Raymond Huang – IR Director Herman Man Guo – Chairman and CEO Richard Wu – CFO

Na You – ICBC International Wei Fan – CLSA

Good morning all sites, and welcome to the AirMedia Group Inc.'s Third Quarter 2014 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. And I will be standing by for the Q&A session. Thank you. You may begin.

Hello everyone. Thank you for joining AirMedia's third quarter 2014 earnings conference call. Today Herman Man Guo, our Chairman and CEO, will present highlights for the third quarter 2014, and Richard Wu, our CFO, will provide details on our financial results. Following their prepared remarks, the management team will be available to take your questions. Before the management's presentations, 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 discussions of important factors that could affect future results. Our press release and this call include a 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 will now turn the call over to our Chairman and CEO, Herman Man Guo.

Thank you, Raymond. Good morning and good evening everyone. Although the third quarter results were less than satisfactory, we strongly believe it was temporary and the company will have a brilliant future. We are in the process of adopting various measures to bring the company back to profits, which we expect to have substantial positive impact on our earnings in early next year. These measures are expected to include, for instance, a decrease in our concession fees with certain airports through negotiation, upgrade of some of our media resources to better media formats, and spinoff of certain unprofitable product lines. Some of our product lines, such as mega-size LED screens, standalone digital frames and traditional media in airports, have been generating good profits. We expect the spinoff of the unprofitable product lines to improve our overall financial performance. We have made exciting progress on our transformation to be an in-flight and on-train WiFi operator. In the third quarter, we continued to increase our market of on-train WiFi business. With the new concession rights contract we recently obtained for WiFi operation on high-speed trains operated by Shanghai Railway Bureau and on ordinary speed trains operated by Xinjiang Railway Bureau, we already have a leading position in the on-train WiFi business. As you may be aware, commercial WiFi has been a hot sector that internet companies are scrambling for. For example, Alibaba has invested in WiFi. Tencent has its new WiFi project. And Xiaomi invested in WiFi. Compared to restaurants and shopping malls, in-flight WiFi and on-train WiFi are unique in terms of the enclosed the environment and the longer period of audience interaction. We believe in-flight WiFi and on-train WiFi are precious WiFi gateways that internet and mobile internet companies are eager to gain access to. We endeavor to seek partnership with world-class internet companies to leverage and monetize our WiFi access. We expect such partnership to bring us investment, technology and operation experience. We continued to expand our nationwide network of mega-size LED screens in the third quarter with additions in Tianjin, Sanya, Nanning and Qingdao airports, which increased the number of airports we have mega-size LED screens in operation to 16 airports. With that, I'd like to pass the call to Richard Wu, our CFO, to review our financial results in detail.

