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Executives

Edward Liu - Investor Relations

Fredy Bush - Chairman of the Board, Chief Executive Officer

Andrew Chang - Chief Financial Officer

Shan Zhu - Chief Operating Officer, Director

Analysts

Imran Khan - JPMorgan

Jason Helfstein - Oppenheimer & Co.

James Lee - Sterne Agee

Spencer Leung - UBS

Phillip Chow - UBS

Xinhua Finance Media Limited (XMFL) Q2 2008 Earnings Call August 18, 2008 8:00 PM ET

Operator

Thank you for standing by for Xinhua Finance Media’s second quarter 2008 earnings conference call. You may find a copy of the press release and earnings PowerPoint on the company’s website, www.xfmedia.cn, as well as on newswire services.

Our speakers today will be Ms. Fredy Bush, Chief Executive Officer; and Mr. Andrew Chang, Chief Financial Officer. After their prepared remarks, Fredy and Andrew will be available to answer your questions. Please note that Mr. Zhu Shan, Chief Operating Officer of XF Media, and John McLean, our internal legal counsel, is also present and available during the Q&A session.

Before we continue, please note that the discussion today will contain or may be deemed to contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company’s results may be materially different from the views expressed today. A number of potential risks and uncertainties were set out in the company’s public filings with the SEC. The company does not undertake any obligation to update any forward-looking statements except as required under applicable law.

As a reminder, this conference call is being recorded. A webcast of the conference call will be available on XF Media’s corporate website under the investor relations section.

I would now like to turn the call over to XF Media’s CEO, Ms. Fredy Bush. Please proceed.

Fredy Bush

Thank you. Thank you for joining us today for the company’s second quarter results conference call. Today we are pleased to report 69% year-over-year revenue growth for the second quarter. Our net revenue, adjusted EBITDA, and adjusted net income came in above expectations despite a challenging operating environment and we are raising our full-year guidance.

This is an exciting time for XF Media as we continue to make positive strides in China’s booming television and advertising markets. We expect our future growth to be driven by the expansion of our media assets and distribution channels, and the integration and coordination of such efforts across our operating groups.

Our television viewer demographics are very strong and combined with our existing core competencies, XF Media today can penetrate a large group of households in China, providing us with a strategic entry point to build on our advertising revenue base.

Although some advertising campaigns were postponed or cancelled due to the earthquake in mid-May, our overall business performed on track. The broadcast group continues to deliver high margins and we expect to further invest and expand our television assets with a particular focus on sports. We believe this will be a significant driving force for shareholder value going forward.

As mentioned previously, we are excited about growth opportunities with sports in China, evidenced by our recent hire of Richard Young from ESPN’s Star Sports. Richard heads our newly formed division, Xinhua Sports, focusing primarily on television content and distribution, but also including new media concepts in mobile and Internet.

In line with our 2008 growth strategy, we are beginning to see the benefit of the investments we are making. These initiatives are based on bundling our diverse product offering to sell a packaged consumer reach to the advertisers. For the second quarter of 2008, our reach to consumers through satellite television was approximately 200 million viewers in 35 major cities and 24 major advertisers by brand, representing 83 products. By year-end, our goal is to target 220 million viewers in 35 cities with 11 new advertisers by brand.

With many opportunities ahead, we look forward to an exciting second half in 2008 and we will continue to build on our market position as a leading media group in China.

With that, I would like to now turn the call over to Andrew Chang, CFO, for a more in-depth review of XF Media’s second quarter financial results and some insight into our expectations for the third quarter and full year 2008.

Andrew Chang

Thanks, Fredy and thank you to everyone on today’s call. We are happy to report strong results for the second quarter of 2008. Please note that all numbers are in U.S. dollars.

Now I will provide some detail on our financial results for the second quarter of 2008. Revenue for the second quarter of 2008 was $48.9 million, up 69% year over year from $29 million in the second quarter of 2007, or up 33% sequentially from $36.7 million in the first quarter of 2008.

