SOLAI Limited (SLAI) Q2 2015 Earnings Report, Transcript and Summary

Hello, and welcome to the 500.com Second Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tip Fleming of Christensen. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today for 500.com's Second Quarter 2015 Earnings Conference Call. The company's results were released earlier today and are available on the company's IR website at ir.500.com as well as via PR Newswire. On the call today are Mr. Zhengming Pan, Chief Executive Officer; Mr. Min Yu, Chief Financial Officer. Mr. Pan will first discuss recent events and business operations; followed by Mr. Yu, who will go through the financials. They will be available to answer your questions during the Q&A session that follows. I will now pass the call to Mr. Pan. Mr. Pan, please proceed.

Hello, everyone, and welcome to our second quarter 2015 earnings conference call. As you all have seen in our earnings release by now, our voluntary and temporary suspension of online lottery sales operation continued this quarter. This factor was obvious as we were unable to record any revenues for the quarter. As a reminder, and as we stated in our earnings release, since March 2015, all provincial sports lottery administration centers, to which we provide sports lottery sales services, have temporarily suspended accepting online purchase orders for lottery products in response to a notice related to Self-Inspection and Self-Remedy of unauthorized online lottery sales. With that being said, we remain in active communication with all of the government authorities that are involved, and we have been working and will continue to work with the China Sports Lottery Administration Center to develop the management system. We will make announcements with any update on the situation when we can. I will now pass the call to Mr. Yu Min, who will review the financials for the quarter. Please go ahead.

Thanks, Zhengming. My remarks here will be financial things. As Zhengming mentioned, we do not have any operational performance to report. Net revenues were 0 for the quarter. Operating expenses were USD 15.6 million, down 2.5% from the same quarter of 2014 and are down 36.6% from last quarter. The year-over-year decline was due to a decrease in promotional and advertising expenses as a result of the temporary suspension. The sequential decrease was primarily due to -- on the RMB 30.3 million bad debt provisioning that we made in the first quarter. Cost of services was only USD 0.8 million this quarter, since we have almost no account-handling expenses related to our mobile distribution channels because of the temporary suspension. Sales and the marketing expenses were USD 3.0 million, down 62.5% from the same period -- same quarter last year and down 58.6% from last quarter. The year-over-year and the sequential decreases were mainly due to the significant drop in promotional activities in advertising expenses as a result of the temporary suspension. G&A expenses were USD 9.0 million, up 113% from last year, but down 13.7% from last quarter. The year-over-year increase was mainly due to higher share-based compensation expenses, while the sequential decrease was because of the bad debt impairment that we booked in the first quarter. Service development expenses were USD 2.8 million, representing an increase of 96.6% from the second quarter of 2014 and an increase of 18.5% from the first quarter of this year. The year-over-year and the sequential increases were mainly due to an increase in share-based compensation expenses and higher salary expenses as a result of growing headcount in our service development department. As a result of all of the factors I just mentioned, we recorded an operating loss of USD 15.5 million this quarter versus an operating loss of USD 8.6 million during the first quarter 2015. Our net loss was USD 13.1 million, and the basic and diluted net loss per ADS were both USD 0.37. Excluding share-based compensation, the loss per ADS was USD 0.14. Turning to the balance sheet. As of 30th June 2015, we have cash and cash equivalents of USD 183.4 million, restricted cash of USD 2.0 million and then time deposits of USD 64.9 million. So despite the current difficulties, we have plenty of cash to keep funding our ongoing operations for the foreseeable future. In terms of outlook, we will not make any earnings forecast until we receive clear instruction on the resumption date of online sports lottery sales from the Ministry of Finance of China. So next, I would like to open the call up to questions now. Operator, go ahead.

[Operator Instructions] The first question comes from Alan Hellawell of Deutsche Bank.

This is Eileen on behalf of Alan. I have 2 questions. The first one, as all we know that our business suspension has continued for roughly 5 months. So when do you exactly expect the timeline of the management system completion? And when this -- is our expiration of the business resumption? And do you have any narrow plans given, for example, 1 or 2 months of the suspension or 4 to 5 months or even longer? And is it possible for such kind of more hurry on to continue to next year, and with our plan given such kind of assumption? And my second question is regarding the investment by Tsinghua Unigroup. What kind of a synergy do we see upon the investment? And what is our strategy about the USD 124 million investment of the cash or funding?

After the resumption date of the online sales, currently, we didn't have any clear visibility for now, and I won't be able to give any guidance as to when we can resume the operation. We -- as I just stated, we will make announcements when we can. In terms of the -- your second question regarding the Unigroup investment. As you know, Tsinghua Unigroup is a company controlled by Tsinghua University, which have a lot of technology and expertise in Internet. So we will actively restore any opportunities for our corporation between these 2 companies. Your last question with regard to the cash reserve. I mean, first of all, as you know, we're not generating any revenue for now. So we want to maintain sufficient cash balance to maintain our current ongoing operations, first of all. And secondly, we currently don't have any specific plans for the use of proceeds for the cash that we currently hold.

[Operator Instructions] There are no questions at this time. This concludes our question-and-answer session. I will turn it back over to Tip Fleming for any closing remarks.

Thank you, operator. Thank you all for joining our call today. In closing, on behalf of the entire 500.com management team, we'd like to thank you for your interest and participation in today's call. If you have -- if you require any further information or have any interest in visiting the company in China, please let us know. And again, thank you for joining us today. This concludes our call. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a good day.