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

Ma Yu [ph] – ICBC International Peter Halesworth – Heng Ren Partners

Good morning, all sites, and welcome to the AirMedia Group Inc. First Quarter 2014 Earnings Conference Call. For the duration of the presentation, all lines will be placed in listen-only mode. There will 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 will be standing by for the Q&A session. Thank you. You may begin.

Hello everyone. Thank you for joining AirMedia’s first quarter 2014 earnings conference call. Today, Herman Man Guo, our Chairman and CEO, will present highlights for the first quarter 2014; 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’s presentations, please allow me to read to 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 discussions of important factors that could affect future results. Our press release and this call include discussions of unaudited GAAP financial information, as well as some unaudited non-GAAP financial measures. Our press release contains a reconciliation of 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 will now turn the call over to our Chairman and CEO, Herman Man Guo.

Thank you, Raymond. Good morning and good evening everyone. While maintaining our leading position in out-of-home advertising sector, we are in the process of turning around the company and transforming the company to obtain a leading position on wireless connectivity and digital cabin entertainment platforms in air and high-speed train travel in China. I would like to update you with some progresses made during the past quarter on both the turnaround and the transformation. On the turnaround side, we focused on improving our performance in airport advertising and strengthening our position in outdoor advertising. As for the gas station media network, our LED installation is on track. As of May 11, 2014, AirMedia operated LED screens in 395 gas stations in nine cities, compared to 300 LED screens in six cities as of February 28, 2014. With more LED screens installed in our gas station media network, we have already seen a boom in revenues from our gas station media network in the second quarter of this year. Regarding our unprofitable TV-attached digital frames, we fully launched our interactive platform in Beijing Airport in March 2014. We have seen increased number of users since the launch. However, we are still at the open base passive stage in which we try to fix track [ph] streamlining the process and improve our user experience. Currently, we plan to start enhancing promotion of such platforms in June. We also plan to launch these platforms in Shanghai in June. In addition to the above mentioned [ph] products, we continue to see year-over-year revenue growth from our mega-size LED screens. We believe we are in a good position to continue growth factored by our results of operating mega-size LED screens in 11 airports and the concessions rights in another three airports. We also started to boost our revenues from other product lines. To better motivate our employees, we are internally conducting a share structure reform of some of our operating entities. We believe the share structure reform will align the interest of our operating entities of management with the company’s interest, motivating them to improve the profitability of their entity, which will eventually increase the shareholder value of the listed company, Despite the seasonally weak quarter in the first quarter, revenues from traditional media in airports for the first quarter of 2014 increased by 3.1% quarter-over-quarter to US$14.6 million. The quarter-over-quarter increased by accelerating through ongoing share structure reform of the entity operating earnings of traditional media in the airports. Through our subsidiary management adopting some new management methods to increase revenues and improve profitability of the subsidiary motivated by ongoing share structure reform. On the transformation side, we also made exciting progress. Internet has become into the rail [indiscernible] similar even for tariffs on the go. We intend to obtain a leading position on wireless connectivity and digital cabin entertainment platforms in air and high-speed train travel in China. We believe the huge travel volumes by airlines and high-speed trains have great commercial life [ph]. Guangzhou Meizheng, one of our consolidated entities, has recently won a bidding and entered into an agreement with Guangzhou Railway Group Corporation to commercialize Wi-Fi services on high-speed rail. We are excited about this new development in our digital transformation to build a nationwide wireless coverage on airplanes and high-speed train to reach hundreds of millions of travelers. We expect our recent strategic movement into Wi-Fi services in the air and on high-speed rail to open a new era for AirMedia and to bring tremendous growth to the company in the future. We intend to continue expanding our territory inside and onto Wi-Fi network to more airlines and more railways. With that, I would 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 first quarter 2014 financial reviews. Our year-over-year net revenue decrease has slowed down to 1% in the first quarter of 2014, compared with 4.6% and 6.6% in the third quarter and fourth quarter of 2013, respectively. The narrowed gap reflected the fact that the growth of our other product lines, such as mega-size LED screens, has made up the shortfall of revenues due to our termination of some unprofitable or low margin contracts in 2013. Our total operating expenses increased 19.8% year-over-year due to the incremental expenses associated with our new business initiatives, which we expect to be the growth drivers for the company in the long-term. Despite the decrease in net revenues and increase in total operating expenses year-over-year, we still made improvements on gross profit, we have reduced loss from operations and reduced net loss attributable to AirMedia shareholders and demonstrated the effectiveness of our efforts on turning around the company. Now let me go through the details of our first quarter financial results with you. Total revenues for the first quarter of 2014 reached US$63.4 million, representing a year-over-year decrease of 1.8% from US$64.5 million in the same period one year ago, and a quarter-over-quarter decrease of 19.3% from US$78.6 million in the