Thank you, Herman, and thank you everyone for joining our third quarter 2014 financial review. Although our total revenues were flat compared with the previous quarter, our main business continued its sequential growth in the third quarter. There was $2.8 million revenues from film distribution in the second quarter of 2014, which tend to fluctuate in a wide range from quarter to quarter and may complicate a correct reading of our quarter-over-quarter comparison. Our third quarter revenues from the rest of our business continued to grow steadily quarter over quarter. Now let me go through the details of our third quarter financial results with you. Total revenues for the third quarter of 2014 were $62.9 million, which represented a year-over-year decrease of 8.9% from [$89] (ph)million in the same period one year ago and a quarter-over-quarter increase of 1.3% from $62.1 million in the previous quarter. The year-over-year decrease was primarily due to decreases in revenue from digital frames in airports, other revenues in air travel, gas station media network and other media. Let's go through other product line. Revenues from digital frames in airports for the third quarter of 2014 decreased by 13.6% year over year and increased by 6.1% quarter over quarter to $34 million. The year-over-year decrease was primarily due to a soft demand in advertising market. The quarter-over-quarter increase was primarily due to a seasonally strong quarter in the third quarter and the company's continued sales efforts. Revenues from digital TV screens in airports for the third quarter of 2014 increased by 7.3% year over year and by 59% quarter over quarter to $3.9 million. The year-over-year and quarter-over-quarter increases were primarily due to the company's continued sales efforts. Revenues from digital TV screens on airplanes for the third quarter of 2014 increased by 3.8% year over year and by 32.7% quarter over quarter to $4.6 million. The year-over-year increase in revenues from digital TV screens on airplanes was primarily due to the increase in revenues from digital TV screens on Air China's airplanes which resumed operations on August 1, 2013 and had a full quarter operation in the third quarter of 2014. The quarter-over-quarter increase in revenue from digital TV screens on airplanes was primarily due to a seasonally strong quarter in the third quarter and the company's continued sales efforts. Revenues from traditional media in airports for the third quarter of 2014 increased by 5.2% year over year and decreased by 2.8% quarter over quarter to $13.9 million. The year-over-year increase was primarily due to the company's continued sales efforts. Revenues from the gas station media network for the third quarter of 2014 decreased by 19.7% year over year and by 8.4% quarter over quarter to $2.6 million. The year-over-year and quarter-over-quarter decreases were primarily due to the ongoing restoration of some LED screens with mechanical malfunctions to proper function in the third quarter. Let's move on to other lines in the income statement. Cost of revenue for the third quarter of 2014 was $59.9 million, which largely remained flat from the same period one year ago and represented a quarter-over-quarter increase of 5.4% from $56.8 million in the previous quarter. The quarter-over-quarter increase was primarily due to higher concession fees, higher agency fees for third-party advertising agencies, and higher depreciation in the third quarter of 2014. Cost of revenues as a percentage of net revenue in the third quarter of 2014 was 96.3%, up from 87.4% in the same period one year ago and up from 92.5% in the previous quarter. Concession fees for the third quarter of 2014 increased by 3.1% year over year and by 3.6% quarter over quarter to $44.1 million. The year-over-year and quarter-over-quarter increases were primarily due to newly signed or renewed concession rights contracts during the quarter. Concession fees as a percentage of net revenue in the third quarter of 2014 was 70.9%, increasing from 62.8% in the same period one year ago and increasing from 69.2% in the previous quarter. The year-over-year increases of concession fee as a percentage of net revenues was primarily due to the decrease in net revenues and the increase in concession fees. The quarter-over-quarter increase of concession fees as a percentage of net revenue was primarily due to the increase in concession fees. Total operating expenses for the third quarter of 2014 was $11.7 million, representing a year-over-year decrease of 4.2% from $12.2 million in the same period one year ago and a quarter-over-quarter decrease of 17.9% from $14.2 million in the previous quarter. Net loss attributable to AirMedia's shareholders for the third quarter of 2014 was $5.5 million, compared to net loss attributable to AirMedia's shareholders of $3.5 million in the same period one year ago and net loss attributable to AirMedia's shareholders of $5.4 million in the previous quarter. Non-GAAP adjusted EBITDA attributable to AirMedia's shareholders, which is EBITDA attributable to AirMedia's shareholders excluding share-based compensation expenses, was a loss of $2.4 million, compared to non-GAAP adjusted EBITDA attributable to AirMedia's shareholders of $4.0 million in the same period one year ago and non-GAAP adjusted EBITDA attributable to AirMedia's shareholders of a net loss of $3.7 million in the previous quarter. Next, let's talk about our balance sheet. Cash, restricted cash and short-term investments totaled $101.4 million as of September 30, 2014, compared to $113 million as of December 31, 2013. The total capital expenditure for the third quarter of 2014 was $3 million. AirMedia currently expects its net revenue for the fourth quarter of 2014 to range from $66.0 million to $68.0 million, representing a year-over-year decrease of 14.5% to a year-over-year decrease of 11.9% from the same period in 2013 and a quarter-over-quarter increase of 6.1% to a quarter-over-quarter increase of 9.3% from the previous quarter. AirMedia currently expects its concession fees to be approximately $47.0 million in the fourth quarter of 2014, representing a quarter-over-quarter increase of 6.6% from the previous quarter, primarily due to new concession rights contracts entered into during the quarter. Moderator, would you please open the call for questions?

[Operator Instructions] Your first question comes from the line of Na You of IBC International. Please ask your question. Na You - ICBC International: Good morning, Herman, Richard and Raymond. Thanks for taking my question. I have several questions here. Firstly, regarding to your on-train WiFi business, could you give us more color on how the business works? With operating [ph] partners do you have and what kind of monetization will you imply? Also, can you share with us the updates about your cooperation with the airlines on the in-flight internet business? Besides Hainan Airlines, have you reached agreement with any new airlines? And also, any update about the cooperation with Hainan Airlines? This is my first question. Thank you.

Okay. Let me translate first.

