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

Gillian Chung – Morgan Stanley

Good morning all sites and welcome to the AirMedia Group Inc. Second Quarter 2013 Earnings Conference Call. For the duration of the presentation, all lines will be placed in a listen-only mode. There'll be opportunity to ask questions after the presentation, which instructions will be provided at a later stage. Now I would like to hand the call over to Mr. Raymond Huang, Senior Director of Investor Relations of the company. And I'll be standing by for the Q&A session. Thank you. You may begin.

Hello everyone. Thank you for joining AirMedia's second quarter 2013 earnings conference call. Today Herman Man Guo, our Chairman and CEO, will present highlights for the second 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 cause -- that could affect future results. Our press release and this call include discussion of unaudited GAAP financial information as well as some unaudited non-GAAP financial measures. Our 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 second quarter of 2013 reached US$64.3 million, representing a year-over-year decrease of 5.6% from US$68.1 million in the same period one year ago, and remaining relatively unchanged from the previous quarter. The year-over-year decrease was primarily due to decreases in revenue from most product lines other than digital frames in airports. The year-over-year decrease was also partially due to AirMedia's termination of operations of certain unprofitable or low-margin contracts as well as China's replacement of regular business tax with VAT in Beijing, one of AirMedia's key regions of operations. We faced a challenging advertising environment in the second quarter of 2013. Automobile and finance, our top two advertising categories, declined year-over-year due to the slowdown of China's economic growth and reduced conspicuous consumption in China. And high-end food and beverages, our third-most popular advertising category, also saw a quarter-over-quarter decline in the second quarter after a strong first quarter. Advertisers are now more cautious in their advertising spending and tended to shift budgets to the advertising platforms which they trust and believe are effective. We are happy to see that our digital frames, which included mega-size LED screens, continued to grow 14.9% year over year and 1.7% quarter over quarter. With the addition of operations of mega-size LED screens in Hohhot Baita Airport and Terminal 3 in Beijing airport, we now operate mega-size LED screens in nine airports, compared with seven airports in the middle of May 2013. To cope with the harsh advertising environment, we are focusing on increasing our profitability by building a nationwide network of mega-size LED screens, not renewing our unprofitable or low-margin concession rights contracts, and turning around our unprofitable product lines. We have not renewed several relatively large contracts which were unprofitable or low-margin since the end of last year, which partially contributed to our year-over-year revenue decreases in the recent quarters. These concession rights contracts included traditional media in Shenzhen Airport and most recently the advertisements on the gate bridges of Terminal 3 in Beijing Capital International Airport. Altogether these terminated contracts represented approximately [US$10.3 million] in revenues in total in the second quarter of last year, compared with US$4.9 million in the second quarter of this year. Although choosing not to renew these concession rights contracts caused the declines in revenues, it has helped us to improve profitability. As for the unprofitable product lines, we recently extended our concession rights contract with Sinopec to end of 2020, and received approval from Sinopec to install LED screens in its gas stations. Our expansion of the concession rights contracts with Sinopec helps us further develop a nationwide network of LED screens in gas stations. We expect to see a significant increase in revenues from our gas station media network after we reach our initial target of operating 1,000 LED screens in gas stations. With Sinopec's full support, we are currently on track in installing LED screens in the Sinopec gas stations. For TV-attached digital frames, another one of our unprofitable product lines, we are doing some research and testing for interactive media format on our TV-attached digital frames in order to attract a larger portion of our advertisers' budgets. As you know, most of our advertising (inaudible) advertising value. Other than that, they (inaudible) by the [core] events and promotion (inaudible) interactive technology which we are currently researching and (inaudible) air passenger (inaudible) of a new car model or [get coupons] from advertisers (inaudible). We believe this interactive format can help us to obtain orders from advertisers decent portion of budget. With that, I'd like to pass the call to Henry Ho, our CFO, to review our financial results in greater detail.

