Hurray! Reports Third Quarter 2006 Unaudited Financial Results

Hurray! Reports Third Quarter 2006 Unaudited Financial Results

BEIJING, Nov. 16 /Xinhua-PRNewswire/ -- Hurray! Holding Co., Ltd. (NASDAQ:HRAY), a leader in wireless music distribution and other wireless value-added services, artist development and music production, and wireless value-added services management software in China, today announced its unaudited financial results for the third quarter ended September 30, 2006.

FINANCIAL HIGHLIGHTS:
-- Total revenues: $18.0 million, decline of 1.7% quarter-over-quarter and
growth of 9.2% year-over-year, exceeding previous guidance of $16.0
million to $17.0 million
-- Wireless value-added services revenues: $16.4 million, decline of 1.1%
quarter-over-quarter and growth of 8.0% year-over-year
-- Software and system integration services revenues: $0.1 million,
decline of 76.1% quarter-over-quarter and 93.3% year-over-year
-- Recorded music revenues, which are from the new record label businesses
we entered this year: $1.5 million, growth of 10.9% quarter-over-
quarter
-- Net income: $1.6 million, decline of 5.6 % quarter-over-quarter and
decline of 68.0% year-over-year
-- Adjusted EBITDA (a non-GAAP measure which is defined as earnings before
interest, tax, depreciation, amortization and stock-based
compensation): $2.1 million, decline of 5.4% quarter-over-quarter and
decline of 55.8% year-over-year
-- Diluted earnings per ADS: $0.07

Commenting on the third quarter 2006 results, QD Wang, Chairman and CEO of Hurray! stated: "We are pleased to report a very solid quarter which exceeded our previous estimate with only 1.1% sequential decline in wireless revenues despite significant regulatory change and challenging operating environment. Our core business has demonstrated remarkable resilience as a result of our successful execution of multi-platform, multi-channel and multi-operator strategies. Our effort throughout past year in solidifying business foundations and building a strong new management team began to pay off."

BUSINESS RESULTS

Total revenues for the third quarter ended September 30, 2006 were $18.0 million, representing a 1.7% decrease over $18.3 million for the preceding quarter, and a 9.2% increase from $16.5 million for the third quarter in 2005.

Total wireless value-added services revenues were $16.4 million for the third quarter of 2006, a decline of 1.1% as compared with $16.6 million in the previous quarter and growth of 8.0% as compared with $15.2 million in the third quarter of 2005.

2.5G services revenues were $7.4 million for the third quarter of 2006, representing a decline of 9.6% as compared with $8.1 million for the previous quarter and a decline of 20.3% as compared with $9.2 million for the third quarter of 2005.

Of 2.5G services, WAP revenues were $5.2 million, a decline of 6.2% as compared with $5.5 million in the previous quarter and a decline of 41.1% as compared with $8.8 million in the third quarter 2005. The decline of WAP revenues in the quarter was a result of new regulations implemented in the quarter mandating free trial periods and double reminders for subscription based services

MMS revenues were $0.8 million, a decline of 40.6% as compared with $1.3 million in previous quarter, and a growth of 88.3% as compared with 0.4 million in the third quarter of 2005. The decline of MMS revenues in the quarter was a result of new regulations implemented in the quarter mandating free trial periods and double reminders for subscription based services

Java(TM) revenues were $1.4 million for the third quarter 2006, representing growth of 8.6% as compared with $1.3 million in previous quarter. We acquired Shanghai Magma at the beginning of the year and have consolidated its operations since first quarter 2006.

2G services revenues were $9.0 million for the third quarter of 2006, representing growth of 7.1% as compared to $8.4 million for the previous quarter and an increase of 52.1% as compared to $5.9 million for the third quarter of 2005.

Of 2G services, SMS revenues were $5.5 million for the third quarter of 2006, representing an increase of 19.1% as compared with $4.6 million in the previous quarter and an increase of 62.6% as compared with $3.3 million in the third quarter of 2005. The increase in SMS revenues was due to our increased direct media advertising efforts commenced earlier.

IVR revenues decreased 10.4% to $2.6 million for the third quarter of 2006, as compared with $2.9 million for the previous quarter and increased 13.8% as compared with $2.3 million for the third quarter of 2005.

