BEIJING, Nov. 21 /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 third quarter ended September 30, 2008.
(Logo: http://www.prnasia.com/sa/200611091912.jpg )
Financial Highlights
Highlights for the Third Quarter of 2008:
-- Total revenues: $13.5 million, representing an increase of 6.0%
quarter-over-quarter and a decrease of 0.7% year-over-year; higher
than our previous guidance of $12-13 million.
-- Wireless value-added services ("WVAS") revenues: $11.0 million,
representing an increase of 20.1% quarter-over-quarter and a
decrease of 3.0% year-over-year.
-- Recorded music revenues, which are from our record label businesses:
$2.5 million, representing a decline of 30.2% quarter-over-quarter
and an increase of 11.0% year-over-year.
-- Net loss: $9.2 million
-- Net loss included impairment charges totaling $6.1 million in
respect of our music business representing a goodwill impairment
charge of $1.7 million, an impairment loss for the investment in
music equity affiliate of $1.9 million for our recorded music
business as well as a write-down of $2.5 million on other acquired
intangible assets from this business and a foreign exchange loss of
$4.5 million on currency holdings.
-- Adjusted EBITDA*: $1.2 million
-- Diluted loss per ADS: $0.42
* A non-GAAP measure, which is defined as income from continuing
operations before interest, tax, depreciation, amortization,
impairment for goodwill and investment in music equity affiliate,
write- down of intangible assets, stock-based compensation, gains on
reduction of acquisition payable, reversal of Unicom liability and
foreign exchange loss.
Commenting on the third quarter results, QD Wang, Chairman and CEO of Hurray! stated: "After excluding the impact of impairment charges and foreign exchange losses, we achieved positive EBITDA in Q3. This was primarily due to the growth of our WVAS business which suffered in the previous quarter from the impact of the Sichuan earthquake and also benefited from the seasonal impact of summer holidays. Our music business also continued to be impacted by the national focus on the successful Beijing Olympics but since the beginning of the fourth quarter, we are gradually seeing a return of music promotions and events. We continue to focus on our new media strategies as we develop into a leading entertainment content production and distribution house in China."
Business Results
Total revenues for the third quarter ended September 30, 2008 were $13.5 million, representing growth of 6.0% from $12.8 million for the preceding quarter, and a decline of 0.7% from $13.6 million for the same quarter last year.
Total wireless value-added services revenues were $11.0 million for the third quarter of 2008, representing growth of 20.1% from $9.2 million in the previous quarter and a decline of 3.0% as compared to $11.4 million in the same quarter of 2007.
Recorded music revenues, which represent revenues of our controlled music companies Freeland Music, Huayi Brothers Music and Hurray! Secular Bird, were $2.5 million, representing a decline of 30.2% as compared to $3.6 million in the previous quarter and an increase of 11.0% as compared to $2.2 million in the same period of 2007.
Total gross margin was 30.9% for the third quarter of 2008 as compared to 36.4% for the previous quarter and 23.5% for the same period of 2007.
Gross margin for wireless value-added services was 26.4% for the third quarter of 2008, as compared to 29.8% in the previous quarter and 19.6% for the same period of 2007.
Recorded music gross margin was 51.2% for the third quarter of 2008 as compared to 53.4% in the previous quarter and 43.1% for the same period of 2007.
Total gross profit was $4.2 million for the third quarter of 2008, representing a decline of 9.9% compared to $4.6 million for the previous quarter, and growth of 30.9% as compared to $3.2 million for the same period of 2007.
We recorded a foreign exchange loss of $4.5 million, arising from the drop in the value of the Euro against the United States Dollar in the quarter. Earlier in the year we converted a substantial part of our dollar cash balances into Euro term deposits to improve yield as well as to protect against further dollar weakening. The recent highly volatile markets have seen the dollar strengthen as investors and financial institutions de-leveraged and we recorded a further exchange loss in the fourth quarter of $4.5 million. Currently we hold all non-Renminbi cash in United States dollars.