The primary reason for the sequential increase are seasonality and significant growth in our broadcast and online businesses.

Adjusted gross profit, a non-GAAP measure defined as gross profit before amortization of intangible assets from acquisition for the second quarter of 2008 was $22.9 million, up 77% year over year from $12.9 million in the second quarter of 2007 or up 51% sequentially from $15.1 million in the first quarter of 2008.

Operating expenses composed of selling and marketing expenses and general and administrative expenses for the second quarter of 2008 were $16.9 million, up 87% year over year from $9 million in the second quarter of 2007, or down 13% sequentially from $19.3 million in the first quarter of ’08.

The year-on-year increase is mainly due to an increase in selling and marketing expenses in line with increased revenue and cost for Sarbanes-Oxley compliance. The 13% sequential decrease is primarily due to share-based compensation expenses that were mainly accounted for in the first quarter of 2008.

Adjusted EBITDA for the second quarter of 2008 was $10.7 million, up 97% year over year from $5.4 million in the second quarter of 2007, or up 248% sequentially from $3.1 million in the first quarter of 2008. The primary reasons for the sequential increase in adjusted EBITDA are seasonality and strong growth in our broadcast and online businesses. Chart seven provides adjusted EBITDA breakdown by business group.

Net income for the second quarter of 2008 was $0.8 million, down 66% year-on-year from $2.3 million in the second quarter of 2007, or up sequentially from net loss of $8.3 million in the first quarter of 2008. The primary reasons for the year-on-year decline are net interest expenses, tax expenses, and higher costs to support Sarbanes-Oxley compliance.

Adjusted net income for the second quarter of 2008 was $7.6 million, up 22% year-on-year from $6.3 million in the second quarter of 2007 or up 437% sequentially from $1.4 million in the first quarter of 2008.

Our adjusted net income per ADS on a fully diluted basis was $0.10 for the second quarter of 2008, exceeding our previous guidance of $0.07 to $0.09.

We have provided segmental analysis in our 6-K for our three business groups in [inaudible] for your reference. Adjusted EBITDA by segment is also provided in chart seven.

We had cash and cash equivalents, as well as short-term investments of $82.1 million at the end of the second quarter, compared with $94.5 million at the end of the first quarter. In the second quarter, net cash generated from operations was $7.6 million. The decrease in cash and cash equivalents was primarily due to the settlement of certain earn-out payments.

At the end of the second quarter, the number of weighted average ADS outstanding was 73.5 million compared to 72.3 million at the end of the first quarter.

For those who are interested in understanding the key drivers of the business groups, we provide key metrics for each business group in the appendix of our earnings PowerPoint, which is available online.

XF Media estimates its net revenue for the third quarter of 2008 will range from $52 million to $54 million. Third quarter adjusted net income per ADS is estimated to range from $0.11 to $0.12 per diluted ADS.

XF Media is raising its estimates of net revenue for full year ’08 to range from $198 million to $208 million, from the previously forecasted range of $195 million to $205 million.

Full year adjusted net income per ADS for 2008 is estimated to range from $0.33 to $0.35 per diluted ADS, from previously forecasted range of $0.31 to $0.33 per diluted ADS. This forecast reflects XF Media’s current and preliminary view, which is subject to change.

We would like to open the call now to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Imran Khan with JPMorgan.

Imran Khan - JPMorgan

Two questions; first, Fredy, you talked about that advertising cancellation due to the earthquake. Could you give us some color -- do you expect those advertising dollars to come back, and if so, when?

Secondly, Andrew talked about earn-out. Could you give us some sense how much earn-out you might have to pay during the second half of this year? Thank you.

Fredy Bush

Certainly. In terms of the ad dollars, I think it’s fairly well-known in the market that the earthquake did have an impact in terms of the amount of money people were spending on specific advertising campaigns. What happened is that a number of the companies took some of their advertising dollars and donated to the earthquake endeavors.

