Hurray! Reports Preliminary Results for the First Quarter 2010

Jun 01, 2010, 20:57 ET from Hurray! Holding Co., Ltd.

BEIJING, June 1 /PRNewswire-Asia/ -- Hurray! Holding Co., Ltd. ("Hurray!" or the "Company", Nasdaq: HRAY), a leading company in online video portal operations, artist development, music production, wireless music distribution, and other wireless value-added services in China, today announced its preliminary unaudited financial results for its first quarter ended March 31, 2010.

    Highlights for the First Quarter of 2010

    -- Total revenues were $6.8 million in the first quarter 2010, down 42.0%
       from $11.8 million in the first quarter 2009 and up 10.6% sequentially
       from $6.2 million in the fourth quarter 2009.
    -- Advertising revenues from the recently acquired Ku6 operations were
       $1.2 million in the first quarter 2010 and included only the months of
       February and March 2010, since the transaction was completed in January
       2010.
    -- Recorded music revenues from the record label businesses were $3.9
       million in the first quarter 2010 and were essentially the same as in
       both the fourth quarter 2009 and the first quarter 2009.
    -- Wireless value-added services ("WVAS") revenues were $1.7 million in
       the first quarter 2010, down 77.9% from the first quarter 2009 and down
       24.4% from the fourth quarter 2009.
    -- Net loss attributable to Hurray! was $10.4 million in the first quarter
       2010.
    -- Net loss attributable to Hurray! per basic and diluted ADS was $0.37 in
       the first quarter 2010.
    -- Earnings before interest expense and interest income, income taxes,
       depreciation, and amortization ("EBITDA", a non-GAAP measure) was a
       negative $9.5 million in the first quarter 2010.

Commenting on the first quarter results, Mr. Haibin Qu, Acting CEO of Hurray! stated: "As part of the restructuring work we started in 2009, we are particularly pleased to have improved the profitability of our music business. Although the mobile telecom and related WVAS industry continue to be under a billing moratorium while they are being reviewed as directed by the Chinese government, we think those temporary measures will benefit the potential growth of the WVAS industry in the long run."

Business results

Hurray!'s total revenues for the first quarter ended March 31, 2010 decreased 42.0% to $6.8 million from $11.8 million in the first quarter 2009 and increased sequentially 10.6% from $6.2 million in the fourth quarter 2009. The revenues in first quarter 2010 included $1.2 million in advertising revenues from Ku6. Ku6's results began to be consolidated into Hurray!'s financial results beginning on February 1, 2010, so Ku6's results that are included in Hurray!'s first quarter 2010 results are only for the months of February and March 2010.

Total WVAS revenues decreased 77.9% to $1.7 million in the first quarter 2010 from $7.9 million in the first quarter 2009, and decreased sequentially 24.4% from $2.3 million in the fourth quarter 2009.

The continued decrease in WVAS business was mainly a result of the could-be temporary regulations, including suspending billing in certain major product categories, which were enacted by major telecom operators in the fourth quarter of 2009 and still remained in place as of March 31, 2010.

Recorded music revenues in the first quarter ended March 31, 2010, which represent revenues of Hurray!'s controlled music companies Freeland Music, Huayi Brothers Music (all Hurray!'s equity interest in Huayi Brothers Music was subsequently sold in mid-May 2010), Hurray! Secular Bird, and Seed Music, were $3.9 million and were essentially the same as in both the first quarter 2009 and the fourth quarter 2009.

Advertising revenues from the recently acquired Ku6, which has been consolidated in Hurray!'s financial statements from February 1, 2010 onward, were $1.2 million in the two-month period covering February and March 2010.

Gross loss for Hurray! was $3.2 million for the first quarter 2010 compared with a gross profit $1.9 million in the first quarter 2009 and a gross profit of $1.2 million in the fourth quarter 2009. The gross loss generated by the recently acquired Ku6 was $5.0 million in the first quarter 2010.

Gross loss margin for Hurray! was 46.9% in the first quarter of 2010 compared with the gross profit margin of 16.4% and 20.1% achieved in the first quarter 2009 and in the fourth quarter 2009, respectively.

