the right people needed to ensure future success.
Now, let me turn the call over Zhengming, who will go through financials.
Thank you, Christian. Let me now walk you through the major items from the first quarter of 2014. Net revenues were $14.4 million, a increase of 127.3% from the same period of last year and a decrease of 6.6% sequential. Total purchase amount grew 95.4% year-over-year to 159.7% and a decrease of 1.5% sequentially. The significant year-over-year increase in the net revenues was due to our increased marketing efforts and the positive effect of our listing last year.
The quarter-over-quarter decrease in revenues was due to the regular 8-day suspension of the lottery issuance by the Chinese Government during the spring festival holidays.
In terms of tax reporting, we are required to report our revenues at net level. In terms of day-to-day management we have paid close attention to total service fees, which is commission rate of the total purchase amount. In other words this is the amount that we make out of the total purchase amount that we sell.
For the first quarter, total service fees generated from sports lottery products were $18 million, which will be increased to 101.6% from the same period last year and a decrease 6.5% sequentially. The year-over-year increase and a sequential decrease was due to the year-over-year increase and a sequential decrease in total purchase amount.
Operating expenses were $9.7 million, a increase of 37.8% from the same period last year, and a decrease of 11.2% from last quarter.
Cost of services was $1.4 million, a increase of 60.4% from last year and 2.4% from last quarter. The increases were primarily due to the increase in total purchase amount.
Sales and marketing expenses increased to $3.4 million, a increase of 31.4% from the same period last year, and a 10.7% decrease from last quarter.
General and administrative expenses increased to $3.8 million, a increase of 33.1% from the same period last year, and a 10.5% decrease from the previous quarter. The year-over-year increase was due to the increase in the share-based compensation expenses associated with employees during the fourth quarter of 2013. The sequential decrease was mainly due to the year-end bonuses granted to company's employees during the fourth quarter of 2013.
Service development expenses were $1.1 million, a increase of 18.3% from the same period last year, and a 27.6% decrease from last quarter.
Operating profit decreased to 6.5% to $5.1 million sequentially.
Net income was $4.4 million during the first quarter of 2014.
Non-GAAP net income, which excludes share-based compensation expenses was $5.2 million.
Basic and diluted earnings per ADS attributable to ordinary shareholders were $0.13 and $0.12 respectively. Non-GAAP basic and diluted earnings per ADS were $0.16 and $0.15 respectively.
As of March 31, 2014, the company had cash and cash equivalents, restricted cash, and short-term investments $116.3 million compared with $118.6 million as of December 31, 2013.
Before we begin the Q&A, I would like to quickly address certain statements made in article some of you have seen in the Chinese media this morning. Firstly the Ministry of Finance is the ultimate regulator of China's lottery industry. We have obtained a relevant approval from the Ministry of finance relating to our online lottery business. The link to which can be found on their official website and we will be happy to provide this link to anyone.
Secondly, we have entered into commercial contact with a number of provincial sports lottery offenders which clearly laid out our roles and the responsibilities.
Lastly, the legitimacy of our business is indorsed by our legal counsels, whose opinions were field as an exhibit in our Registration statement S-1.
With that, I would like now open the call to questions now.
Thank you. In closing, and on behalf of the entire 500.com management team, we like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting the company in China please let us know.
Thank you for joining us today. This concludes our first quarter 2014 conference call.
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