Total operating expenses, which included impairment charges of $ 4.2 million in respect of our music business were $8.7 million for the third quarter of 2008, representing an increase of 166.8% as compared to the total operating expenses of $3.3 million for the previous quarter, which benefited from the reversal of a liability to China Unicom of $1.56 million, and a decline of 43.0% as compared to the total operating expenses of $15.3 million for the same period of 2007, which included impairment charges of $9.6 million for our wireless business.
During the third quarter of fiscal year 2008, we performed impairment testing for the music business due to the continued challenging business conditions and reduction in number of concerts and other music events because of the focus on the Olympic Games in Beijing, coupled with the decline in the market price of the Company's common stock. This resulted in a $2.5 million write-down of the intangible assets, which is included in the "General and administrative" line item and a $1.7 million impairment of goodwill in the Unaudited Condensed Consolidated Statements of Operations. The Company used the income approach and market approach to determine the fair value. We also tested our investments in music equity affiliate for impairment and recorded a write-down of $1.9 million in the third quarter of fiscal year 2008.
The income tax benefit for the third quarter of 2008 was $0.4 million, as compared to an income tax expense of $0.3 million in the previous quarter and an income tax benefit of $0.1 million in the same period of 2007.
An additional gain of $0.2 million on sale of our systems integration business was recognized in the third quarter of 2008 due to additional cash received on the collection of the accounts receivable at the disposal date.
Net loss was $9.2 million for the third quarter of 2008.
Adjusted EBITDA was $1.2 million for the quarter ended September 30, 2008, as compared with an adjusted income of $0.8 million in the previous quarter and an adjusted loss of $1.3 million in the third quarter of 2007. Reconciliations of net income under U.S. generally accepted accounting principles (GAAP) and adjusted EBITDA are included at the end of this release.
Fully diluted loss per ADS was $0.42 based on a weighted average of 21.9 million diluted ADSs for the third quarter of 2008, as compared to the diluted earnings per ADSs of $0.07 based on a weighted average of 21.9 million diluted ADSs for the previous quarter, and a fully diluted loss per ADS of $0.53 based on a weighted average of 21.7 million diluted ADSs for the third quarter of 2007.
As of September 30, 2008, the Company had $65.9 million in cash and cash equivalents.
Business Highlights
Despite the previously mentioned impacts on our music business throughout Q3, we have consistently focused on developing our existing and new artists, as well as expanding our marketing and promotion channels. As part of our strategy to improve our music business through strategic initiatives and promotional activities, our affiliated music companies, Huayi Brothers Music, Freeland Music, New Run, and Secular Bird had the following successes in the third quarter:
-- Huayi Brothers Music and Secular Bird released a series of new
songs, including 2 compilations and 5 singles, and launched
successful marketing programs to promote the new releases
simultaneously over Internet and wireless platforms. Subsequently,
"You Are My Hero" by Yu Quan and "Listen To Me" by the
compilation theme songs from the popular reality-competition show
"Sprite My Show 2008" became popular hits in the third quarter.
-- Freeland Music signed up Jang Nara, a famous Korean artist, who had
her breakout role as a leading actress in both Chinese and Korean
popular television series Successful Story of a Bright Girl and
Bratty Princess. The company also released an EP, titled 'Most be
Loved' ("Zui Xiang Xi") by Zhao Ke in the third quarter.
Freeland's affiliate, Fly Songs, is expected to organize various
live performances for popular Hong Kong artists in the next quarter,
including Eason Chan's live performance in Tianjin City, Dave Wang
Chieh and Deric Wen Zhaolun's 'Hong Kong Classic Performance' in
Zhejiang province, and etc.
We also launched 10 new titles on China Mobile's game portal, including "Crazy Bricks", "Extreme Snowboarding", and "The Adventure of Mayadi". In Q4, we plan to launch 15 new titles.
