Charm Communications Inc. announces 45% growth revenues for its 2011 third quarter

26 October 2011 23 h 49 min 9 comments

Q3 revenues up 45.0% year over year, Q3 net income up 18.5% year over year, Q3 non-GAAP net income up 20.9% year over year 

 BEIJING, Oct. 26, 2011 – Charm Communications Inc., a leading advertising agency in China, today announced its unaudited financial results for the third quarter ended September 30, 2011.

Third quarter 2011 Highlights

. Revenues in the third quarter of 2011 grew 45.0% year over year to $70.2 million

. Revenues for Charm’s advertising agency business grew 46.2% year over year to $9.3 million in the third quarter of 2011

. Revenues for Charm’s media investment management business grew 45.4% year over year to $59.6 million in the third quarter of 2011

. Revenues for Charm’s branding and identity services business grew 25.0% year over year to $1.4 million in the third quarter of 2011

. Gross profit for the third quarter of 2011 grew 19.7% year over year to $22.5 million

. Net income for the third quarter of 2011 grew 18.5% year over year to $13.2 million

 . Non-GAAP net income, which excludes share-based compensation expenses, amortization of intangible assets and impairment on investments, grew 20.9% year over year to $14.2 million in the third quarter of 2011

. Cash flow from operations was positive for the third quarter of 2011, with cash and cash equivalents of $136.2 million as of September 30, 2011

“As we head towards the end of 2011, we continue to see Chinese advertisers placing more strategic emphasis on brand development through integrated advertising campaigns to increase their competitiveness in the marketplace. As a result, advertisers are becoming more sophisticated with their media placements, becoming more diligent with their budgets and beginning to focus more on their return on investment,” said Mr. He Dang, founder, chairman and chief executive officer of Charm. Mr. Dang continued, “We have continued to strengthen our integrated advertising capabilities by leveraging our leadership position in television and by making strategic investments in digital areas. With the closing of the ClickPro acquisition in September, we enhanced a key service on our platform, search engine and performance marketing, which further strengthens our ability to deliver integrated campaigns to our clients. I am also proud to say that in the third quarter, internet-related revenues accounted for more than 20% of our advertising agency revenues, representing a significant increase from 13% in the second quarter. As we start making preparations for next year, we remain optimistic about the general advertising market despite the recent macro challenges facing the global economy. The upcoming CCTV primetime auction, which will take place on November 8th, should provide further guidance on advertiser confidence heading into 2012,” Mr. Dang concluded.

Mr. Wei Zhou, Charm’s chief financial officer, added, “We delivered solid results in the third quarter, achieving the high-end of our guidance for both revenue and non-GAAP net income. We will continue to accelerate our investments in strategic areas, overall infrastructure and talent acquisition and retention to drive the long-term growth of our business.”

Third Quarter 2011 Results

Turnover (non-GAAP) 

          US$ mm                                                   3Q11           3Q10         2Q11         Y-o-Y %     Q-o-Q%

        Total turnover (non-GAAP)           $220.2      $145.5     $201.3          51.4%         9.4%

         Advertising agency                           $160.6       $104.5     $141.7          53.8%       13.4%

        Media investment management    $59.6         $41.0        $59.6             45.4%        0.1%

        Branding and identity services        N/A            N/A            N/A                N/A          N/A

The Company uses turnover (non-GAAP), defined as total customer advertising spending placed through or with Charm, to reflect the scale of its business. The 51.4% year-over-year increase in total turnover was mainly due to the increase in the number of advertising clients and the increase in advertising spending from existing clients. The 9.4% quarter-over-quarter increase in turnover was largely attributed to the increase in agency advertising spending on non-CCTV media platforms, especially the internet, in the third quarter of 2011.

Internet agency revenue in the third quarter of 2011 accounted for approximately 20% of total agency revenue compared with 13% in the second quarter of 2011 and 6% in the third quarter of 2010.  