Okay. Thank you for your questions. [Chinese language spoken]

Okay. Let me translate first. For the on-train WiFi business, we signed with the Shanghai Railway Bureau in the third quarter to operate more than 400 high-speed trains -- to operate WiFi on more than 400 high-speed trains. And other than Shanghai, we also have the concession rights with Guangzhou Railway Bureau and Xinjiang Railway Bureaus. Other than the WiFi business, we also have cooperation with Guangzhou Railway Bureau, Shanghai Railway Bureau, Xinjiang Railway Bureau and Wuhan Railway Bureau to operate PAD business on their trains. So, we've already obtained a leading position on the on-train WiFi business in China. And on-train WiFi is a closed environment, with a long interaction with audience. So we believe it's very unique and very precious WiFi asset. And we are open-minded, we will seek to have partnership with world-class internet companies to have cooperation with them. We ask them to bring like investment, technology and operation experience [ph] to us.

[Interpreted] For the in-flight WiFi with Hainan Airline Group, we are -- applied for the trial to airplanes on one airline of Hainan Airline Group. And after the trial, we will start to have commercial operation. And with other airlines, our negotiation is on track. We have been cooperative with this airline for a long time, so we trust each other. We have provided content to them on their digital TVs for a very long time. So we believe, we have confidence to obtain a leading position on the in-flight WiFi business in the future. Na You - ICBC International: By the way, just quick follow-up regarding to this business, do we have a timetable for the offshore launch about the airline internet WiFi?

[Interpreted] We see more airlines are -- want to have the in-flight WiFi on their airplanes. So we believe in the next year there will be more airlines start to install equipment on their airplanes, start to have the -- start to use the satellite technology to provide WiFi business. So in the second half of next year we should see some airlines equipped with the WiFi on their airplanes. And in 2016, we should see more airplanes with WiFi. Na You - ICBC International: Thank you. A follow-up question regarding the gas station media business. What drove the revenue decline this quarter? What should we expect for this business to be breakeven? Any color would be helpful, thank you.

Let me translate first.

So basically the gas station media network, like I just mentioned, due to the mechanical malfunction, is being restored, and we are close to complete the restoration of this malfunctioning devices. Going into fourth quarter, we should expect a significant increase in revenue. In terms of the breakeven, because of this second quarter kind of widespread outage of our screens, we'll not be able to achieve that breakeven point as expected. So -- however, going into next year, I think second quarter 2015 should be a good quarter which we could expect this business line to have positive operating results. Na You - ICBC International: Thank you. If I may, I have one last question regarding to the top line growth. What kind of top line growth are you looking at right now for 2015, for the next year? Also I'm wondering, are you looking at any concession contracts that potentially you're not likely to renew maybe in the next few quarters? Yeah, thank you.

Let me translate first.

Let me take the first part of your question regarding our 2015 top line scenario, growth scenario. Our customers, the advertisers are in their final stage for laying out next year's advertising plan, spending plan, on out-of-home media network like ours. So we need probably a little more time. Sometime in December we should be able to more accurately assess our 2015 budgeted top line number as well as growth. And for the second part of your question, I'll ask Herman to answer.

Okay. [Interpreted] We have done analysis of our -- all of our product lines to see their -- to analyze their profitability and the forecast for the future. So we have plan to spin off some of our unprofitable product lines. And on the other side, we also are negotiating with certain airports to decrease the concession fees. If we cannot decrease the concession fees significantly, we will not renew the contract. And for the unprofitable products, as we mentioned, we have plan to spin off. Na You - ICBC International: That's all my questions. Thank you.

Thank you.

[Operator Instructions] Your next question comes from the line of Wei Fan of CLSA. Please ask your question. Wei Fan - CLSA: Hey. Thank you for taking my question. The first question, regarding your 4Q guidance. For this time your 4Q guidance indicating only 8% sequential revenue growth, which is much slower than previous past few years. I was just wondering, besides of your spinoff potentially, what else are we looking at right now? Why is it slowing so much? Thank you.

Okay. Thank you for your question.