RBT revenues were $0.9 million for the third quarter 2006, representing growth of 4.1% as compared with $0.9 million in the previous quarter, and growth of 254.0% as compared with $0.3 million for the third quarter of 2005

Software and system integration services revenues were $0.1 million for the third quarter of 2006, representing a decrease of 76.0% as compared with $0.4 million for the previous quarter and a decrease of 93.2% as compared with $1.3 million for the third quarter of 2005. The decline of software revenue is due to continued delays by the mobile operators in expanding or building out their 2.5G and 3G data infrastructure pending the issuance of 3G licenses.

Recorded music revenues, which represent revenues of our controlled music companies Hurray! Freeland Music and Huayi Brothers Music, were $1.5 million, an increase of 10.9% as compared with $1.4 million in previous quarter. The growth of recorded music revenues in the third quarter is due to increased new releases by our two music label companies in the quarter.

Total gross margin was 37.5% for the third quarter of 2006 as compared with 37.0% for the previous quarter and 51.1% for the third quarter of 2005.

Gross margin for wireless value-added services was 36.9% for the third quarter of 2006, as compared with 36.0% in the previous quarter and 48.3% for the third quarter of 2005.

Gross margin for 2.5G services was 48.2% for the third quarter of 2006, as compared to 50.4% for the previous quarter and 61.9% for the third quarter of 2005. The decrease in 2.5G gross margin was due to a revenue mix shift from higher margin subscription based revenues to lower margin per-use based revenues in response to the new regulations.

Gross margin for 2G services was 27.7% for the third quarter of 2006, as compared to 22.1% for the previous quarter and 27.0% for the second quarter of 2005. 2G gross margin expanded as revenues ramped up in the quarter.

Software and system integration services gross margin was 22.7% for the third quarter of 2006, as compared to 48.9% for the previous quarter and 84.5% for the third quarter of 2005. Software gross margin contracted as revenues decreased.

Recorded music gross margin was 45.1% for the third quarter of 2006 as compared to 45.7% in the previous quarter, reflecting increased costs associated with new releases.

Total gross profit was $6.8 million for the third quarter of 2006, representing a decline of 0.3% as compared with $6.8 million for the previous quarter and a decline of 19.8% as compared with $8.4 million for the third quarter of 2005.

Total operating expenses were $5.6 million for the third quarter of 2006, representing an increase of 1.9% as compared to $5.5 million for the previous quarter and an increase of 38.1% as compared to $4.1 million for the third quarter of 2005. The increase in operating expenses in the quarter is mostly due to employee severance expenses associated with previously adopted cost control measures.

Interest income for the third quarter of 2006 was $0.7 million the same as the previous quarter. Income tax was $0.2 million for the third quarter of 2006, in line with the previous quarter.

Net income was $1.6 million for the third quarter of 2006, representing a decrease of 5.6% as compared to $1.7 million for the previous quarter, and a decrease of 68.0% as compared to $5.0 million for the third quarter of 2005. Net margin was 8.9% for the third quarter of 2006 as compared to 9.3% for the previous quarter and 30.5% for the third quarter of 2005.

Adjusted earnings before interest, tax, depreciation, amortization and stock-based compensation (adjusted EBITDA), was $2.1 million for the quarter, a decline of 5.4% as compared with $2.2 million in the previous quarter and a decline of 55.8% as compared with 4.8 million in the third quarter of 2005. 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 were $0.07 based on a weighted average of 21.7 million diluted ADSs for the third quarter of 2006. This figure compares to $0.08 based on a weighted average of 22.5 million diluted ADSs for the previous quarter and $0.22 based on a weighted average of 22.5 million diluted ADSs for the third quarter of 2005.

As of September 30, 2006, the company had outstanding 21.5 million basic ADSs and 21.7 million fully diluted ADSs, excluding share options granted above the average market value of Hurray! stock for the quarter as their effect would have been anti-dilutive.

As of September 30, 2006, the company had $73.4 million in cash and cash equivalents.

In the third quarter of 2006, Hurray! made the following progress in strengthening its core wireless value added services:

-- Wireless value-added services revenues generated from the China Mobile,
China Telecom and China Netcom accounts grew to $11.2 million for the
quarter, representing 68.1% of total wireless value added services
revenues.

-- Wireless value-added services revenues generated from SMS, IVR, RBT,
MMS, and Java(TM) platforms grew to $11.2 million for the quarter,
representing 68.3% of total wireless value added services.