Gross profit margin for the WVAS business was 28.1% for the first quarter of 2010 compared with 17.5% in the first quarter 2009 and 33.1% in the fourth quarter 2009.

Gross profit margin for the recorded music business was 35.1% for the first quarter of 2010 compared with 14.0% in the first quarter 2009 and 12.4% in the fourth quarter 2009.

Gross loss margin for the advertising business was 421.0% in the first quarter of 2010, as a result of the ongoing expense investment in online video operations with the acquisition of Ku6.

Operating expenses, including 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 2009.

Income taxes in the first quarter of 2010 were an expense of approximately $1,000 compared with a benefit of approximately $23,000 in the first quarter 2009 and an expense of approximately $6,000 in the fourth quarter 2009.

Net loss attributable to Hurray! was $10.4 million for the first quarter of 2010, including a net loss of $7.1 million from Ku6, compared with a net loss of $2.1 million in the first quarter 2009 and a net loss of $4.6 million in the fourth quarter 2009.

Diluted loss per ADS was $0.37 in the first quarter of 2010 compared with the diluted loss per ADS of $0.09 in the first quarter 2009 and the diluted loss per ADS of $0.21 in the fourth quarter 2009. Weighted average diluted ADS used to calculate diluted ADS per share was 27.9 million ADS in the first quarter 2010 and 22.0 million ADS in the first and fourth quarters of 2009.

EBITDA was a negative $9.5 million in the first quarter 2010 compared with a negative $1.4 million in the first quarter 2009 and a negative $4.5 million in the fourth quarter 2009. A reconciliation between net loss attributable to Hurray! under U.S. generally accepted accounting principles (GAAP) and EBITDA is shown at the end of this news release.

As of March 31, 2010, the Company had $52.6 million in cash and cash equivalents. The decrease of approximately US$ 4 million compared to the total cash, cash equivalent and short-term deposit as of December 31, 2009 is mainly a result of the operating loss from WVAS business and the continuous expense investment in Ku6.

Recent Business Highlights

On May 14, 2010, Hurray! announced that Hurray! has agreed to sell all of its equity interest in Beijing Huayi Brothers Music Co., Ltd ("Huayi Music") to Huayi Brothers Media Corporation. ("Huayi Media") for an aggregate consideration of RMB34,450,000. Hurray! announced that it has terminated its agreements with Beijing Brothers ShengShi Enterprise Management Co., Ltd. ("Brothers ShengShi") and Beijing QiXinWeiYe Culture Development Co., Ltd. ("QiXinWeiYe"), which were entered into when Hurray! purchased its equity interest in Huayi Music.

On June 1, 2010, Hurray! and Shanda announced that the two companies have entered into a definitive agreement under which Hurray! will acquire an online audio business of Shanda in exchange for 415,384,615 newly issued ordinary shares of Hurray!, and concurrently, Shanda will acquire Hurray!'s recorded music and wireless value-added services businesses in exchange for an aggregate of US$36,944,267 in cash, subject to adjustment based on the May 31, 2010 cash balances of the businesses being transferred to Shanda. The net consideration to be received from Shanda for the businesses excluding payment for the cash balances in the businesses being transferred is estimated to be approximately US$11 million.

Note to the financial information

The unaudited financial information disclosed above is preliminary. The results for the three months ended March 31, 2010 are not necessarily indicative of the results expected for the full year or for any future period. Adjustments to the financial statements may be identified when audit work is completed, which could result in significant differences from the audited financial statements to this preliminary unaudited financial information.

Conference Call

Hurray! will host a conference call to discuss its first quarter results and pending sale starting at 12:01 a.m., just after midnight, Eastern Daylight Time (New York), on Wednesday, June 2, 2010.

    Starting time:  12: 01 a.m. (a minute past midnight)
                    Eastern Daylight Time (New York) on June 2, 2010,
                    which is also
                    12:01 p.m. (a minute past noon)
                    Beijing & Hong Kong Time on June 2, 2010.