previous quarter. The year-over-year decrease was primarily due to decreases in revenues from traditional media in airports, which were primarily caused by AirMedia’s termination of the operations of certain unprofitable or low-margin contracts. The quarter-over-quarter decrease was primarily due to decreases in revenues from most product lines other than traditional media in airports and other media. Let’s go through each product lines. Revenues from digital frames in airports for the first quarter of 2014 increased by 5% year-over-year and decreased by 22.6% quarter-over-quarter to US$35.2 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 2014. Revenues from digital TV screens in airports for the first quarter of 2014 decreased by 1.7% year-over-year and by 47% quarter-over-quarter to US$2.7 million. The quarter-over-quarter decrease was primarily due to a seasonally weak quarter in the first quarter of 2014. Revenues from digital TV screens on airplanes for the first quarter of 2014 increased by 12.8% year-over-year and decreased by 7.3% quarter-over-quarter to US$4.3 million. AirMedia did not renew its concession rights contract with Air China, which expired on December 31, 2012, but regained some advertising time on Air China’s airplanes on August 1, 2013. The year-over-year increase of revenues from digital TV screens on airplanes was primarily due to the increase in revenues from digital TV screens on Air China’s airplanes. The quarter-over-quarter decrease of revenues from digital TV screens on airplanes was primarily due to a seasonally weak quarter in the first quarter of 2014. Revenues from traditional media in airports for the first quarter of 2014 decreased by 22.7% year-over-year and increased by 3.1% quarter-over-quarter to US$14.6 million. The year-over-year decrease was primarily due to AirMedia’s termination of certain unprofitable or low-margin contracts. AirMedia decided not to renew the concession rights contracts for the billboards and painted advertisements on the gate bridges of Terminal 3 in Beijing Airport in May and July 2013 after the expiration of the relevant contracts. The quarter-over-quarter increase was primarily due to better operational results of Beijing Weimei Lianhe Advertising Company Limited, which is the entity operating AirMedia’s traditional media in airports. The subsidiary management adopted new management methods to increase revenues and profitability of the subsidiary motivated by the share structure reform. Revenues from the gas station media network for the first quarter of 2014 decreased by 1.3% year-over-year and by 37.7% quarter-over-quarter to US$2.8 million. The year-over-year decrease was primarily due to temporary service suspension caused by the gap between the retirement of the old scrolling light boxes and the full operation of the replacing new LED screens in gas stations in many cities. The quarter-over-quarter decrease was primarily due to a seasonally weak quarter in the first quarter of 2014. Let’s move onto other lines in the income statement. Cost of revenues for the first quarter of 2014 was US$57.2 million, representing a year-over-year decrease of 4.8% and a quarter-over-quarter decrease of 11.9% from US$65 million in the previous quarter. The year-over-year decrease was primarily due to lower concession fees and lower depreciation in the first quarter of 2014.The quarter-over-quarter decrease was primarily due to lower agency fees for third-party advertising agencies, lower concession fees, and lower depreciation in the first quarter of 2014. Cost of revenues as a percentage of net revenues in the first quarter of 2014 was 90.9%, down from 94.5% in the same period one year ago and up from 84.1% in the previous quarter . Concession fees for the first quarter of 2014 decreased by 7.7% year-over-year and by 6.7% quarter-over-quarter to US$42.6 million. The year-over-year and quarter-over-quarter decreases were primarily due to the expiration of some concession rights contracts which AirMedia chose not to renew. Concession fees as a percentage of net revenues in the first quarter of 2014 was 67.6%, decreasing from 72.6% in the same period one year ago and increasing from 59.1% in the previous quarter. The year-over-year decrease of concession fees as a percentage of net revenues was primarily due to the fact that concession fees decreased faster than net revenues. The quarter-over-quarter increase of concession fees as a percentage of net revenues was primarily due to the fact that net revenues decreased faster than concession fees. Total operating expenses for the first quarter of 2014 were US$10.9 million, representing a year-over-year increase of 19.8% from US$9.1 million in the same period one year ago and a quarter-over-quarter decrease of 23.6% from US$14.3 million in the previous quarter. Net loss attributable to AirMedia’s shareholders for the first quarter of 2014 was US$3.5 million, compared to net loss attributable to AirMedia’s shareholders of US$3.6 million in the same period one year ago and net income attributable to AirMedia’s shareholders of US$1.5 million in the previous quarter. Adjusted EBITDA, a non-GAAP measure, attributable to AirMedia’s shareholders non-GAAP, which is EBITDA attributable to AirMedia’s shareholders excluding share-based compensation expenses was negative US$422,000, compared to adjusted EBITDA non-GAAP of US$1 million in the same period one year ago and adjusted EBITDA non-GAAP of US$4.7 million. Next, let’s talk about our balance sheet. Cash, restricted cash and short-term investments totaled US$115.9 million as of March 31, 2014, compared to US$113 million as of December 31, 2013. The capital expenditure for the first quarter of 2014 was US$2.8 million. AirMedia currently expects its net revenues for the second quarter of 2014 to range from US$61 million to US$64 million, representing a year-over-year decrease of 3.7% to a year-over-year increase of 1% from the same period in 2013 and a quarter-over-quarter decrease of 3.2% to a quarter-over-quarter increase of 1.6% from the previous quarter. AirMedia currently expects its concession fees to be approximately US$45 million in the second quarter of 2014, representing a quarter-over-quarter increase of 5.7% from the previous quarter, primarily due to concession rights contract entered into during the quarter. Moderator, would you please open the call for questions.