-- Wireless value-added services revenues generated from operator-
independent marketing, promotion and distribution such as Internet
marketing alliances, direct media advertising and handset vendor
partnerships reached approximately 30.8%, or $5.0 million, of total
wireless value-added services revenues.

The following tables compare key operating data for the company's wireless value added services business for the third quarter 2006 and third quarter 2005:

Third quarter 2006 revenue breakdown by operator and by service platform:

China China China China
Unit: $ million Mobile Unicom Telecom Netcom Total
SMS $3.8 $1.7 $ -- $ -- $5.5
IVR 1.1 0.6 0.7 0.2 2.6
RBT 0.5 0.4 -- -- 0.9
2G Revenues 5.4 2.7 0.7 0.2 9.0
WAP 2.8 2.4 -- -- 5.2
MMS 0.7 0.1 -- -- 0.8
Java 1.4 -- -- -- 1.4
2.5G revenues 4.9 2.5 -- -- 7.4
Total $10.3 $5.2 $0.7 $0.2 $16.4

Third quarter 2005 revenue breakdown by operator and by service platform:

China China China China
Unit: $ million Mobile Unicom Telecom Netcom Total
SMS $0.3 $3.0 $ -- $ -- $3.3
IVR 1.5 0.6 0.2 -- 2.3
RBT 0.1 0.2 -- -- 0.3
2G Revenues 1.9 3.8 0.2 5.9
WAP 2.8 6 -- -- 8.8
MMS 0.3 0.1 -- -- 0.4
Java -- -- -- -- --
2.5G revenues 3.1 6.1 -- -- 9.2
Total $5.0 $9.9 $0.2 $ $15.1

Third quarter 2006 revenue contribution % by operator and by service platform:

China China China China
Mobile Unicom Telecom Netcom Total
SMS 69.3% 30.7% --% --% 100.0%
IVR 41.4 24.3 26.7 7.6 100.0
RBT 58.7 40.5 0.3 0.5 100.0
2G Revenues 60.0 29.8 7.9 2.3 100.0
WAP 53.1 46.9 -- -- 100.0
MMS 86.8 13.2 -- -- 100.0
Java 100.0 -- -- -- 100.0
2.5G revenues 65.4 34.6 -- -- 100.0
Total 62.4% 32.0% 4.3% 1.3% 100.0%

Third quarter 2005 revenue contribution % by operator and by service platform:

China China China China
Mobile Unicom Telecom Netcom Total
SMS 9.4% 90.6% --% --% 100.0%
IVR 66.6 26.8 6.6 -- 100.0
RBT 29.8 70.0 -- 0.2 100.0
2G Revenues 32.7 64.7 2.6 -- 100.0
WAP 32.0 68.0 -- -- 100.0
MMS 65.9 34.1 -- -- 100.0
Java 99.6 0.4 -- -- 100.0
2.5G revenues 33.6 66.4 -- -- 100.0
Total 33.3% 65.7% 1% --% 100.0%

BUSINESS HIGHLIGHTS

Hurray! continued executing its strategy to focus on music and game related digital entertainment content, with the following highlights:

* Hurray! released a series of new songs, including:
-- ''Don't you think I am hurt enough'' (Nan Dao Ni Hai Xiang Wo Shang
De Bu Gou Shen) by Zhang Zhenyu of Hurray! Freeland Music.
-- ''Husband PK Wife'' (Lao Gong PK Lao Po) by Yang Chengang of Hurray!
Freeland Music.
-- ''Tell Me If You Still Love Me'' (Gao Su Wo Ni Hai Ai Wo Ma) by Chen
Xu of Hurray! Freeland Music.
-- ''Our First Encounter'' (Chu Ci Yu Ni Xiang Yu) by Ai Dai of Hurray!
Freeland Music.
-- ''Body Language'' (''Shen Ti Yu Yan''), ''Personal Secret'' (''Ge Ren
Mi Mi''), and ''Girl in Your Dream'' by Jane Zhang of Huayi Brothers
Music.
-- ''I love Teresa Teng '' (''Wo Ai Deng Li Jun'') by Yu Quan and Jane
Zhang of Huayi Brothers Music in memory of late super pop star Teresa
Teng.
-- Latest single ''I Love World Cup'' (Wo Ai Shi Jie Bei) by Huang Zheng
of Huayi Brothers Music.