    Dial-in number: +1-866-203-3436 (USA)
                    +1-617-213-8849 (International)
                    Password: 9534 5672

    Live webcast:   The live webcast (and archived webcast) of the conference
                    call will be available at:
                    http://tinyurl.com/HurrayWebcast
                    or at http://www.hurray.com.cn/english/home.htm

    Dial-in replay: A replay of the call will be available from June 2, 2010
                    through June 9, 2010 by dialing:
                    +1-888-286-8010 (USA)
                    +1-617-801-6888 (International)
                    Password: 7014 5672

    About Hurray! Holding Co., Ltd.
    Hurray! is a leader in video, music, and wireless value-added services.

In video, through its Ku6 subsidiary, Hurray! is a leader in online video portal operations. This operation will be Hurray!'s primary business after Hurray!'s other businesses, listed below, are sold in the third quarter 2010 to Shanda Interactive Entertainment Limited.

In music, Hurray! provides artist development, music production, and offline distribution of recorded music in China through its record labels Freeland Music, New Run Entertainment, Secular Bird, and Seed Music. Through its Fly Songs subsidiary, Hurray! organizes concerts and other musical events in China. The company provides online distribution of music and music-related products that include ringtones, ringbacktones, and truetones to mobile users in China. These tone products are distributed through wireless value-added service platforms over mobile networks and the internet.

In wireless services, Hurray! 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 news 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 "believes," "could," "expects," "may," "might," "should," "will," or "would," and by similar statements. The accuracy of these statements may be affected 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 operations and 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 the Company's annual report on Form 20-F. Hurray! does not undertake any obligation to update this forward-looking information, except as required under law.

    For more information, please contact:

      Mr. Matthew Zhao (English and Chinese)
      Investor Relations Officer
      Telephone +86-10-5758-6818 in Beijing
      ir@hurray.com.cn

     Christensen
      Mr. Tom Myers (English)
      Mobile: +86-139-1141-3520 in Beijing

      Mr. Yuanyuan Chen (English and Chinese)
      Mobile: +86-139-2337-7882 in Beijing

     http://www.hurray.com.cn


    Financial statements follow.



                          Hurray! Holding Co., Ltd.
               Unaudited Condensed Consolidated Balance Sheets

                                                As of March     As of December
    U.S. dollars in thousands                      31, 2010         31, 2009

    Assets
    Current assets:
    Cash and cash equivalents                        $52,642         $48,489
    Short-term investment                                 --          10,000
    Accounts receivable                                6,480           3,192
    Prepaid expenses and other current assets          3,651           1,834
    Amount due from related parties                      115              63
    Inventories                                          143             197
    Total current assets                              63,031          63,775

    Deposits                                             339             332
    Property and equipment, net                        4,453             880
    Acquired intangible assets, net                   29,241           1,082
    Goodwill                                          11,493           2,099
    Other non-current assets                             937              --
    Total assets                                    $109,494         $68,168

    Liabilities and shareholders' equity
    Current liabilities:
    Accounts payable                                 $17,590          $3,959
    Accrued expenses and other current
     liabilities                                      10,748           6,261
    Amount due to related parties                        489             440
    Income tax payable                                   658             655
    Current deferred tax liabilities                      12              12
    Total current liabilities                         29,497          11,327

    Long-term payable                                     15              17
    Non-current deferred tax liabilities               5,082             263
    Total liabilities                                 34,594          11,607

    Redeemable non-controlling interest                  358             371

    Shareholders' equity:
    Ordinary shares                                      146             110
    Additional paid-in capital                       104,059          75,190
    Accumulated deficit                              (41,211)        (30,859)
    Accumulated other comprehensive income             9,943           9,954
    Total Hurray! shareholders' equity                72,937          54,395
    Non-controlling interests                          1,605           1,795
    Total shareholders' equity                        74,542          56,190
    Total liabilities and shareholders'
     equity                                         $109,494         $68,168



                          Hurray! Holding Co., Ltd.
          Unaudited Condensed Consolidated Statements of Operations