Certainly. (Operator Instructions) Our first question comes from the line of Ma Yu [ph] from ICB International. Please ask your question. Ma Yu [ph] – ICBC International: Good morning, Herman, Henry and Raymond. Thanks for taking my questions. I had three questions here on first quarter 2014 [ph] earnings. Regarding to our first quarter earnings, could you share with us, how much of the revenue year-over-year decline was driven by company’s termination of some low margin contracts, and maybe how much impacted by the China’s anticorruption impaction on the overall business? And how would we expect this impact for the coming quarters of this year? Thank you.

Thank you. It’s Henry here. Could you give me a second, and then I’ll translate it back to you. Give me a second. Ma Yu [ph] – ICBC International: Okay.

Hi. I’ll just go through it myself. Now, the fourth quarter earnings and also the first quarter comparison, there is a change in the gate bridge revenue which we have not renewed. And the difference year-over-year is approximately US$7 million. As to your second part of the question on anticorruption, we believe a lot more of our revenue outlook and our revenue performance are due to the overall economic condition and also the specific industry sectors like, for example the car industry has been very strong recently. I think these are more important drivers and there is no easy way of identifying all these anticorruption and what is the impact on our customers. Now, what we look at in the coming quarter is that the economic outlook had continued to be pretty tough and we expect only flat overall revenue change. The only bright part that, Herman, has already indicated is that we have two turnaround measures. And first is the gas station, which we expect in the second half to generate high revenue as we put in over 500 LED screens in our cities. The second is the small frame or the digital-attached frames on airport TVs. These, we are going through a lot of changes in making them interactive and we expect customers to put in a lot more orders in the second half as well. I think these would be specific earnings drivers that we looked at. The overall economic outlook is not very bright from our point of view. Thank you. Ma Yu [ph] – ICBC International: Thank you. I’ll take a follow-up and the question is regarding to say, for Herman. Could you share with us what is overall trend of digital media advertising business in China? How should we expect as online social advertising [indiscernible] the growth in this area. What impact would be for the long-term for our business? [Foreign Language – Chinese]