We expect in the second half with that behind us that ad dollars will go back to normal. And then we’re seeing just sort of on a macro level, I think it’s important for me to say that we are seeing overall ad dollars increasing and coming into China as we expected. That’s being driven by the Olympics, so the pie is very big and growing. So we are pretty optimistic about the second half as a result of what we are seeing in just overall dollars coming into the market.

And I’ll turn it over to Andrew to give you the earn-out payments.

Andrew Chang

Sure. We spent about $13 million in the second quarter for settlement of earn-out payments and we estimate for the second half of the year, we will spend between $15 million to $20 million in settling of certain earn-out payments in terms of cash, and another $15 million to $20 million in terms of share issuance.

Imran Khan - JPMorgan

Okay, great. Thank you.

Operator

Your next question comes from the line of Jason Helfstein with Oppenheimer.

Jason Helfstein - Oppenheimer & Co.

Four questions, the first just to tag on to Imran’s -- so is it fair to say that you could have lost $1 million or more in the broadcast segment because of the earthquake? That would be question one.

Then question number two -- so what drove the strength of print online as far as price? Was it more pricing or more number of contracts? And I know it’s in your appendix but I haven’t gotten a chance to look at it.

Question three, was there any incremental or one-time spending relating to projects that had broadcast in the quarter?

And then question four, your guidance for the third quarter and full year, Andrew, if you could give us what share count that’s based on. Thanks.

Fredy Bush

Sure. Let me start with the million or more in terms of television. Zhu Shan, can I turn that question to you?

Shan Zhu

You mean the increase of the revenue in the television side?

Fredy Bush

The question is in terms of revenue lost due to the earthquake, is it about $1 million or more in the television business?

Shan Zhu

Actually, for the loss of revenue in the television, [inaudible] for the [inaudible] that were doing the three days right after the earthquake, no advertising is allowed on the TV, so the direct loss is from those three days and that cost about RMB2 million to RMB3 million in revenue in contract terms.

And there was some indirect impact. Fredy mentioned that due to the earthquake, some advertisers will pull, will reallocate some of their advertising budgets to the donation to the earthquake affected areas. So that part is indirect. However, as we sort of adjusted our sales strategy right after the earthquake, so that indirect impact actually is not that significant.

So to put it into short-term, basically the direct and the obvious loss is from the three days.

Fredy Bush

Okay, and then the second question, what drove the print online?

Andrew Chang

Maybe I’ll answer this question -- Jason, the key driver for the online business was driven by volume. There was a 72% increase in terms of volume for the online business and about 10% effective yield increase for the online business. And the key driver for this is because the macro real estate market in China is not very good. As a result of that, actually real estate developers have to spend more money in terms of marketing and advertising in order to sell their properties.

Fredy Bush

And then the third question --

Jason Helfstein - Oppenheimer & Co.

Okay, and on the cost?

Andrew Chang

Yes, actually for this year, we have been very careful in terms of our spending, so after the new newspaper that we launched in the first quarter, we haven’t really started any new projects. As you can see, that translates into our EPS [base] this quarter and we will continue to watch our spending carefully this year.

Fredy Bush

Does that answer your question on the incremental --

Jason Helfstein - Oppenheimer & Co.

Yeah, so basically in broadcast, any margin shortfall in our model is probably more revenue driven than expense driven -- there wasn’t any addition cost that you had in the quarter that we wouldn’t have known about is what it sounds like.

Fredy Bush

That’s correct.

Jason Helfstein - Oppenheimer & Co.

And then just lastly on the share count for both the guidance for the third quarter and the full year?

Andrew Chang

Yes, for third quarter, it is 79 million and full year is 83 million on a fully diluted basis.

Jason Helfstein - Oppenheimer & Co.

Okay. Thank you.

Operator

Your next question comes from the line of James Lee with Sterne Agee.

James Lee - Sterne Agee

I was wondering if you guys can talk about the post-Olympic impact on your business. It seems that you are guiding more positive than your peers, judging by your full-year guidance, I think 4Q over 3Q is up nearly 20%. I was wondering what are the key drivers going to 4Q, which verticals and which of your business segments most likely could benefit as a result?

