Hurray! Reports First Quarter 2007 Unaudited Financial Results

Hurray! Reports First Quarter 2007 Unaudited Financial Results

BEIJING, May 24 /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 in China, today announced its unaudited financial results for the first quarter ended March 31, 2007.

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FINANCIAL HIGHLIGHTS:

Highlights for First Quarter 2007
- Total revenues: $16.6 million, a decline of 2.2% quarter-over-quarter
and 0.9% year-over-year, exceeding previous guidance of $15.0-16.0
million
- Wireless value-added services revenues: $14.9 million, a decline of
1.1% quarter-over-quarter and growth of 3.3% year-over-year
- Recorded music revenues, which are from our record label businesses:
$1.5 million, a decline of 15.9% quarter-over-quarter and growth of
0.7% year-over-year
- Software and system integration services revenues: $0.2 million, growth
of 79.4% quarter-over-quarter and a decline of 78.2% year-over-year
- Net income: $1.0 million, a decline of 38.9% quarter-over-quarter and
growth of 3.8% year-over-year
- Adjusted EBITDA (a non-GAAP measure which is defined as earnings before
interest, tax, depreciation, amortization and stock-based
compensation): $1.63 million, growth of 13.1% quarter-over-quarter and
growth of 1.4% year-over-year
- Diluted earnings per ADS: $0.04

Commenting on the first quarter results, QD Wang, Chairman and CEO of Hurray! stated: "We are pleased to report a solid quarter which exceeded our previous estimate despite a challenging operating environment. Going forward, we will further our strategy of developing proprietary contents and diversifying distribution channels, while continuing our transformation into a leading entertainment content production and distribution house in China."

BUSINESS RESULTS

Total revenues for the first quarter ended March 31, 2007 were $16.6 million, representing a 2.2% decrease from $17.0 million for the preceding quarter, and a 0.9% decrease from $16.8 million for the first quarter in 2006.

Total wireless value-added services revenues were $14.9 million for the first quarter of 2007, a decline of 1.1% as compared with $15.1 million in the previous quarter and growth of 3.3% as compared with $14.5 million in the first quarter of 2006.

Recorded music revenues, which represent revenues of our controlled music companies Hurray! Freeland and Huayi Brothers Music, were $1.5 million, a decline of 15.9% as compared with $1.8 million in the previous quarter and growth of 0.7% as compared with $1.5 million in the first quarter of 2006.

Software and system integration services revenues were $0.2 million for the first quarter of 2007, representing growth of 79.4% as compared with $0.1 million for the previous quarter and a decrease of 78.2% as compared with $0.8 million for the first quarter of 2006.

Total gross margin was 32.8% for the first quarter of 2007 as compared with 31.2% for the previous quarter and 36.2% for the first quarter of 2006.

Gross margin for wireless value-added services was 30.8% for the first quarter of 2007, as compared with 31.9% in the previous quarter and 34.6% for the first quarter of 2006.

Recorded music gross margin was 51.0% for the first quarter of 2007 as compared to 33.6% in the previous quarter and 48.6% for the first quarter of 2006.

Software and system integration services gross margin was 30.4% for the first quarter of 2007, as compared to -109.9% for the previous quarter and 40.3% for the first quarter of 2006.

Total gross profit was $5.4 million for the first quarter of 2007, representing growth of 2.6% as compared with $5.3 million for the previous quarter and a decline of 10.2% as compared with $6.1 million for the first quarter of 2006.

Total operating expenses were $4.7 million for the first quarter of 2007, representing a decline of 0.8% as compared to $4.7 million for the previous quarter and a decline of 10.7% as compared to $5.3 million for the first quarter of 2006.

Interest income for the first quarter of 2007 was $0.6 million, the same as the previous quarter. Income tax was $0.3 million in the first quarter 2007, the same as the first quarter of 2006, but an increase compared to a credit of $0.6 million in the previous quarter.

Net income was $1.0 million for the first quarter of 2007, representing a decrease of 38.9% as compared to $1.6 million for the previous quarter, and growth of 3.8% as compared to $0.9 million for the first quarter of 2006. Net margin was 5.8% for the first quarter of 2007 as compared to 9.2% for the previous quarter and 5.5% for the first quarter of 2006.

Adjusted earnings before interest, tax, depreciation, amortization and stock-based compensation (adjusted EBITDA), was $1.63 million for the quarter, growth of 13.1% as compared with $1.4 million in the previous quarter and growth of 1.4% as compared with $1.61 million in the first quarter of 2006. 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 $0.04 based on a weighted average of 21.8 million diluted ADSs for the first quarter of 2007. This figure compares to $0.07 based on a weighted average of 21.7 million diluted ADSs for the previous quarter and $0.04 based on a weighted average of 22.5 million diluted ADSs for the first quarter of 2006.

As of March 31, 2007, the company had outstanding 21.7 million basic ADSs and 21.8 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 March 31, 2007, the company had $70.6 million in cash and cash equivalents.

BUSINESS HIGHLIGHTS

Hurray! continued to successfully execute its strategy of developing proprietary content and diversifying distribution channels, with the following highlights:

- Hurray! released a series of new songs and 14 new game titles on China
Mobile's music and game portals.

- Hurray! launched successful marketing programs to promote the new
releases simultaneously over Internet and wireless platforms.
Consequently, "Autumn Never Comes Back" and "Hard to Be Friends" became
popular hits in the first quarter and ranked in the top 10 for several
consecutive weeks in the second quarter on both China Mobile's music
portal and Baidu's music search platform.