[Foreign Language – Chinese]

Thank you for the questions. And I’ll translate what our CEO, Herman Guo has said. The internet advertising, it’s a interactive platform and they have been growing more rapidly than traditionally media. That poses a challenge to the traditional media like TVs and print media. On the outdoor side, yes, we’re still growing but less strong compared to the internet interactive media as well. However, from AirMedia’s angle where we look at our dominance at the airports, we believe combining the outdoor model of advertising plus an interactive internet-related media operation, when we combine the two, then we will have a lot more strength in going to our advertising customers. This is a direction that we are going into as we have discussed earlier. Thank you. Ma Yu [ph] – ICBC International: Thank you. A second question regarding to the gas station media business. What is the main reason for the revenue declines this quarter and what should we expect for this business [indiscernible] this year?

I beg your pardon, I believe your question is that why revenue has gone down and where do we expect that to get better in the future. Is that for a specific sector that you’re referring to? Ma Yu [ph] – ICBC International: Regarding to the gas station media business, and also I remember you had mentioned those avenues in earlier earnings saying that you expect this business to reach breakeven this year.

Yes. Ma Yu [ph] – ICBC International: An update on this business.

Thank you. Thank you very much on the gas business. Let me get back to you in a minute. Ma Yu, I want to translate that. Just a second. Ma Yu [ph] – ICBC International: Sure.

Okay. Yes, on the gas station. As we were going through those numbers earlier, now we have been installing LEDs since the fourth quarter of last year. As of February in this year 2014, we already 300 LEDs for sale and today, as of May 11, we have 395 LED screens for sale already. That’s among nine cities. And then by the end of this year, we target 1,000 LED screens. Now, this is a networking building stage that, first of all, there are lot of initial expenses and then we are cutting down or putting down, locking down all these old scrolling light boxes and replacing them with LED. So there are gaps in between that we cannot sell, but when once the LED screens reaches 500, which we think is a nationwide network minimum, then we expect revenue to grow very rapidly. Let me give you some indications. When we are going through our internal management forecast, now remind you this is not a guidance for investors but when we look at it, we expect, first of all, the revenue growth in the – we expect in the second quarter to come in at around about 50% compared with the previous quarter. Let me check the numbers again. And then when we look at the second half, we’re looking at even higher growth in revenue. That’s our sales sites forecast. Now these are very encouraging numbers, because they are seeing customers coming in. Secondly, they are seeing all these LEDs are actually getting better and better in terms of when you’re running it initial stage, there are tests, there are difficulties in translating messages. Now they are all on target. So this is a very positive development and I can only make sure we feel our internal expectations. Thank you. Ma Yu [ph] – ICBC International: Thank you, Herman Guo [ph]. And the last question regarding your guidance. What gross margin – operating margin should we expect for the coming quarters of this year?

Okay, let me get back to you in a minute. For guidance, we do not give out earnings guidance, we only give our revenue guidance which we indicated earlier is between US$61 million to US$64 million for the next quarter. And also our concession fees, we’re expecting that to be US$45 million. And a lot of it is due to new concession rights, in particular, on the train development that we’re starting to pay concession fees next quarter. Thank you. Ma Yu [ph] – ICBC International: Okay. Thank you. That’s all my questions. Thank you very much.

Thank you.

Thanks a lot.