And my second question is about the advertiser sentiment heading into 2009, especially given a potentially slowing economy, what is the general sentiment that you are seeing? Is it positive, [neutral], [inaudible]? And what do you think the healthier advertiser sentiment will impact spending on your media platform heading into 2009? Thank you.

Fredy Bush

Zhu Shan, do you want to take the first question?

Shan Zhu

Sure. Actually, we have just done a kind of meeting of all the senior management from the business units up to the Q2 [results there] and the main purpose of that meeting is to have a good analysis of all the situation in the rest part of the year.

The conclusion is actually despite all those events Fredy just mentioned, like the earthquake and the snowstorm and also the Olympics, the impact -- of course these events will have some negative impact on our business. However, at the same time, it will also have brought us some new business to us as well, so -- I mean, and the Olympic Games. So generally speaking so far, the impact is neutral and looking to the Q3 and Q4, we are actually quite positive. There are a number of reasons. First, if you are looking at the major business units in the group, one is the TV, the other is online and also the outdoor. If we compare the actual numbers with the budget numbers, basically they are all above the 60%. I mean, basically understanding we’ve achieved more than 60% during the middle of the year for the whole year’s budget, so -- especially for the online, the percentage is even higher, around 80%.

So this really leaves us for the rest part of the year forced to increase the numbers rather than just the hidden numbers.

And also the other thing is if we look at the contract value we have in hand, that’s a further sort of emphasize what I just said.

So the [inaudible] adjusted from the pure numbers and also if we look at the real business, we all understand that some businesses have withheld because of the Olympics, because of the earthquake. Actually, quite a lot of advertisers have a quite aggressive marketing plan right after the Olympics, because I guess one is they saved their money, don’t want to compete with the Olympic sponsors during the Olympic period, so after the Olympics it’s the time for them to step up their marketing efforts. On the other hand, they obviously need to think about their budgets for next year. So these are the two reasons we think, why we see this kind of trend.

So this has been shown especially in the events business line. We lost a couple of contracts in the first half of the year because of the two major events, the earthquake and the Olympics. However, we have seen a kind of an increase or catch-up of the business in the latter part of the year and there currently around the [key] events in the line for us to do involving some event organized by the local government and some events organized by -- not organized, basically for the financial institutions to promote their products as well.

And also, Andrew mentioned that is a real [after-market] because the market is [inaudible], because they really want to increase their advertising dollars to increase their business. And now we kind of see the same trend in the automobile industry and we see a steady increase of the contracts from this industry, especially in the radio business and also the TV business.

And the other thing I want to mention is we have done quite a good job in the integrated sales this year so far by integrating our media platform and also the sales force. So as the budgeted number we set for this team in the beginning of the year have basically accomplished and so -- actually yesterday, we just had that meeting to increase, upward adjusted objective for that team. So this will as well also help us to not only hit the number in the latter part of the year but also increase the numbers for us.

The other thing for the production side obviously the second half of the year is a very important period for us to get our TV dramas produced in the first half of the year to be distributed, and so we are very close to signing contracts, so this will also ensure basically the production team to meet their targets.

So that’s basically a quite detailed information at an operational level what we are thinking about what we are going to do in the latter part of the year and [inaudible] how we are going to hit and also over-perform the budgeted numbers.

Fredy Bush

And then moving on to your question about 2009, I think we feel equally optimistic about where advertisers are coming from. I think the Olympics event is a great event. China has done an excellent job. Advertisers are very excited about being in front of the largest emerging nations in the world. With all of the people who have come here, they are beginning to see and realize how dynamic this market is. They are beginning to see that there is a large wealthy population and the population, those that are upwardly mobile is significant.

So what we are kind of seeing in terms of advertise sentiment for China is a real excitement about not only that they came to the market because of the Olympics but that many of them really want to stay and build a presence in this market. So we’re -- I would say we’re fairly optimistic that the year-on-year growth we’ve been seeing in advertising has been averaging about 25% a year and we believe that that will continue.