Yes, thank you. So, yeah, basically -- let me translate first then continue, add on this question. Herman was saying that some of our clients, advertisers in the third quarter did cancel their spending plan with us. Then based from the previous quarter comparison with the same period last year, we kind of unfortunately saw the downward trend in our top line and unfortunately this momentum or this trend kind of continues in the fourth quarter. At least for now, it cannot be ruled out that some of the delay to even cancel the contracts may add some top line into fourth quarter. My feel is, on top of what Herman just mentioned, yeah, this downward trend definitely is the issue, kind of economic market issue and also the plan, the spinoff just mentioned, that did have some impact on the sales on those to be spun off product lines we kind of have to plan earlier, making sure that our sales do not fail, to product lines which we cannot deliver going into early next year. I think that, yeah, is another impact in addition to the general soft advertising market situation. The company is aware of this kind of customer gradual, yeah, tendency or like of this result-based advertising spending, so that's why we go into next year, in addition to the spinoff, we have -- we decided to beef up our efforts to those, yeah, like technology innovation, making sure that in a few years our digital frames, our other product lines can, through technology innovation, tailor towards the general effect of result-based advertising spending pattern which unfortunately for now we cannot do much. But overall, I think the fourth quarter increase in our top line, in addition to -- together with the planned restructuring of our existing product lines, should have a positive impact on our fourth quarter results irrespective of this softer or slower quarter-over-quarter increase. Wei Fan - CLSA: Okay, got it. Thank you. So, maybe, can you maybe expand a little bit? For those clients you just mentioned that cut the spending last minute, which sectors are they from, which verticals are they from, or are you seeing those changes kind of randomly put or, I'm not sure, if you're seeing some clients might be -- maybe in the past few quarters, be more hesitant in terms of spending? Thank you.

Yeah, let's translate first.

[Chinese language spoken]

Auto is our biggest advertising category. In the third quarter, there are two car manufacturers delay their car model launch. So as a result, they delayed their orders. Per our talk with the auto makers, we don't -- we believe they still have confidence in the spending in 2015. Let add one point, that auto declined about 14% year over year and about 5% quarter over quarter in the third quarter. Wei Fan - CLSA: Okay, great. Thank you so much.

Your next question comes from the line of Eric Wang [ph] of Glusam Securities [ph]. Eric [ph], please ask your question.

[Chinese language spoken]

[Chinese language spoken]

[Chinese language spoken]

Okay. Let me translate Eric's [ph] question first. As we said in our earnings release, we see that we have plan to decrease the concession fees with certain airports and to upgrade our -- some of our media resources to better media formats, and to spin some unprofitable product lines. So he asks, what kind of financial impact it will be, and whether we have a timetable.

Okay. Thank you for questions. [Interpreted] Talking about the spinoff, we -- in our company actually, we have several profitable product lines, such our mega-size LED, our standalone digital frames, and the traditional media in airports. Those product lines are generating good profits. But we also have several loss-making product lines such as digital TV in airports, TV-attached digital frames, and the gas station media network. We recently have some analysis on those unprofitable -- all of our product lines, especially those unprofitable product lines. For those who are currently unprofitable, and we don't think we can turn around them in the near future, we have plan to spin them off. And for those, for example, the gas station media network, although it is currently unprofitable, but we believe it has brilliant future, we believe it will turn around sooner or later, for those one, we have plan to keep it. But for those spinoff, we expect to complete the spinoff before the end of this year. So it will have a material positive impact in the first quarter earnings, because we have profitable product lines. Most of the loss are from the unprofitable product lines. If we spin off the unprofitable product lines, it will have immediate positive impact on us.

Yeah. Let me add another comment on this, because this effort basically is multifaceted, renegotiation of to be expired concession contracts with airports. We have about like $6 million contract coming due in the fourth quarter and also we have $25 million to be due in fourth quarter next year. And some of those contracts definitely include loss-making product lines we just mentioned. So this gives us a good advantage to renegotiate on the concession contract with airports. Second of all, we have this leeway of terminating some of these unprofitable contracts. And finally this, yeah, I just mentioned, the spinoff or ongoing spinoff plan. I think with these three efforts, we'll further rationalize our airport resources and media resources and significantly improve our operating results.

[Chinese language spoken]

[Chinese language spoken]

Let me translate the question first. Eric's [ph] question is that, in our renegotiation with the airport for decreased concession fees, whether we have bargaining power to negotiate down the concession fees.

Okay. [Interpreted] We have a dominant position on the digital media side in the airports, but we have been in loss for several years, so that has also drawn attention to our concession rights holders. So we recently started the talk with our main concession rights holders, and win the understanding from them. So they also believe win-win situation will be the best situation for both parts. So we already obtained very positive process in terms of negotiating down the concession fees or upgrade of our media resources to better media formats.

[Chinese language spoken]

Okay, xie-xie.

Thank you.

There are no further questions at this time. Please continue.

Okay. Thank you for attending our conference call. Hope to talk with you next time. Thank you. Bye.

Thank you.

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