Hurray! Reports Second Quarter 2008 Unaudited Financial Results

Hurray! Reports Second Quarter 2008 Unaudited Financial Results

BEIJING, Aug. 21 /Xinhua-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 second quarter ended June 30, 2008.

   (Logo: http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGO )    FINANCIAL HIGHLIGHTS:    Highlights for Second Quarter 2008   -- Total revenues: $12.8 million, representing a decline of 3.7%      quarter-over-quarter and 12.4% year-over-year; below our previous      guidance of $13-14 million.   -- Wireless value-added services ("WVAS") revenues: $9.2 million,      representing a decline of 16.5% quarter-over-quarter and 27.9%      year-over-year.   -- Recorded music revenues, which are from our record label businesses:      $3.6 million, representing a growth of 59.3% quarter-over-quarter and      95.4% year-over-year.   -- Net income: $1.6 million   -- Adjusted EBITDA (a non-GAAP measure which is defined as income from      continuing operations before interest, tax, depreciation, amortization,      stock-based compensation, gains on reduction of acquisition payable and      reversal of Unicom liability): $0.8 million   -- Diluted earnings per ADS: $0.07   

Commenting on the second quarter results, QD Wang, Chairman and CEO of Hurray! stated: "We narrowly missed our guidance primarily due to the performance of our WVAS business which was impacted by temporary suspensions of certain WVAS marketing campaigns since May due to the Sichuan earthquake. Our music business has also been impacted in Q2 as many charity activities and donations to the relief efforts were organized. Overall, we have further stabilized our WVAS business and continue to generate positive operating cash flow. Going forward, we will continue to further develop and promote our music and entertainment business in China. With our strong cash position, we are confident to further execute our strategy to become a leading entertainment content production and distribution house in China."

BUSINESS RESULTS

Total revenues for the second quarter ended June 30, 2008 were $12.8 million, representing declines of 3.7% from $13.2 million for the preceding quarter, and 12.4% from $14.6 million for the second quarter in 2007.

Total wireless value-added services revenues were $9.2 million for the second quarter of 2008, representing declines of 16.5% from $11.0 million in the previous quarter and 27.9% as compared to $12.7 million in the second quarter of 2007.

Recorded music revenues, which represent revenues of our controlled music companies Freeland Music, Huayi Brothers Music and Hurray! Secular Bird, were $3.6 million, representing an increase of 59.3% as compared to $2.2 million in the previous quarter and significant growth of 95.4% as compared to $1.8 million in the second quarter of 2007.

Total gross margin was 36.4% for the second quarter of 2008 as compared to 36.5% for the previous quarter and 32.8% for the second quarter of 2007.

Gross margin for wireless value-added services was 29.8% for the second quarter of 2008, as compared to 35.0% in the previous quarter and 30.1% for the second quarter of 2007.

Recorded music gross margin was 53.4% for the second quarter of 2008 as compared to 43.8% in the previous quarter and 51.7% for the second quarter of 2007.

Total gross profit was $4.6 million for the second quarter of 2008, representing declines of 4.0% as compared to $4.8 million for the previous quarter and 3.0% as compared to $4.8 million for the second quarter of 2007.

Total operating expenses were $3.3 million for the second quarter of 2008, net of reversal of Unicom liability amount to $1.56 million, representing a decline of 30.2% as compared to $4.7 million for the previous quarter and 30.5% as compared to $4.7 million for the second quarter of 2007. In the second quarter of 2008, we benefited from a waiver of $1.56 million in alliance membership fees we had accrued under a 2005 agreement with China Unicom in respect of promotional and marketing activities, which China Unicom has terminated. All waived fees have been reported as other operating income.

Income tax expense was $0.3 million in the second quarter 2008, as compared to $0.7 million in the previous quarter and $38,000 in the second quarter of 2007.

Net income was $1.6 million for the second quarter of 2008.

Adjusted income before interest, tax, depreciation, amortization and stock-based compensation, gains on reduction of acquisition payable and reversal of Unicom liability (adjusted EBITDA), was $0.8 million for the quarter, a decline of 34.4% as compared with $1.3 million in the previous quarter and a decline of 27.7% as compared with $1.1 million in the second 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 earnings per ADS was $0.07 based on a weighted average of 21.9 million diluted ADSs for the second quarter of 2008. This figure compares to $0.22 based on a weighted average of 21.9 million diluted ADSs for the previous quarter and earnings per ADS of $0.01 based on a weighted average of 21.8 million diluted ADSs for the second quarter of 2007.

As of June 30, 2008, the Company had $72.9 million in cash and cash equivalents.