Thank you, Herman, and thank you everyone for joining our second quarter 2013 financial review. Before I talk about the quarterly results, I'd like to point out that although the company had net losses under US GAAP in the past several years, we were not burning cash in 2011 and 2012. In fact, total cash, restricted cash and short-term investments continued to increase in 2011 and 2012. Although we are facing an unfavorable advertising environment, we believe that our strong cash balance is a solid foundation for the company to get through this difficult time. Now let me go through the details of our second quarter financial results with you. Total revenues for the second quarter of 2013 reached US$64.3 million, representing a year-over-year decrease of 5.6% from US$68.1 million in the same period one year ago and remaining relatively unchanged from the previous quarter. The year-over-year decrease was primarily due to decreases in revenues from most product lines other than digital frames in airports and also was partially due to AirMedia's termination of operations of certain unprofitable or low-margin contracts as well as China's replacement of regular business tax with VAT in Beijing, one of AirMedia's key regions of operations. Let's go through each product line. Revenues from digital frames in airports for the second quarter of 2013 increased by 14.9% year over year and by 1.7% quarter over quarter to US$34.1 million. The year-over-year and quarter-over-quarter increases were primarily due to additional revenues from the rapidly growing product line of mega-size LED screens which added operations in additional airports. Revenues from digital TV screens in airports for the second quarter of 2013 decreased by 22.3% year over year and by 3.7% quarter over quarter to US$2.7 million. The year-over-year decrease was primarily due to a drop in demand from advertisers as a result of competition from AirMedia's other product lines. The quarter-over-quarter decrease was primarily due to a challenging advertising environment in the second quarter of 2013 caused in part by a slowdown of China's economic growth. Revenues from digital TV screens on airplanes decreased by 53.5% year over year and by 12.2% quarter over quarter to US$3.3 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 concession rights contract with AirMedia, as well as a challenging advertising environment in the second quarter of 2013. The quarter-over-quarter decrease was primarily due to a challenging advertising environment in the second quarter of 2013. Revenues from traditional media in airports for the second quarter of 2013 decreased by 11.1% year over year and by 2.5% quarter over quarter to US$18.5 million. The year-over-year decrease was primarily due to AirMedia's termination of certain unprofitable or low-margin contracts and a challenging advertising environment in the second quarter of 2013. AirMedia chose not to renew the concession rights contract of most of AirMedia's traditional media in Shenzhen Baoan International Airport at the yearend of 2012 and -- sorry. I beg your pardon -- and the advertisements on the gate bridges of Terminal 3 in Beijing Airport in the middle of May 2013 after the expiration of the relevant contracts. The year-over-year decrease was primarily due to the expiration of the concession rights contract for the billboards and painted advertisements on the interior of the gate bridges of Terminal 3 of Beijing Airport. Revenues from the gas station media network for the second quarter of 2013 decreased by 1.8% year over year and by 19.8% quarter over quarter to -- sorry -- to US$2.2 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 AirMedia plans 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 the fact that some advertisers expressed interest in reserving their budgets for the LED screens that AirMedia plans to install in its gas stations. Let's move on to other lines in the income statement. Cost of revenues for the second quarter of 2013 was US$60.1 million, representing a year-over-year increase of 0.4% from US$59.8 million in the same period one year ago and a quarter-over-quarter decrease of 0.1% from