- Music and game related revenues, representing revenues from our
recorded music and our wireless value-added services with music and
game content, were about 36.0% or $6.0 million of total revenues for
the quarter.

- Wireless value-added services revenues generated from operator-
independent marketing, promotion and distribution such as direct media
advertising, interactive media programs, Internet marketing alliances,
and handset vendor partnerships reached approximately 40%, or $6
million, of total wireless value-added services revenues. This compares
to 29.0% or $4.2 million in the year ago quarter.

"Despite the challenging wireless services operating environment, we are committed to our transformation strategies and confident about our long term prospects," commented Mr. Wang.

Business Outlook

For second quarter 2007, Hurray! expects its total consolidated revenues to be between $15.0 and $16.0 million, reflecting the continued impact of tightened enforcement of policy and regulation changes previously announced by MII and mobile operators.

Fin 48 Compliance

In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 requires recognition of tax benefits that satisfy a greater than 50% probability threshold. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 is effective for the Company beginning January 1, 2007. There was no cumulative adjustment on the adoption of FIN 48.

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: 9:30 pm Eastern Standard Time on May 24, 2007
or 9:30 am Beijing/Hong Kong Time on May 25, 2007

The dial-in number: +1-866-272-9941 (US)
+1-617-213-8895 (international)
Password: 19600241

A replay of the call will be available from May 24, 2007 until May 31, 2007 as follows:

+1-888-286-8010 (US)
+1-617-801-6888 (international)
PIN number: 37323648

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=1544711 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.

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 As of
March 31, December 31,
2007 2006(1)
(Unaudited)
(in thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents $70,580 $74,597
Accounts receivable 15,828 13,178
Note receivable - 272
Prepaid expenses and other current assets 3,331 2,701
Amount due from related parties 315 167
Current deferred tax assets 142 82
Inventories 198 178
Total current assets 90,394 91,175

Deposits and other non-current assets 649 632
Prepaid acquisition cost 4,631 -
Property and equipment, net 1,955 1,954
Acquired intangible assets, net 5,769 6,023
Goodwill 39,932 39,622
Non-current deferred tax assets 309 371
Total assets $143,639 $139,777

Liabilities and shareholders' equity
Current liabilities:
Accounts payable $5,280 $3,681
Acquisition payable 5,877 5,832
Accrued expenses and other current liabilities 2,579 2,613
Amount due to a related party 65 -
Income tax payable 462 489
Current deferred tax liabilities 413 132
Total current liabilities 14,676 12,747

Non-current deferred tax liabilities 826 851
Total liabilities 15,502 13,598

Minority interests 3,474 3,359

Shareholders' equity:
Ordinary shares 109 108
Additional paid-in capital 73,789 73,608
Retained earnings 46,661 45,705
Accumulated other comprehensive income 4,104 3,399
Total shareholders' equity 124,663 122,820
Total liabilities and shareholders' equity $143,639 $139,777

(1)December 31, 2006 balances were extracted from audited financial
statements.

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

For the three months ended

March 31, December 31, March 31,
2007 2006 2006
(in thousands of U.S. dollars, except share and per share data)
Revenues:
Wireless value-added services $14,935 $15,106 $14,461
Recorded music 1,518 1,805 1,507
Software and system integration
services 177 98 810
Total revenues 16,630 17,009 16,778

Cost of revenues:
Wireless value-added services 10,313 10,292 9,451
Recorded music 744 1,199 775
Software and system integration
services 123 206 484
Total cost of revenues 11,180 11,697 10,710

Gross profit 5,450 5,312 6,068

Operating expenses:
Product development 653 698 739
Selling and marketing 2,657 2,751 2,832
General and administrative 1,389 1,286 1,689
Total operating expenses 4,699 4,735 5,260

Income from operations 751 577 808

Interest expense (45) (45) -
Interest income 628 587 619
Income tax expense (263) 564 (323)
Minority interests (115) (117) (182)
Net income $956 $1,566 $922

Earnings per share, basic $0.0004 $0.0007 $0.0004
Earnings per ADS, basic $0.04 $0.07 $0.04
Earnings per share, diluted $0.0004 $0.0007 $0.0004
Earnings per ADS, diluted $0.04 $0.07 $0.04

Shares used in calculating
basic earnings per share 2,167,890,217 2,152,282,170 2,229,854,010
ADSs used in calculating basic
earnings per ADS 21,678,902 21,522,822 22,298,540
Shares used in calculating diluted
earnings per share 2,177,185,265 2,171,571,924 2,245,876,853
ADSs used in calculating
diluted earnings per ADS 21,771,853 21,715,719 22,458,769

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 months ended

March 31, December 31, March 31,
2007 2006 2006
(in thousands of U.S. dollars, except share and per
share data)
Net income $956 $1,566 $ 922
Add:
Interest expense 45 45 -
Income tax expense 263 (564) 323
Depreciation and amortization 829 825 892
Non-cash stock compensation
expense 167 158 91
Less:
Interest income 628 587 619
Adjusted EBITDA $1,632 $1,443 $1,609

For more information, please contact:
Phoebe Meng
Investor Relations Manager
Tel: 8610-84555566 x5532
yfmeng@hurray.com.cn

First Call Analyst:

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Source: Hurray! Holding Co., Ltd.

CONTACT: Phoebe Meng, Investor Relations Manager of Hurray! Holding Co.,
Ltd., 8610-84555566 x5532, yfmeng@hurray.com.cn

Web site:

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

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