James Lee - Sterne Agee

Can I ask a follow-up question about the post-Olympics? I’m sorry, Zhu Shan, you sort of broke up a little bit. You say the drivers for your business [inaudible] going into fourth quarter you think will be TV, you indicated 60% year over year online, 70% year over year. And the key verticals that you are seeing or the drivers for the quarter were financials and the auto sector, right? I just want to make sure I got that clear.

Shan Zhu

Yes.

James Lee - Sterne Agee

Okay, and let me ask you a question regarding the visibility into fourth quarter -- can I get a sense of how much of the full year guidance that you’ve [passed] in terms of revenue guidance is currently in your backlog already? In other words, the revenue guidance you have for full year that’s already signed by the advertisers?

Shan Zhu

I actually mentioned the specific number when I said by the middle of the year how much we’ve already achieved vis-à-vis the budgeted number, especially on the three major contributors in our group. And also I kind of mentioned about the contract value. We feel very comfortable on all the business lines, including the three major contributors -- I mentioned the TV side, online, and also outdoor. And we had a period of time worrying whether these advertisers would also look to fall for the advertising campaign because of the summer events. As you see, that’s the -- the Olympics is about to end and so there’s no sign of pulling back those advertising campaigns, so this is going to give us a very good encouragement as in terms of the contract value, we feel very comfortable and as I mentioned, our objective from the operational side is not only just to hit the numbers but actually out-perform.

James Lee - Sterne Agee

Let me ask you one follow-up question and then I’ll go back to the queue. I don’t want to hold up the line -- the guidance in 4Q once again is much more positive than your peers. Was this something maybe specifically to your company on the regional basis, maybe within the Mongolia region? Maybe there’s a certain economic growth that’s causing you to be more optimistic than your peers? Or actually this development as a kind of nationally overall growth for the [inaudible]?

Fredy Bush

If I may, James, I think that maybe the difference is that we have a very diversified platform where some of the peer groups are heavily weighted in say one to three revenue streams, so we’re really finding to Zhu Shan’s point about, particularly our integrated sales, we’re finding that advertisers very much like the platform. They like that they can advertise across television, radio, print and so forth.

We also -- our integration process has been very successful, so the different business groups are now introducing advertiser clients to one another, which we didn’t -- which wasn’t taking place as effectively in the past. But I have read the results and the forecast of our peer group and my conclusion is that because we are more diversified, because we are very much in traditional media where most of the advertising dollars are spent -- if you look at television alone, about 70% of advertising dollars are spent there. If you look at television, print, radio and billboards, it’s more than 90% of the advertising dollars. And I think being more diversified is really having a significant impact on our business versus our peers.

James Lee - Sterne Agee

That’s great, and I will go back to the queue.

Fredy Bush

All right, Zhu Shan, go ahead.

Shan Zhu

Actually, I just to further mention in addition to our diversified platform, I should say that the team really also makes a difference. First is sort of as the sales [inaudible] you need to sort of predict what will happen right after some major events take place. And for the Olympics, we all know this kind of a long time ago so we really carefully redesigned our sales campaign strategy for ’08 and that really [inaudible] very well, or works very well. And also for the earthquake, we should also -- we also need to adjust our strategy right away. So I believe the team really have done a great job in terms of adjusting their strategy.

And the second point I wanted to make is also how is your relationship with your clients also matters. I mean, although some advertisers they have to reallocate their budget. However, if they have enjoyed a long-term working relationship with you and your team has done a lot of work to keep this contact, it will also make a great difference.

So I believe we have done a pretty good job in both sides in terms of just our sales strategy to really focus on those areas not impacted by the major events and sort of avoid some areas that will be affected by the major event and also sort of to keep the clients and continue to grow the relationship with the advertisers once something happens.

Operator

Your next question comes from the line of Spencer [Leung] with UBS.