Thank you. There are no further questions in queue. (Operator Instructions) We have a further question from the line of Peter Halesworth from Heng Ren. Please ask your question. Peter Halesworth – Heng Ren Partners: Hi, just a question for an update regarding your in-the-air Wi-Fi service. Is it still on track for implementation with Hainan Airlines this year? If you have more specifics on the timeline, and you’ve been very quiet about that over the past – during this call and in your press release, and I am wondering if it’s on hold. And then secondly, are there other potential airlines also going to the customers for this service?

Thank you very much, Peter. Give me a second and then I’ll come back to you. Peter, hi, it’s Henry here. Very good question on air Wi-Fi because that’s a major project that we have we think that that will become a large part of our business. Now, the program has been on track. We have been doing testing and we have been talking to – negotiating contracts with the suppliers and the airlines as to who is doing what. Now, in Hainan Airlines, among them one of their subsidiary or associate airlines is called Capital Airlines. We already have worked out a timetable of a technical installation of all these with entity [ph] and everything that should message us to the satellite and we expect a test flight in September or October this year. We already applied for FAA and CAAC approval and we expect that to come around December of this year. So these are all in progress. The technical partners, we have not restricted us to anyone. We have been looking at different suppliers with the systems and also we have been already close to signing up with the satellite suppliers as well. So these are on very good progress. On other airlines, yes, because of our past relationship with all these airlines we know – we work with them very closely before and we have all been talking with the major airlines in China as to signing up more Wi-Fi contracts. And hopefully we will report to you later this year, but there is nothing timed as of today. Peter Halesworth – Heng Ren Partners: Okay. And just to follow-up on that. Do you notice that the telecom operator maybe seeking to get involved in this service as well? We see here in the U.S. that AT&T is making a move and I am just wondering if you’re seeing similar type of motivation from the Chinese telecom operators.

Thank you, Peter. Peter, that’s very good exchange of information. Let me talk to my CEO and then I’ll get back to you in a minute. Give me a second. Peter, the situation in China as we know is that we, as AirMedia, when we work with Hainan Airlines we are like the platform operator. We connect everything from the customer to the satellite and town to the ground station and to the telecom operators. So actually the telecom operators are one of our business partners, but we work with them together. This is the way that we, here in China work. So I don’t – we don’t operate in U.S. so we have not seen the same situation as you described.

[Foreign Language – Chinese]

Very well. My CEO was just mentioning that in China, the telecom operators have not indicating in investing in the Wi-Fi installations. Whereas in our case, we invest – we work with the airlines and we put in everything and then we use telecom operators as a service provider. So this is the business operating model here in China. Peter Halesworth – Heng Ren Partners: Just one quick follow-up before I go. I wanted to ask you, and you say you have good relationships between airlines, but it seems that you are not selling them anything since you were selling them in-cabin entertainments and these relationships might be cold [ph]. Do you have any service agreements with any of the airlines right now other than the Wi-Fi agreement that gives you entrée and that has a foot in the door with these airlines?

Okay. Give me one second again, Peter. Peter Halesworth – Heng Ren Partners: Sure.

Peter, on the relationship with the airlines, actually we have been operating – we have been working with the airlines over the years of the major airlines in selling, like we operate in-flight TV programs. We do give them entertainment programs. We have also the rights to broadcast Chinese movies on airplanes. And we have been selling to them for many years now. So these are the existing relationship. And that is why it is leaving us into working with them on the Wi-Fi. We think that we have a very strong inroad into these airlines. Peter Halesworth – Heng Ren Partners: Okay. So then, you are still doing that, providing the in-flight entertainment services. You are still doing that. Is that correct?

Yes, we do. We provide them with advertisement with customers and also the content, in particular, the movies we do have exclusive rights to a lot of the local production TVs and movies. Peter Halesworth – Heng Ren Partners: Okay. Very good. Thank you very much, and I appreciate your response. Thank you.

Thank you so much, Peter.

There are no further questions. (Operator Instructions) As there appears to be no further questions, I’ll now hand the call back to Mr. Raymond Huang.

Okay. Thank you everyone for joining our conference call. We’d like to talk with you next time. Thank you.

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