Raymond Huang – Senior Director, IR Herman Man Guo – our Chairman and CEO Henry Ho – CFO

Gillian Chung – Morgan Stanley Wei Fang – CLSA

Good morning all sites and welcome to the Air Media Group Incorporated First Quarter 2013 Earnings Conference Call. [Operator Instructions]. Now I would like to hand the call over to Mr. Raymond Huang, Senior Director of Investor Relations of the company. I'll be standing by for the Q&A session. Thank you. You may begin.

Hello everyone. Thank you for joining AirMedia's first quarter 2013 earnings conference call. Today Herman Man Guo, our Chairman and CEO, will present highlights for the first quarter of 2013, and Henry Ho, our CFO, will provide details on our financial results. Following their prepared remarks, the management team will be available to take your questions. Before management presentation, please allow me to read you our Safe Harbor statement. During this conference call, representatives of the company will make certain forward-looking statements. These statements are based upon management's current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are, by their nature, subject to a number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements. AirMedia does not undertake any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. Please refer to AirMedia's filings with the SEC including its Form 20-F for a discussion of important factors that could affect future results. A press release and this call include discussion of unaudited GAAP financial information as well as some unaudited non-GAAP financial measures. A press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. The press release is available on the Investor Relations section of AirMedia's website at ir.airmedia.net.cn. I would now turn the call over to our Chairman and CEO, Herman Man Guo.

Thank you, Raymond. Good morning and good evening everyone. Total revenues for the first quarter of 2013 reached USD64.5 million, representing a year-over-year decrease of 4.4% from USD67.5 million in the same period one year ago and a quarter-over-quarter decrease of 23.3% from USD84.2 million in the previous quarter. The year-over-year decrease was primarily due to decreases in revenues from traditional media in airports, digital TV screens on airplanes, other media and gas station media network, as well as China's replacement of regular business tax with value-added tax in Beijing, one of AirMedia's key regions of operations. The decrease was partially offset by the increase in revenues from digital frames in airports and digital TV screens in airports. I'd like to give you some more details on our year-over-year decrease in total revenues. We have been focusing on cost control so that we carefully consider returns rather than new concession rights contracts. We chose not to renew certain unprofitable or low-margin concession rights contracts at the end of 2012 which caused [inaudible] year-over-year decrease in revenues from our [inaudible] on airplanes and our traditional media in airports. Our goal choosing not to renew the [inaudible] concession rights contracts caused the decreases in revenues. This has [inaudible] us to improve profitability. In the future we may continue to optimize our media platform by not renewing unprofitable or low-margin media. We may see a decrease in our revenues and the corresponding decrease in concession fees due to decisions to not renew certain concession rights contracts which we expect will increase our profitability and margin ratio. Other than that, the year-over-year decrease between traditional in airports was also due to a reduction in the number of locations [inaudible] as a result of delay in casual media format upgrades. AirMedia was upgrading 18 light boxes at the [tram] locations inside Beijing Capital International Airport to be [inaudible] advertising format. But the upgrade is behind schedule. We were able to start the [other segments] in all of these locations as of May 2013. We expect to experience less negative impact in the second quarter from this delay compared to in the first quarter. In addition, the year-over-year decrease in total revenues [inaudible] due to China's replacement of regular business tax VAT in Beijing, one of our AirMedia's key regions of operation. As a result of our focus in our margins, although total revenues decreased, we made improvements on the bottom line. Net attributable to AirMedia's shareholders decreased year-over-year to USD3.6 million. We have been focusing on turning around our unprofitable product lines. As we announced today in a separate press release, our gas station media network received an investment of RMB640 million from Elec-Tech International Company Limited. The investment -- purchasing our ordinary shares representing approximately 21.27% of the actual [inaudible] AirMedia. They're primary operating entity of AirMedia's gas station media network. After the completion of the transaction, AirMedia [inaudible] in control 51.41% of the Elec-Tech interest [inaudible]. We intend to LED screens in our gas stations to further develop our increase in gas station media network. We believe LED screens which are larger and more eye-catching will be a suitable media for gas stations because they will substantially increase the advertising capacity of our gas station media network and dramatically reduce our operational costs in this media network. The [inaudible] media's current shareholders and the [inaudible] to use the full amount of Elec-Tech's investment to purchase LED screens from Elec-Tech, our subsidiary. We are excited about our partnership with Elec-Tech which enables us to explore the great potential and the brilliant prospects of our disciplined advertising in our gas station media network. We believe putting LED screens in our gas station media network is the right step to not only turn around this product [to life] but also to maximize the tremendous value of this network. We started the introduction of our new partner Elec-Tech to bring our [inaudible] affirmation of the value that we believe the new LED format will aid to our gas station media network, but also additional expertise in electronic display. We currently expect to operate 1,000 LED screens in our gas stations [inaudible] 2014 and expand to 2015 as well as 2016. We expect to see a significant increase in revenues from our gas station media network after we've reached our initial target of operating 1,000 LED screens in our gas stations. With that, I'd like to pass the call to [inaudible] to review our financial results in greater detail.