Spencer Leung - UBS

I have a question on your cost side -- going into third quarter and fourth quarter, can we expect your SG&A stabilizing or taking out the net of the impact from your share-based compensation?

Andrew Chang

I think the answer is yes. I think the SG&A should be stabilizing and we would expect a general expansion in margin for second and fourth -- for the third and fourth quarter.

Fredy Bush

In terms of the share-based compensation, it was heavily weighted in the first quarter and does it stay fairly steady in the final two quarters?

Andrew Chang

Yes, from second quarter onward.

Spencer Leung - UBS

Thank you.

Operator

(Operator Instructions) Your next question comes from Phillip [Chow] with UBS.

Phillip Chow - UBS

Just very quickly, I was wondering about the -- what was the net finance cost interest --income interest expense of Xinhua Finance Media in Q2?

Andrew Chang

The way that we obtain RMB working capital is that we place U.S. dollar deposits into a bank offshore and we have our RMB loans on shore and those are the interests related to the onshore RMB loans.

Phillip Chow - UBS

So sorry, let me clarify -- I was just wondering the net interest payment of Xinhua Finance Media this quarter. What was the amount?

Andrew Chang

The amount, okay, right. It was -- the net interest expense was $700,000.

Phillip Chow - UBS

Right. Okay, thank you.

Operator

Your next question is a follow-up from the line of James Lee with Sterne Agee.

James Lee - Sterne Agee

It’s me again. For Andrew, let me ask you this question -- can you help us understand your guidance a little bit better? Can you talk about the gross margins heading to the third quarter and maybe directionally by business segment so we can get a sense which of your business lines are getting the most benefits from margin expansion?

And also this question is for Zhu Shan -- can you give us an update on your wireless strategy? It seems like you guys made the acquisition I believe last year, spent quite a bit of money on it and the revenue has been kind of stable but what are you doing specifically on the R&D side to really drive growth in that business?

And the last question goes to Fredy -- can you update us with your acquisition strategy going forward? Where do you see opportunity for growth and where you can potentially make some accretive acquisitions? Thank you.

Fredy Bush

Sure. Are you still looking at your numbers?

Andrew Chang

Yeah, I’m ready for the first question.

Fredy Bush

Okay, go ahead.

Andrew Chang

In terms of the growth, again we are looking at the TV and the broadcast division driving the business. We are looking at something like 10% growth in gross margin in the next two quarters. And also we continue to see strong growth in our online and outdoor business for the rest of the year. And just to give you maybe a bit of color on the gross margin, our gross margin was about 43% for the second quarter and we are looking at something like 10% to 15% growth in the next two quarters.

Fredy Bush

And the Zhu Shan, do you want to talk about --

Shan Zhu

With regard to our mobile strategy, just two points; the first point is the mobile platform has already become an indispensable part of our overall integrated media platform, so we’re talking about TV, radio, print, magazine and newspaper, et cetera, and also outdoor. And we also have the wireless platform. So in our real world in XF Media, that unit has already become an integrated part of our multimedia platform and it is working very well.

In terms of how we are going to develop into the future, firstly there’s obviously [inaudible] will be increase the number of the mobile users in China and also the upcoming 3G technology in China. This will bring us a lot of opportunity, especially for the mobile unit.

And currently, we are sort of working on a number of lines and basically the first thing is we need to think about how to create powerful, integrated WAP advertising platform and so for that, we are working on that, according to the strategy we sort of worked out. And on the other hand, we are also working on some specific new products. For instance, we are working on one product which is related to the search, the mobile search, the wireless search.

And then the third point I want to make in our [inaudible] strategy is we need to think about how to introduce sort of for the advanced technology from the Western countries, especially in the U.S. into China so that we already can have a good match of the advanced technology in the U.S. and also our local client base and resources on the ground. And there is one project we are actually working on very closely with our U.S. partners.