Business Outlook
For the fourth quarter of 2008, Hurray! expects its total consolidated revenues to be between $14 and $15 million.
Hurray! To Make Strategic Investment in Taiwan's Seed Music Group Limited
On September 24, 2008, the Company announced the signing of definitive agreements to make a strategic investment in Taiwan's Seed Music Group Limited ("Seed Music"). Seed Music is a very well-known music production company which focuses on artist development, music production and offline distribution of music in the Asia Pacific, especially in China, Taiwan and Hong Kong. Its portfolio of artists includes some of the most popular singers in the Asia Pacific, such as Kenji Wu Ke Qun, and Guang Liang. Kenji Wu was nominated twice for the best Chinese male singer in Taiwan respectively at the 2006 and 2007 Golden Melody Awards.
Conference Call
The Company will host a conference call to discuss the third quarter results at
Time: 9:00 pm Eastern Standard Time on November 20, 2008, or
10:00 am Beijing/Hong Kong Time on November 21, 2008
The dial-in number: +1-866-270-6057 (US)
+1-617-213-8891 (International)
Password: 38718458
A replay of the call will be available from November 21, 2008 until November 28, 2008 as follows:
+1-888-286-8010 (US)
+1-617-801-6888 (International)
PIN number: 32782876
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=1995198 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, Secular Bird, and Seed Music Group. 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 Sept. As of Dec.
30, 2008 31, 2007(1)
(in thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents $65,867 $65,979
Accounts receivable 16,426 14,691
Prepaid expenses and other current
assets 4,966 3,120
Amount due from related parties 252 464
Current deferred tax assets 364 748
Inventories 275 293
Receivable on disposal of subsidiary 237 4,151
Total current assets 88,387 89,446
Deposits and other non-current assets 777 849
Property and equipment, net 1,209 1,636
Acquired intangible assets, net 2,353 4,971
Investment in equity affiliate 798 2,421
Goodwill 4,097 5,621
Non-current deferred tax assets 847 650
Total assets $98,468 $105,594
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $2,808 $3,575
Acquisitions payable 28 7,102
Accrued expenses and other current
liabilities 2,946 2,906
Amount due to related parties 210 256
Income tax payable 359 211
Current deferred tax liabilities 657 417
Total current liabilities 7,008 14,467
Long term payable 26 32
Non-current deferred tax liabilities 335 845
Total liabilities 7,369 15,344
Minority interests 5,059 4,667
Shareholders' equity:
Ordinary shares 109 109
Additional paid-in capital 74,769 74,067
Statutory reserve 6,503 6,503
Accumulated deficit (5,523) (2,751)
Accumulated other comprehensive income 10,182 7,655
Total shareholders' equity 86,040 85,583
Total liabilities and shareholders'
equity $98,468 $105,594
(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 For the nine months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
(in thousands of U.S. (in thousands of U.S.