US$60.1 million in the previous quarter. The year-over-year increase was primarily due to higher concession fees which were partially offset by lower agency fees for third-party advertising agencies. There was a partial reversal of certain previously accrued agency fees of US$1.5 million in the second of 2013 that were waived by the relevant -- sorry -- the related agents. Cost of revenues as a percentage of net revenues in the second quarter of 2013 was 94.8%, up from 89.9% in the same period one year ago and up from 94.5% in the previous quarter. Concession fees for the second quarter of 2013 increased by 3.3% year over year and by 0.6% quarter over quarter to US$46.4 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 second quarter of 2013 was 73.2%, increasing from 67.5% in the same period one year ago and from 72.6% in the previous quarter. The year-over-year and quarter-over-quarter increases of concession fees as a percentage of net revenues were primarily due to the fact that net revenues decreased while concession fees increased because of newly signed or renewed concession rights contracts. Total operating expenses for the second quarter of 2013 were US$10.3 million, representing a year-over-year increase of 11.2% from US$9.2 million in the same period one year ago and a quarter-over-quarter increase of 12.6% from US$9.1 million in the previous quarter. Net loss attributable to AirMedia's shareholders for the second quarter of 2013 was US$4.9 million, compared to net loss attributable to AirMedia's shareholders of US$1.5 million in the same period one year ago and net loss attributable to AirMedia's shareholders of US$3.6 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 acquisition intangible assets, impairment of goodwill and impairment of intangible assets from the corresponding GAAP measures. Non-GAAP adjusted loss from operations was US$6.5 million for the second quarter of 2013, compared to adjusted loss from operations of US$0.65 million in the same period one year ago and adjusted loss from operations of US$5.1 million in the previous quarter. Non-GAAP adjusted operating margin was negative 10.2% for the second quarter of 2013, compared to negative 1.0% in the same period one year ago and negative 8.1% in the previous quarter. Non-GAAP adjusted net loss attributable to AirMedia's shareholders, the non-GAAP number was US$4.5 million for the second quarter of 2013, compared to adjusted net income attributable to AirMedia's shareholders, non-GAAP, of US$339,000 in the same period one year ago, and adjusted net loss attributable to shareholders of AirMedia, non-GAAP, of US$3.1 million in the previous quarter. Next, let's talk about our balance sheet. Cash, restricted cash and short-term investments totaled US$125.2 million as of June 30, 2013, compared to US$126.3 million as of December 31, 2012. The capital expenditure for the second quarter of 2013 was US$31.2 million which was primarily for purchasing LED screens to be installed in our gas station media network. AirMedia currently expects its net revenues for the third quarter of 2013 to range from US$69 million to US$71.0 million, representing a year-over-year decrease of 3.3% to 0.5% from the same period in 2012 and a quarter-over-quarter increase of 8.9% to 12% from the previous quarter. AirMedia currently expects its concession fees to be approximately US$43.0 million in the third quarter of 2013, representing a year-over-year decrease of 3.4% from the same period in 2012 and a quarter-over-quarter decrease of 7.4% from the previous quarter. I believe the above third quarter 2013 guidance numbers deserve an elaboration. Net revenues minus concession fees using the guidance numbers of ours amount to US$26 million to US$28 million for the third quarter of 2013. This gap is wider than the respective numbers of US$17 million in the second quarter of 2013. This wider gap of US$9 million to US$11 million is in my view a good indication of our efforts on increasing the profitability of the company. We believe we are on the right track in cutting losses and turning around the company. Moderator, would you please open the call for questions?