Fredy Bush

And then in terms of acquisitions, opportunity and growth, as we have mentioned a few times in our announcements, as well as at the beginning of this call, we really believe that expanding our television business makes a lot of sense. As you can see from our numbers, the television business makes good margins. It grows significantly year-on-year. We particularly think there’s an opportunity for us in sports content relative to television. When you look at our [inaudible], it makes a lot of sense for us to move into sports because we have all of the pieces that would be required for us to use the sports content across our entire platform, from the television business to the mobile phone business, our newspapers and so forth.

So that’s what you will be seeing from the company over the next -- in the second half of the year and I would say going into 2009, is a definite expansion in our television business.

James Lee - Sterne Agee

Thank you. I have a follow-up question for Zhu Shan regarding wireless and one thing that you mentioned was doing a wireless search. I wonder if you can give more color about that, how you are going about it, what kind of application are you thinking of in terms of wireless search -- is it sort of conventional mass market wireless search where we have a search box, like a browser environment within the handset, or you just search for general terms?

And the second thing regarding wireless, I was thinking that you guys have so much financial content from your parent company that we can leverage onto the wireless platform. Is that something you are doing right now or is that something you plan to do in the future? If so, can you give us additional color about how you go about doing that? Thank you.

Shan Zhu

Actually, let me answer your second question first in terms of the finance content from the parent company, obviously that’s a valuable asset and we are actually working on that. As Fredy mentioned, the wireless is a kind of one platform for our content, and so in terms of content we are talking about the finance content from our parent and also the sports content that we are acquiring or about to acquire. So the wireless will become a [better] distribution platform for these tow content and we are working on a variety of products based on that strategy.

Going back to your first question about the searching product, actually it’s a combination of regular -- I don’t want to use “traditional” -- let’s say the regular sort of search engine basically to move the search assumption from Internet to wireless. And plus combine that with some traditional let’s say the Chinese [inaudible] efforts -- what I mean is to make use of the human resources and the database in China. So obviously we all know that wireless is -- let’s say China has more mobile users compared with those people hooked up to the Internet. So the mobile phone has become a part of people’s daily life, so while you want to get some information outdoors, like which restaurant you want to visit and which place you want to go and which place you want to find, so this type of information we sort of use a method to combine the regular search engine and some support from a team, a human team to provide the accurate information to the mobile user. So the difference, the key here is the accurate information.

Did that answer your question, James?

James Lee - Sterne Agee

Yes. Thank you.

Operator

Your next question comes from Jason Helfstein with Oppenheimer & Co.

Jason Helfstein - Oppenheimer & Co.

Fredy, I didn’t hear you mention anything about production in the [Sinomedia] joint venture that you are working on. I don’t know if it’s because I got on the call late but is there any update to that and will that provide any revenue in the back half of the year? Thanks.

Fredy Bush

The film group has a number of projects that they are working on. They have signed non-legally binding letters of intent. I don’t think you will see any revenue from it in the second half. You will see the revenue most likely in the first half of ’09 but the project is moving along as we expected and in fact, there’s probably more projects than we initially thought we would be able to secure.

So we’re to the point where with those letters of intent, certain directors, movie starts and so forth need to sign up and then we move to a final document and begin our production services. Therefore my expectation is that you will see that revenue coming in in ’09.

Jason Helfstein - Oppenheimer & Co.

And so kind of magnitude wise, I mean, I don’t know, could that be an additional 5% of revenue next year, give or take?

Fredy Bush

I’m not prepared to tell you that yet. What I would like to do is see where the first project goes, because we are new to this business and then I can give you an indication as soon as we are that far along.

Jason Helfstein - Oppenheimer & Co.

Okay. Thanks.

Operator

At this time, there are no further questions in the queue. I would like to turn the presentation back over to Ms. Fredy Bush for closing remarks.

Fredy Bush

Thank you. Again, thank you for taking time to attend our quarterly announcement conference call. Please feel free to contact our IR team with any questions or information requests regarding the company. They can be reached at ir@xfmedia.cn. Thank you again and we look forward to speaking with you in November.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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Source: Xinhua Finance Media Q2 2008 Earnings Call Transcript
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