                                               For the three months ended
    U.S. dollars in thousands,           March 31,    December 31,    March 31,
    except share and per share data        2010           2009           2009

    Revenues:
    Wireless value-added services         $1,739         $2,300         $7,856
    Recorded music                         3,885          3,870          3,905
    Advertising                            1,200             --             --
    Total revenues                         6,824          6,170         11,761

    Cost of revenues:
    Wireless value-added services          1,251          1,538          6,478
    Recorded music                         2,521          3,392          3,360
    Advertising                            6,249             --             --
    Total cost of revenues                10,021          4,930          9,838

    Gross profit                          (3,197)         1,240          1,923

    Operating expenses:
    Product development                      131             88             95
    Selling and marketing                  2,765          1,116          1,874
    General and administrative             4,499          4,518          3,056
    Impairment of goodwill                    --            584             --
    Total operating expenses               7,395          6,306          5,025

    Loss from operations                 (10,592)        (5,066)        (3,102)

    Interest income                           34             83            140
    Other income                               8             37            144
    Interest expense                          (4)            (3)            (3)
    Loss before provision for income
     taxes, equity in loss of
     affiliated company                  (10,554)        (4,949)        (2,821)

    Income tax expense (benefit)               1              6            (23)
    Loss before equity in loss of
     affiliated company                  (10,555)        (4,955)        (2,798)

    Equity in loss of affiliated
     company, net of tax                      --           (377)           (91)
    Loss from continuing operations      (10,555)        (5,332)        (2,889)
    Discontinued operations:
    Gain on sale of subsidiary, net
     of tax                                   --             --            222
    Net loss                            $(10,555)        (5,332)       $(2,667)
    Less: Net loss attributable to
     the non-controlling interest            203            746            588
    Net loss attributable to Hurray!    $(10,352)       $(4,586)       $(2,079)

    Loss per share-Basic and Diluted
     Loss from continuing operations
      attributable to Hurray!
      common shareholders                 $(0.00)        $(0.00)        $(0.00)
     Gain from discontinued operations
      attributable to Hurray! common
      shareholders                         $0.00          $0.00          $0.00
    Net loss attributable to Hurray!
     common shareholders                  $(0.00)        $(0.00)        $(0.00)

    Loss per ADS- Basic and Diluted
     Loss from continuing operations
      attributable to Hurray!
      common shareholders                 $(0.37)        $(0.21)        $(0.10)
     Gain from discontinued operations
      attributable to Hurray! common
      shareholders                         $0.00          $0.00          $0.01
    Net loss attributable to Hurray!
     common shareholders                  $(0.37)        $(0.21)        $(0.09)

    Weighted average shares used in
     per share calculation-
     Basic and Diluted             2,785,646,430  2,197,770,091  2,195,012,769
    Weighted average ADSs used in
     per ADS calculation-
     Basic and Diluted                27,856,464     21,977,701     21,950,128

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 a non-GAAP measure of EBITDA, which is adjusted from results based on GAAP to exclude certain expenses. Hurray!'s management believes the use of this non-GAAP financial measure provides useful information to both management and investors by excluding certain expenses. This non-GAAP financial measure also facilitates management's internal comparisons to Hurray!'s historical performance and our competitors' operating results. Hurray! believes this non-GAAP financial measure is 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 EBITDA.

Reconciliation of Net loss attributable to Hurray! Holding Company under GAAP to EBITDA for the following periods:

                                                For the three months ended
                                               March      December    March
                                             31, 2010     31, 2009   31, 2009
                                                  U.S. dollars in thousands

    Net loss attributable to Hurray!         $(10,352)     $(4,586)  $(2,079)
    Add (deduct):
    Interest expense                                4            3         3
    Income tax expense (benefit)                    1            6       (23)
    Depreciation and amortization                 880          185       795
    Interest income                               (33)         (83)     (140)
    EBITDA                                    $(9,501)     $(4,475)  $(1,444)

SOURCE Hurray! Holding Co., Ltd.