* Hurray! signed up S.Wing, an up-and-coming pop band in China, which
composed and produced the latest hit ''QQ Love'' (QQ Ai) by Hurray!
Freeland Music.

* Hurray! launched successful marketing programs to promote the new
releases simultaneously over Internet and wireless platforms.
Consequently, ''Personal Secret'' became popular hits and ranked Top 2
for many consecutive weeks in the second quarter on Baidu's new release
music search platform. In addition, ''I Love World Cup'' ranked Top 3
on Baidu's top100 music search platform and ''Don't you think I am hurt
enough'' ranked Top 15 on China Mobile's music portal.

* Hurray! became official right owner of ''Mice Love Rice'' under PRC
copyright law through court ruling.

* Shanghai Magma, our wholly owned game developer and publisher now has a
portfolio of over 200 titles of in-house developed games covering six
major categories from action, puzzle, role-play, strategy, cards, to
sports games. In the third quarter, Magma games ranked No. 1 in China in
terms of revenues generated on China Mobile's game portal.

* Music related revenues from ringtones, ringbacktones, and truetones
downloads or playbacks embedded in our WAP, MMS, SMS, IVR and RBT
services are approximately 40.0%, or $6.6 million, of total wireless
value-added services revenues for the quarter.

* Total music related revenues, representing revenues from our recorded
music and our wireless value-added services with music content, were
$8.1 million or about 45.0% of total revenues for the quarter. Including
revenues from mobile games, the percentage reached about 54% in the
quarter.

"In summary, over the past one year, we have not only significantly strengthened the basic foundations of our core business, but also have built clear market leadership in music and game development and distribution in China. We will continue aggressively pursuing our vision to transform Hurray! into a leading digital entertainment company." concluded Mr. Wang.

Business Outlook

For fourth quarter 2006, Hurray! expects its total consolidated revenues to be between $17.0 and $18.0 million, reflecting our latest assessment of the residual impact of new operator policies implemented in the third quarter.

Business Optimization Program

In the quarter, Hurray! completed the business optimization program that started in the second quarter, realigning resources to new and growth areas while cutting cost in certain areas of our business. The program has resulted in an approximately 20% reduction in our total headcounts and has significantly improved our operating efficiency.

Revision to Magma Acquisition Agreement

In order to bring Shanghai Magma's talented management team onboard and help manage overall Hurray! business, we agreed with the selling shareholders of Magma to fix the remaining consideration payable under earn-out arrangement at $10.5 million. Of which $4.5 million was paid in October 2006 and $6 million will be payable on December 31, 2007.

Note to the Financial Information

The financial information in this press release has been extracted from the financial information prepared using the recognition and the measurement basis of accounting principles generally accepted in the United States of America.

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 16, 2006
or 10:00 am Beijing/Hong Kong Time on November 17, 2006

The dial-in number: 866-362-4666 (US)
617-597-5313 (international)
Password: 94491794

A replay of the call will be available from November 16, 2006 until November

23, 2006 as follows:
888-286-8010 (US)
617-801-6888 (international)
PIN number: 32481131

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=1406655
or http://www.hurray.com/english/home.htm

About Hurray! Holding Co., Ltd.

Hurray! is a leading provider of music and music-related products such as ringtones, ringbacktones, and truetones to mobile users in China through SMS, IVR, RBT, WAP, MMS and Java 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.

In addition, Hurray! is a leader in artist development, music production and offline and online distribution in China through its majority controlled record labels Huayi Brothers Music and Hurray! Freeland Music.

Hurray! also designs, develops, sells and supports a service provisioning and management software for mobile operators in China to manage wireless value-added 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 September As of December 31,
30, 2006 2005(1)
(Unaudited)
(in thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents $ 73,398 $ 75,959
Accounts receivable 15,095 18,089
Note receivable 238 --
Prepaid expenses and other current
assets 2,543 1,859
Amount due from related parties 1,173 --
Inventories 338 437
Total current assets 92,785 96,344

Deposits and other non-current assets 797 1,502
Property and equipment, net 2,200 2,536
Acquired intangible assets, net 6,146 3,312
Goodwill 38,230 23,026
Non-current deferred tax assets 169 140
Total assets $ 140,327 $ 126,860