dollars, except share and dollars, except share and
per share data) per share data)
Revenues:
Wireless value-
added services 11,032 11,368 31,217 39,040
Recorded music 2,494 2,247 8,315 5,595
Total revenues 13,526 13,615 39,532 44,635
Cost of revenues:
Wireless value-
added services 8,124 9,140 21,723 28,351
Recorded music 1,217 1,279 4,143 2,907
Total cost of
revenues 9,341 10,419 25,866 31,258
Gross profit 4,185 3,196 13,666 13,377
Operating expenses:
Product
development 242 506 838 1,570
Selling and
marketing 2,129 3,182 6,762 8,103
General and
administrative 4,635 1,989 8,908 5,064
Reversal of Unicom
liability -- -- (1,557) --
Impairment of
goodwill 1,710 9,614 1,710 9,614
Total operating
expenses 8,716 15,291 16,661 24,351
Loss from
operations (4,531) (12,095) (2,995) (10,974)
Other income 107 214 242 176
Foreign exchange
loss (4,472) -- (4,472) --
Interest expense -- (45) -- (134)
Interest income 579 585 1,398 1,769
Gain on reduction
of acquisition
payable -- -- 5,000 --
Loss before
provision for
income taxes,
equity in earnings
(losses) of
affiliate and
minority interests (8,317) (11,341) (827) (9,163)
Income tax expense
(benefit) (412) (103) 579 196
Net loss before
equity in earnings
(losses) of
affiliate and
minority interests (7,905) (11,238) (1,406) (9,359)
Equity in earnings
(losses) of
affiliate, net of
tax 1 (51) 34 (49)
Impairment of the
investment in
music equity
affiliate (1,871) -- (1,871) --
Minority
interests, net of
tax 294 (165) 102 (398)
Loss from
continuing
operations (9,481) (11,454) (3,141) (9,806)
Discontinued
operations:
Loss from
discontinued
operations, net of
tax -- (114) -- (613)
Gain on sale of
subsidiary, net of
tax 237 33 366 33
Income (loss) from
discontinued
operations 237 (81) 366 (580)
Net Loss ($9,244) ($11,535) ($2,775) ($10,386)
Net loss per
share-basic
Loss from
continuing
operations ($0.00) ($0.01) ($0.00) ($0.00)
Gain (loss) from
discontinued
operations $0.00 ($0.00) $0.00 ($0.00)
Net Loss ($0.00) ($0.01) ($0.00) ($0.00)
Net loss per ADS-
basic
Loss from
continuing
operations ($0.43) ($0.53) ($0.15) ($0.45)
Gain (loss) from
discontinued
operations $0.01 ($0.00) $0.02 ($0.03)
Net Loss ($0.42) ($0.53) ($0.13) ($0.48)
Net loss per
share-diluted
Loss from
continuing
operations ($0.00) ($0.01) ($0.00) ($0.00)
Gain (loss) from
discontinued
operations $0.00 ($0.00) $0.00 ($0.00)
Net Loss ($0.00) ($0.01) ($0.00) ($0.00)
Net loss per ADS-
diluted
Loss from
continuing
operations ($0.43) ($0.53) ($0.15) ($0.45)
Gain (loss) from
discontinued
operations $0.01 ($0.00) $0.02 ($0.03)
Net Loss ($0.42) ($0.53) ($0.13) ($0.48)
Weighted average
shares used in
calculating
basic
loss per share 2,187,509,840 2,173,757,575 2,184,148,576 2,171,677,000
Weighted average
ADSs used in
calculating basic
loss per ADS 21,875,098 21,737,576 21,841,486 21,716,770
Weighted average
shares used in
calculating
diluted loss per
share 2,187,509,840 2,173,757,575 2,184,148,576 2,171,677,000
Weighted average
ADSs used in
calculating
diluted loss per
ADS 21,875,098 21,737,576 21,841,486 21,716,770
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 adjusted EBITDA, which are adjusted from results based on GAAP to exclude certain expenses and non-recurring events. 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 from continuing operations under GAAP to adjusted EBITDA for the following periods:
For the three For the nine months
months ended ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30
2008 2007 2008 2007
(in thousands of (in thousands of
U.S. dollars) U.S. dollars)
Loss from continuing operations $(9,481) $(11,454) $(3,141) $(9,806)
Add (deduct):
Interest expense -- 45 -- 134
Income tax expense (benefit) (412) (103) 579 196
Depreciation and amortization 887 1,000 2,628 2,798
Non-cash stock compensation
expense 320 213 702 592
Foreign exchange loss 4,472 -- 4,472 --
Intangible assets write- down 2,455 -- 2,455 --
Impairment of goodwill 1,710 9,614 1,710 9,614
Impairment of the investment in
music equity affiliate 1,871 -- 1,871 --
Gain on reduction of acquisition
payable -- -- (5,000) --
Reversal of Unicom liability -- -- (1,557) --
Interest income (579) (585) (1,398) (1,769)
Adjusted EBITDA $1,243 $(1,270) $3,321 $1,759