Certainly. Ladies and gentlemen, we'll now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Jin Yoon from Nomura. Please ask your question.

Hi. [Jung] calling for Jin Yoon. Thank you for taking my questions. So my first question is on the impact of the change of tax. So can you comment on the net impact of the tax reform to your bottom line?

Let me translate the question first and we'll answer your question later.

Okay. And my second question is that you mentioned that you have chosen not to renew certain concession rights and which can impact your top line, and my question is that on an apple to apple basis, what is the organic growth for the quarter?

Thanks, [Jin]. It's Henry. On your first question, the VAT impact, previously business tax is about 3-point-something, now VAT is about 6%, so the difference is about 2.5% to 3% additional. So that's the first impact. The second, instead of the (inaudible) we're putting in quite a few new lines, we just talked about the four contracts that we chose not to renew. And if you compare year on year the quarter -- the gap of the revenue that we should have received from these and also what we now receive because there are some remaining of these contracts, the difference is about US$9 million to -- US$8 million to US$9 million. So that's what we have lost due to the non-renewal of these contracts. The rest is because we have new businesses and old going on, so these different business lines have different organic growth rates. But you can work out for the total, for yourself, of the remaining. That's for me.

Does that answer your question?

Yes. And I have another question on your Q3 guidance. Can you talk about the presales measure for the -- for Q3 and also about the performance of auto and finance sector given the soft performance in Q2, are we seeing any recovery in Q3?

Let me translate the question first.

Okay. It's Henry here. On the presale ratio for the third quarter, we've already got booking of roughly about 70% of our expectation. So the first. The second is for auto and finance, good news and bad news. For the auto there has been about a couple of percent increase out of our total ratio of different industries. Auto compared to last quarter has gone by about 2% from 27.6% to 29.8% of our total revenue. However, on the finance, we haven't seen any improvement, actually there's a decline of about 1%, down to, in the second quarter, of 12.7% finance out of the total revenue. These are what I've got for you.

Got it. Thanks very much.

Thank you, [Jin].

Our next question comes from the line of Gillian Chung from Morgan Stanley. Please ask your question. Gillian Chung – Morgan Stanley: Hi. Thank you for taking my question. I have two questions. First one is, is it possible to share with us the advertising sales breakdown by the advertising category? And my second question is, would you please give us a breakdown of your guidance by business segment for third quarter? Thank you.

The first one, the auto accounted for about 30% in Q2, which we see a year-over-year decline, but we saw a quarter-over-quarter increase of 6% in Q2. And finance accounted for about 13%, which decreased both year over year and quarter on quarter. And the third one is high-end food and beverage which accounted for about 9%. We saw a slight year-over-year decrease but decreased very much in the second quarter. The fourth one is consumer electronics which accounted for about 8%. And the fifth one is industrial goods which also accounted for about 8%.

(Chinese language spoken)

Gillian? Gillian Chung – Morgan Stanley: Hello? My second question was, is it possible to provide us with the breakdown of your guidance by business segment, like for both -- third quarter guidance? Thank you.

Maybe let us answer the question later. Do you have any other questions right now? We -- Gillian Chung – Morgan Stanley: So for the margin trend, what is your view on the margin trend for the rest of this year? Thank you.

Okay.

(Chinese language spoken)

Although we're still facing an unfavorable economy in China, but we still believe there is seasonality in the third quarter and the fourth quarter. Talking about seasonality, which means the third quarter should be better than Q2, and fourth quarter will be the strongest quarter of the year. Looking at our guidance in Q3, we also see a strong growth quarter on quarter which shows some seasonality. And talking about your previous question, about the breakdown, Henry will answer the question.

Thank you. I've got all these for you. There is -- well, before tax. Let's do it before the business tax. There are some remaining ones with tax. Now out of the electronic media and gas station, it's about US$50 million. And the other -- some other businesses, there are quite a few, including some of the traditional media and all the others, we have US$13 million. And then -- okay, the LED, mega-size LED is about US$7 million. And then there's -- if you add them together, it's about US$72 million roughly. So we take out the tax effect, that will be US$69 million to US$70 million roughly.

Hello? Gillian Chung – Morgan Stanley: Thank you.

There are no further questions at this time. (Operator Instructions). Our next question comes from the line of James Lee from CLSA. Please ask your question.

Hi. Thank you for taking my question. This is [Wei] calling for James. Just one quick question, I noticed that your guidance on the concession fee is sequentially down by US$3 million also. Just wondering, is this pretty much due to your concession contracts cancellation from the Beijing Airport or is there anything else we need to be concerned? Thank you.

Yes, that's mainly due to our termination of the contract of the gate bridges of the Terminal 3 in Beijing.

Okay. Just a follow-up quick question, quickly. So when you say you terminate all those non-profit or low margin, is the Beijing operation included in low margin or just unprofitable? Thanks.

The Beijing contract is barely breakeven, very, very little profit.

Okay, got it. Okay. That's very helpful. Thank you.

Thank you.

There are no further questions. (Operator Instructions). If there are no further questions, I will hand back to our speakers for today for any closing remarks.

Okay. Thank you all for your attendance. We look forward to speaking with you again soon.

Thank you very much. Ladies and gentlemen, that does conclude our conference for today. Thank you so much for your attendance. You may all disconnect.