Thank you, Herman, and thanks to everyone for joining our first quarter 2013 earnings financial reviews. We made improvements in cost control in the first quarter of 2013. Cost of revenues for the first quarter of 2013 decreased by 4.3% year over year and by 8.1% quarter over quarter. While continuing to increase our revenues, eliminating the losses from our unprofitable product lines is equally important. The valuation of the recent investment in our gas station media network by Elec-Tech affirmed the unique value and promising prospect of our gas station media network. Now let me go through details of the first quarter financial results with you. Total revenue for the first quarter of 2013 reached USD64.5 million, representing a year-over-year decrease of 4.4% from USD67.5 million in the same period one year ago and a quarter-over-quarter decrease of 23.3% from USD84.2 million in the previous quarter. The year-over-year decrease was primarily due to decreases in revenues from traditional media in airports, digital TV screens on airplanes, other media and gas station media network, as well as China's replacement of regular business tax with VAT in Beijing. As you know, Beijing is one of AirMedia's key regions of operations. The decrease was partially offset by the increase in revenues from digital frames in airports and digital TV screens in airports. Next, product lines. Revenues from digital frames in airports for the first quarter of 2013 increased by 5% year-over-year and decreased by 17.8% quarter-over-quarter to USD33.5 million. The year-over-year increase was primarily due to additional revenues from the rapidly growing product line of mega-size LED screens, which added operations in additional airports. The quarter-over-quarter decrease was primarily due to a seasonally weak quarter in the first quarter of 2013. Next item, revenues from digital TV screens in airports for the first quarter of 2013 increased by 26.9% year-over-year and decreased by 49.1% quarter-over-quarter to USD2.8 million. The year-over-year increase was primarily due to the company's continued sales efforts. The quarter-over-quarter decrease was primarily due to a seasonally weak quarter in the first quarter of 2013. Next item, revenues from digital TV screens on airplanes, for the first quarter of 2013, decreased by 24.5% year over year and by 51.9% quarter over quarter to $3.8 million. The year-over-year decrease was primarily due to the decrease in revenues of digital TV screens on Air China's airplanes as AirMedia chose not to renew the transaction rights contract with Air China. The quarter-over-quarter decrease was primarily due to a seasonally weak quarter in the first quarter 2013 and the decrease in revenues of digital TV screens on Air China's airplanes. As we spoke earlier, [Air China] chose not to renew the concession rights contract with Air China. Revenues from traditional media in airports for the first quarter of 2013 decreased by 13.2% year-over-year and by 9% quarter-over-quarter to USD18.9 million. The year-over-year decrease was primarily due to a reduction in the number of locations for sale as a result of a delay in a scheduled media format upgrade and the expiration of the concession rights contract of most of AirMedia's traditional media in Shenzhen Baoan International Airport which AirMedia chose not to renew. AirMedia was upgrading 18 light boxes at prime locations inside Beijing Capital International Airport to a better advertising format, but the upgrade is behind schedule. The quarter-over-quarter decrease was primarily due to a seasonally weak quarter in the first quarter of 2013 and the expiration of the concession rights contract of most of AirMedia's traditional media in Shenzhen Baoan International Airport which AirMedia chose not to renew. Next is revenues from the gas station media network for the first quarter of 2013 decreased by 15.2% year-over-year and by 41.4% quarter-over-quarter to USD2.8 million. The year-over-year decrease was primarily due to the fact that some advertisers expressed interest in reserving their budgets for the LED screens that we plan to install in its gas stations, as well as China's replacement of regular business tax with VAT in Beijing. The quarter-over-quarter decrease was primarily due to a seasonally weak quarter in the first quarter of 2013. Now let's move on to other lines in the income statement. Cost, cost of