Liabilities and shareholders' equity
Current liabilities:
Accounts payable $3,669 $3,731
Acquisition payable 10,349 154
Accrued expenses and other current
liabilities 2,689 3,210
Amount due to a related party 60 202
Income tax payable 232 90
Deferred tax liability 614 248
Total current liabilities 17,613 7,635

Minority interests 3,242 605

Shareholders' equity:
Ordinary shares 108 111
Additional paid-in capital 72,876 77,336
Retained earnings 44,138 39,899
Accumulated other comprehensive
income 2,350 1,274
Total shareholders' equity 119,472 118,620
Total liabilities and shareholders'
equity $ 140,327 $ 126,860

(1) December 31, 2005 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
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
(in thousands of U.S. dollars, (in thousands of U.S. dollars,
except share and per share except share and per share
data) data)
Revenues:
2G services $ 9,016 $ 5,928 $ 23,964 $ 14,030
2.5G services 7,367 9,239 23,443 27,454
Software and
system
integration
services 88 1,305 1,102 4,894
Recorded music 1,520 -- 4,398 --
Total revenues 17,991 16,472 52,907 46,378

Cost of
revenues:
2G services 6,521 4,325 18,107 8,162
2.5G services 3,814 3,522 12,273 11,163
Software and
system
integration
services 68 203 740 1,144
Recorded music 834 -- 2,354 --
Total cost of
revenues 11,237 8,050 33,474 20,469

Gross profit 6,754 8,422 19,433 25,909

Operating
expenses:
Product
development 538 693 1,783 1,840
Selling and
marketing 3,256 2,500 9,108 7,109
General and
administrative 1,810 866 5,483 2,602
Total
operating
expenses 5,604 4,059 16,374 11,551

Income from
operations 1,150 4,363 3,059 14,358

Other income,
net 69 14 320 984
Interest
income, net 684 505 1,988 847
Income tax
expense (154) 147 (685) (567)
Minority
interests (139) (445)
Net income $ 1,610 $ 5,029 $ 4,237 $ 15,622

Earnings per
share, basic $ 0.0007 $ 0.0023 $ 0.0019 $ 0.0076
Earnings per
ADS, basic $ 0.07 $ 0.23 $ 0.19 $ 0.76
Earnings per
share,
diluted $ 0.0007 $ 0.0022 $ 0.0019 $ 0.0075
Earnings per
ADS, diluted $ 0.07 $ 0.22 $ 0.19 $ 0.75

Shares used in
calculating
basic
earnings per
share 2,151,930,540 2,198,890,426 2,202,374,600 2,049,306,075
ADSs used in
calculating
basic
earnings per
ADS 21,519,305 21,988,904 22,023,746 20,493,061

Shares used in
calculating
diluted
earnings per
share 2,172,347,707 2,245,871,775 2,222,587,080 2,092,878,817

ADSs used in
calculating
diluted
earnings per
ADS 21,723,477 22,458,718 22,225,871 20,928,788

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, and before stock-based compensation expense ("adjusted EBITDA"), which are adjusted from results based on GAAP to exclude certain expenses. Hurray!'s management believes the use of these non-GAAP financial measures provide 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 under GAAP to adjusted EBITDA for the following periods:

For the three For the nine
months ended months ended
September September September September
30, 30, 30, 30,
2006 2005 2006 2005
(in thousands of (in thousands of
U.S. dollars, U.S. dollars,
except share and except share and
per share data) per share data)
Net income $1,610 $5,029 $4,237 $15,622
Add:
Interest expense -- -- -- 27
Income tax expense 154 (147) 685 567
Depreciation and amortization 886 425 2,656 1,298
Non-cash stock compensation expense 158 387 21
Less:
Interest income (684) (505) (1,988) (874)
Adjusted EBITDA $2,124 $4,802 $5,977 $16,661

For more information, please contact:

Phoebe Meng
Investor Relations Manager
Tel: +86-10-8455-5566 x5532
Email: yfmeng@hurray.com.cn

Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20050314/CNM005LOGO
AP Archive: http://photoarchive.ap.org/
PRN Photo Desk, +1-888-776-6555 or +1-212-782-2840

Source: Hurray! Holding Co., Ltd.

CONTACT: Phoebe Meng, Investor Relations Manager of Hurray! Holding Co.,
Ltd., +86-10-8455-5566 x5532, or yfmeng@hurray.com.cn

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

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