BUSINESS HIGHLIGHTS

Despite the previously mentioned impacts on our music business throughout Q2, 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 accomplished the following successes in the second quarter:

   -- Huayi Brothers Music took part in many charity events and donations to      the relief efforts for the earthquake in Sichuan province, and produced      an earthquake relief song named 'We Have Love'. Meanwhile, Jane Zhang,      was named the 'Most Media Coverage Female Artist' on Forbes 'Top 25      Influential Star from China' list. Concerts were also successfully held      in Beijing for artists, including Yang Kun and Li Huizhen.    -- Freeland Music signed up a number of popular leading artists, including      Ruby Lin Xinru, a Taiwanese actress and pop singer, who had her      breakout role as a leading actress in the very popular television      series Princess Pearl and its sequel, Princess Pearl II, and also Ni      Hongjie, Chen Derong, and Meng Xi. The company also released a series      of new songs, including 1 EP, and 2 albums, and launched successful      marketing programs to promote the new releases simultaneously over      Internet and wireless platforms.  Subsequently, "Bond Lady" ("Bang      Nu Lang") by Ni Hongjie and "Song of Eternal Sorrow" ("Chang Hen      Ge") by Zhang Zhenyu became popular hits in the second quarter.    -- Freeland Music entered into a contract with Shanghai Dongfang Yanyi Co.,      Ltd. to organize the '2009 Andy Lau World Tour Concert' next year and      Freeland's affiliate, Fly Songs, successfully organized the 'China Gold      Record Award' concert in Beijing.    -- New Run, has also achieved successes in promoting the company's artists      and brand name. New Run's artists, including Shi Mei, Chen Rui, and Nan      He Wen Dou performed in Hengyang, Hunan Province, and they were      involved in a charity to raise Rmb 250, 000 for children living in      extreme poverty. The company also established an in-house 'CRBT team',      which effectively brought up our WVAS business, especially CRBT-related      products, throughout Q2.    -- Secular Bird artists received 11 major awards at the 'First Annual      Guangdong Province Xinghai Music - Pop Music Award Ceremony', a      remarkable improvement in building up the company's brand name.   

We also launched 5 new titles on China Mobile's game portal, including "Legend of The Night Assassin", "My 72 Transformations", and "Heavy Metal World 2". In Q3, we plan to launch 8 new titles.

Business Outlook

For the third quarter of 2008, Hurray! expects its total consolidated revenues to be between $12 and $13 million.

Conference Call

The Company will host a conference call to discuss the first quarter results at

   Time:                9: 00 pm Eastern Daylight Time on August 21, 2008                        or 9:00 am Beijing/Hong Kong Time on August 22, 2008    The dial-in number:  +1-800-901-5217  (US)                        +1-617-786-2964  (International)                        Password: 95540380   

A replay of the call will be available from August 21, 2008 until August 28, 2008 as follows:

                        +1-888-286-8010  (US)                        +1-617-801-6888  (International)                        PIN number: 91670606   