revenues for the first quarter of 2013 was USD60.1 million, representing a year-over-year decrease of 4.3% from USD62.8 million in the same period one year ago and a quarter-over-quarter decrease of 8.1% from -- sorry, I beg your pardon -- USD65.4 million, I repeat USD65.4 million, in the previous quarter. The year-over-year and quarter-over-quarter decreases were primarily due to lower agency fees for third-party advertising agencies, which were partially offset by higher concession fees. Cost of revenues as a percentage of net revenues in the first quarter of 2013 was 94.5%, down from 95% in the same period one year ago and up from 79.1% in the previous quarter. Concession fees for the first quarter of 2013 increased by 6.2% year-over-year and by 2.3% quarter-over-quarter to USD46.2 million. The year-over-year and quarter-over-quarter increases were primarily due to newly signed or renewed concession rights contracts during the period. Concession fees as a percentage of net revenues in the first quarter of 2013 was 72.6%, increasing from 65.7% in the same period one year ago and from 54.6% in the previous quarter. Expenses, total operating expenses for the first quarter of 2013 were USD9.1 million, representing a year-over-year decrease of 10.9% from USD10.2 million in the same period one year ago and a quarter-over-quarter decrease of 15.1% from USD10.7 million in the previous quarter. Net loss attributable to AirMedia's shareholders for the first quarter of 2013 was USD3.6 million, compared to net loss attributable to AirMedia's shareholders of USD7.3 million in the same period one year ago and net income attributable to AirMedia's shareholders of USD3.4 million in the previous quarter. I will now go through some non-GAAP measures. These non-GAAP financial measures are calculated by excluding share-based compensation expenses, amortization of acquired intangible assets, impairment of goodwill and impairment of intangible assets from the corresponding GAAP measures. Non-GAAP adjusted operating expenses for the first quarter of 2013 were USD8.6 million for the first quarter, representing a year-over-year increase of 3.7% from USD8.3 million in the same period one year ago and a quarter-over-quarter decrease of 11.3% from USD9.7 million in the previous quarter. Non-GAAP adjusted operating expenses as a percentage of net revenues was 13.6% in the first quarter of 2013, compared to 12.6% in the same period one year ago and 11.8% in the previous quarter. Next, non-GAAP adjusted loss from operations was USD5.1 million for the first quarter of 2013 compared to adjusted loss from operations of USD5 million in the same period one year ago, and adjusted income from operations of USD7.5 million in the previous quarter. Non-GAAP adjusted operating margin was negative 8.1% for the first quarter of 2013 compared to negative 7.5% in the same period a year ago and a positive 9.1% in the previous quarter. Non-GAAP adjusted net loss attributable to AirMedia's shareholders was USD3.1 million for the first quarter of 2013 compared to adjusted net loss attributable to AirMedia's shareholders, a non-GAAP of USD5.4 million in the same period one year ago, and adjusted net income attributable to AirMedia shareholders, also non-GAAP basis, of USD4.4 million in the previous quarter. Next section we talk about our balance sheet. Cash, restricted cash and short-term investments totaled USD121 million as of March 2013, compared to USD126.3 million as of December-end 2012. The decrease in cash, restricted cash and short-term investments from December-end 2012 was primarily due to negative cash flow from operations. The capital expenditure for the first quarter of 2013 was USD0.8 million. Next is guidance for the second quarter. AirMedia currently expects its net revenues for the second quarter of 2013 to range from USD63 million to USD65 million, representing a year-over-year decrease of 7.5% to 4.6% from the same period in 2012 and a quarter-over-quarter decrease of 2.4% to a quarter-over-quarter increase of 0.7% from the previous quarter. AirMedia currently expects its transaction fees to be approximately USD46 million in the same -- in the second quarter of 2013, I beg your pardon. I repeat, approximately USD46 million in the second quarter of 2013 for the concession fees, which is relatively unchanged from the previous quarter. Moderator, would you please open the call for questions.

[Operator Instructions]. The first question in queue comes from the line of Gillian Chung calling from Morgan Stanley. Please ask your question.

Hello, Gillian, we cannot hear you. Can you speak louder? Gillian Chung – Morgan Stanley: Can you hear me now?

Yes, yes, we can. Sure. Gillian Chung – Morgan Stanley: Thank you for taking my questions. My first question is rather major advertising strategy, which of the high-performing categories and which categories are [inaudible]? And my second question is on the gas stations [inaudible] investment amount [inaudible] the high growth [inaudible] gas station advertising network, but we just want to understand how many [inaudible] and then [inaudible] and what kind of sales growth rate do you expect from such gas station offerings? Thank you.

Okay. Let me first relay the question first.

[Chinese language spoken]

Okay, Gillian, let me tell you the top advertising categories first. Also continue to be our top one advertising category was accounting for 28% of our total revenue. The second one is finance, accounting for about 13.6%. The third one is high-end food and beverage, accounting for abut 12.7%. The fourth is telecom, accounting for about 9%; then followed by consumer electronics, about 8%.

Okay. Gillian, it's Henry. Let me go through the gas station question. I see your questions are the timetable for putting in those LED screens and also the sales growth potential. Let me first look at the LED screen addition. Addition actually is not what I would call -- it's not a step-line function where putting in one after another, we're going through gas station to gas station, looking at the prime locations and where are the -- how we put it, which side you're facing, that kind of thing, and also we need to go through quite a few of this approval process including the three local government and also the Sinopec people because the fire precaution is a key concern. So let me take some of the key milestones. We think that by July 2014, that's about a year from now, we will have 1,000 LED screens up on operation. And then in the next two years, which means going to July 2016, we will have another 1,000. So in total 2,000 LED screens up on the gas stations. And we're focusing on the major cities rather than to the smaller cities, that's the strategy. And the sales growth, to me or to our management, we were growing through all the forecasting and stuff, and we think that between 5,000 to -- sorry, 500 to 1,000 screens would be effective kick-off level or [tail-off] level to attract the larger customers, and that the sales in 2014 would start to accelerate. And the pickup rate [inaudible] is actually in some years could be more than 100% because we're starting from a very low base, and we think that in like three to up until 2007, it could start to become less strong. But the first few years would be very, very strong. That's all from me on the gas station.

Gillian, does that answer your question? Gillian Chung – Morgan Stanley: Thank you. [inaudible] does that [inaudible] from the higher price or from the higher utilization?

You mean which product line? Gillian Chung – Morgan Stanley: The gas station. So we'll see immediate [inaudible] due to the operation of LED screens or do we see [inaudible]?

Let me translate this question to Herman first.

[Chinese language spoken]

Well, we have been operating gas station for several years. We experienced that in the gas station in downtown areas, advertisers have very high demand for those gas stations. But if the gas station is in a remote area like the [inaudible] then it has no demand. So we intend to put LED screens in about 2,000 gas stations [inaudible] gas stations in reputed downtown areas in Mainland China. We think the LEDs will have several advantages over our previous light boxes. The first one is this will increase our advertising capacity. Previously we have light boxes, we only have fixed capacity. But LED screens will increase our capacity to 18 to 30 advertisers per gas station. And the second one advantage is that the LED screen is not really eye-catching which will again draw my attention from the car drivers. The third one is it will dramatically reduce our operational costs. Previously it takes us about more than 15 days to put advertisement on the light boxes that we need people on the ground to put advertisements. But with the LED screens, it takes us less than one hour to put advertisements even simultaneously and operates -- we have no costs. We don't need people on the ground to put advertisements. We can put advertisements at our headquarter in Beijing. So we believe LED screens have a lot of advantages over the previous light boxes. Gillian Chung – Morgan Stanley: Thank you.

Thank you.

Operator, is there any more questions?

Your next question comes from the line of Wei Fang calling from CLSA. Please ask your question. Please ask your question. Wei Fang – CLSA: Hi. Thank you for taking my question. I have two quick questions. First one, was wondering, regarding the share sale to the Elec-Tech, how many shares is from newly issued shares or is there any from existing shareholders? Thank you.

Let me take the question. Thanks, Wei. For new shares that we're issuing, so we're diluting the existing shareholders. We were issuing new shares, so there is what I would call a share premium because of the price that they pay. Wei Fang – CLSA: Okay. So there's no shares from standing shareholders, right?

No. So, AirMedia and management continue to hold the same ratio before the dilution, and then it's proportional dilution. Wei Fang – CLSA: Okay. Thank you. And my second question, regarding the USD104 million, just wonder if this deal, cash transaction really occurred or is there any no cash changing hands in this deal? And also wondering, the one-off USD104 million, it sounds a lot to me. Not sure how many LED screens are you going to buy from the company and what's the average price per LED screen. And are those LED priced mark-to-market? Thank you.

Yes. Let me translate the question first. Thanks, Wei. On the three questions that you asked on the selling price of the acquisition price by Elec-Tech, it is in cash. However, in our contract there's a term that when -- after we receive the cash, we're committed to use the cash to buy LED screens from them. So it's like we use the cash to buy it direct from them, but then they're all in market price. So when the market [inaudible] we then, at the time of purchase we used what is the market price [inaudible]. In our estimate, it actually is very similar to the number of screens that we want to put on. We think that it's, based on the current prices, roughly like 2,000 screens. But of course, as I said, it will be market-driven rather than a pre-fixed price. Wei Fang – CLSA: Okay, thank you. So that sounds like you're going to do one screen per gas station, right?

Yes. Wei Fang – CLSA: Okay. Thank you. That's all my questions. Thank you.

Thanks.

Thanks a lot.

[Operator Instructions]. It appears there are no further questions at this time.

Okay, thanks. Thank you for attending everyone, and we look forward to speaking with you again soon. Bye.

Bye.

Bye-bye.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.