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=1906375 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, and Secular Bird. 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 June    As of December                                               30, 2008       31, 2007(1)                                             (in thousands of U.S. dollars)   Assets   Current assets:   Cash and cash equivalents                  $  72,887         $  65,979   Accounts receivable                           13,450            14,691   Prepaid expenses and other current    assets                                        3,936             3,120   Amount due from related parties                  283               464   Current deferred tax assets                      523               748   Inventories                                      282               293   Receivable on disposal of subsidiary             129             4,151   Total current assets                          91,490            89,446    Deposits and other non-current assets            790               849   Property and equipment, net                    1,309             1,636   Acquired intangible assets, net                5,057             4,971   Investment in equity affiliate                 2,451             2,421   Goodwill                                       5,659             5,621   Non-current deferred tax assets                  510               650   Total assets                              $  107,266         $ 105,594    Liabilities and shareholders' equity   Current liabilities:   Accounts payable                          $    2,521         $   3,575   Acquisitions payable                              28             7,102   Accrued expenses and other current    liabilities                                   2,917             2,906   Amount due to related parties                    212               256   Income tax payable                               178               211   Current deferred tax liabilities                 963               417   Total current liabilities                      6,819            14,467    Long term payable                                 27                32   Non-current deferred tax liabilities             562               845   Total liabilities                              7,408            15,344    Minority interests                             5,158             4,667    Shareholders' equity:   Ordinary shares                                  109               109   Additional paid-in capital                    74,449            74,067   Statutory reserve                              6,503             6,503   Retained earnings (accumulated    deficit)                                      3,718            (2,751)   Accumulated other comprehensive    income                                        9,921             7,655   Total shareholders' equity                    94,700            85,583   Total liabilities and shareholders'    equity                                   $  107,266         $ 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 six months ended                        June 30,       June 30,       June 30,     June 30,                          2008           2007           2008         2007                         (in thousands of U.S.         (in thousands of U.S.                         dollars, except share         dollars, except share                           and per share data)          and per share data)   Revenues:   Wireless value-added    services             $ 9,185      $  12,737      $  20,185     $  27,672   Recorded music          3,576          1,830          5,821         3,348   Total revenues         12,761         14,567         26,006        31,020    Cost of revenues:   Wireless value-added    services               6,451          8,898         13,599        19,211   Recorded music          1,666            883          2,927         1,627   Total cost of    revenues               8,117          9,781         16,526        20,838    Gross profit           4, 644          4,786          9,480        10,182    Operating expenses:   Product development       206            518            596         1,066   Selling and    marketing              2,232          2,485          4,633         4,921   General and    administrative         2,386          1,698          4,273         3,075   Reversal of    Unicom liability      (1,557)            --         (1,557)           --   Total operating    expenses               3,267          4,701          7,945         9,062    Income from    operations             1,377             85          1,535         1,120    Other income    (expenses)                62            (36)           135           (36)   Interest expense           --            (45)            --           (90)   Interest income           465            571            819         1,183   Gain on reduction of    acquisition payable       --             --          5,000            --   Income before provision    For income taxes, loss     from equity investment     and minority     interests              1,904           575          7,489         2,177    Income tax expense         282            38            991           299   Net income before    earnings from equity    investment and    minority interests      1,622           537          6,498         1,878    Equity in earnings of    affiliate, net of tax       8             2             34             2   Minority interests,    net of tax               (192)         (118)          (192)         (233)   Income from    continuing operations   1,438           421          6,340         1,647   Discontinued    operations:   Loss from discontinued    operations, net of tax     --          (228)            --          (498)   Gain on sale of    subsidiary, net    of tax                    129            --            129            --   Income (loss) from    discontinued    operations                129          (228)           129          (498)   Net income            $  1,567     $     193      $   6,469     $   1,149     Net income (loss) per    share-basic   Income from    continuing    operations          $    0.00     $    0.00      $    0.00     $    0.00   Gain (loss) from    discontinued    operations          $    0.00     $   (0.00)     $    0.00     $   (0.00)   Net income           $    0.00     $    0.00      $    0.00     $    0.00    Net income    (loss) per     ADS-basic   Income from    continuing    operations          $    0.07     $    0.02      $    0.29      $   0.07   Gain (loss) from    discontinued    operations          $    0.01     $   (0.01)     $    0.01      $  (0.02)   Net income           $    0.07     $    0.01      $    0.30      $   0.05    Net income    (loss) per    share-diluted   Income (loss)    from continuing    operations          $    0.00     $    0.00      $    0.00      $   0.00   Gain (loss)    from discontinued    operations          $    0.00     $   (0.00)     $    0.00      $  (0.00)    Net income (loss)   $    0.00     $    0.00      $    0.00      $   0.00    Net income (loss)    per ADS-diluted   Income from    continuing    operations         $     0.07     $    0.02      $    0.29      $   0.07    Gain (loss)     from discontinued     operations         $    0.01     $   (0.01)     $    0.01      $  (0.02)    Net income          $    0.07     $    0.01      $    0.30      $   0.05    Weighted average    shares used in    calculating    basic     Earnings     (loss) per     share          2,184,751,686 2,173,318,732  2,181,449,475 2,170,619,470   Weighted average   ADSs used in    Calculating    basic     Earnings (loss)      per ADS          21,847,517    21,733,187     21,814,495    21,706,195   Weighted average    shares used in    calculating    diluted    Earnings     (loss) per     share          2,186,254,898 2,182,733,566  2,187,269,646 2,179,974,411   Weighted average   ADSs used in    calculating    diluted     Earnings     (loss) per     ADS               21,862,549    21,827,336     21,872,696    21,799,744     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 net income, including in this press release earnings before interest, taxes, depreciation and amortization including provisions for impairment, and before stock-based compensation expense, gains on reduction of acquisition payable and reversal of Unicom liability ("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 income from continuing operations under GAAP to adjusted EBITDA for the following periods:

                                    For the three months   For the six months                                            ended                 ended                                       June 30, June 30,    June 30,  June 30,                                         2008     2007        2008      2007                                       (in thousands of     (in thousands of                                         U.S. dollars)        U.S. dollars)   Income from continuing operations   $ 1,438   $  421     $ 6,340   $ 1,647   Add (deduct):   Interest expense                         --       45          --        90   Income tax expense                      282       38         991       299   Depreciation and amortization           934      994       1,741     1,798   Non-cash stock compensation expense     191      212         382       379   Gain on reduction of acquisition    payable                                 --       --      (5,000)       --   Reversal of Unicom liability         (1,557)      --      (1,557)       --   Interest income                        (465)    (571)       (819)   (1,183)   Adjusted EBITDA                     $   823  $ 1,139     $ 2,078   $ 3,030     For more information, please contact:     Christina Low F.S.    Investor Relations Officer    Tel:   +86-10-8455-5566 x5532    Email: IR@hurray.com.cn  

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Source: Hurray! Holding Co., Ltd.

CONTACT: Christina Low F.S., Investor Relations Officer, +86-10-8455-5566
x5532, or IR@hurray.com.cn

Web site: http://www.hurray.com.cn/english/home.htm

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Profile: International Entertainment