In the third quarter of 2011, Charm provided advertising agency services to 148 advertising client accounts, five of which were acquired in the third quarter of 2011.

The 45.4% year-over-year turnover increase (equivalent to GAAP revenue) in the media investment management business, or principal media business, which operates under the Shangxing Media brand, was mainly due to the addition of Hubei Provincial Economic TV. Compared with the second quarter of 2011, the 0.1% quarter-over-quarter increase was mainly due to strong demand from clients on Tianjin Satellite Channel due to seasonal factors, which is partly offset by the decrease of programming available for soft advertising on Shanghai Dragon Satellite Channel in the third quarter.

For the third quarter of 2011, Charm had 303 advertisers for its principal media business, compared with 282 advertisers for the third quarter of 2010.

Revenues 

        US$ mm                                                   3Q11        3Q10        2Q11       Y-o-Y %      Q-o-Q%

        Total revenues                                      $70.2      $48.4      $67.3          45.0%         4.4%

        Advertising agency                               $9.3         $6.3         $6.2           46.2%        50.2%

        Media investment management     $59.6       $41.0      $59.6         45.4%           0.1%

        Branding and identity services         $1.4         $1.1          $1.6           25.0%         -11.7%

The increases in agency and principal media business revenues are consistent with the changes in turnover, while the quarter-over-quarter decrease in branding and identity services was primarily due to less client demand for branding and creative services as well as online public relations services in the third quarter of 2011.

        Gross Profit

        ————————————————-

        US$ mm                   3Q11      3Q10      2Q11     Y-o-Y %     Q-o-Q%

        Cost of revenues  $47.7   $29.6     $48.7     61.2%          -2.1%

        Gross profit            $22.5   $18.8     $18.6      19.7%         21.3%

        Gross margin          32.1%   38.9%    27.6%

Charm mainly attributes the year-over-year increase in cost of revenues to the addition of Hubei Provincial Economic TV and an increase in TV media costs for the two satellite channels and four CCTV programs. The year-over-year gross margin decrease is mainly due to the addition of Beijing Gehua Cable TV Network and Hubei Provincial Economic TV, which commenced operations in 2011 and operates at a lower margin during its ramp-up phase.

Net Income

————————————————————————————————————————-

        US$ mm                                            3Q11                     3Q10                     2Q11                     Y-o-Y %                  Q-o-Q%

        Non-GAAP Net income*           $14.2                    $11.7                    $11.7                    20.9%                    21.2%

        Net income                                     $13.2                    $11.1                    $11.0                    18.5%                    20.1%

        Basic net income

        per ADS (US$)                               $0.32                    $0.28                    $0.28

        Fully diluted net income

        per ADS (US$)                               $0.31                    $0.27                    $0.26

*The Company’s non-GAAP net income excludes share-based compensation expenses, amortization of intangible assets and impairments on investments.

Cash Flows and Cash Position

Cash flow from operations for the third quarter of 2011 was positive. As of September 30, 2011, the Company had cash and cash equivalents of $136.2 million, compared to $132.4 million at the end of the second quarter of 2011.

 Customers

In the third quarter of 2011, Charm added 5 new advertising client accounts to its agency business, bringing total agency accounts for 2011 to 148. In the third quarter of 2011, Charm’s principal media business had 303 advertisers, compared to 282 advertisers in the third quarter of 2010

Employee Headcount

As of September 30, 2011, the Company had 687 employees, compared to 580 employees as of June 30, 2011.

Recent Business Developments

. In September 2011, with the closing of the ClickPro acquisition, the Company’s new search and performance marketing business unit, Charm Click, was formed.

. in the third quarter of 2011, Charm Click successfully won the following accounts for its search engine marketing business: L’Oreal, Bacardi and Jaguar.

Business Outlook

        US$ mm                                                                   4Q11E

        Total revenues                                                       $80.0 to $81.5

        Non-GAAP net income*                                     $17.00 to $17.50

        *The Company’s non-GAAP net income excludes share-based compensation expenses, amortization of intangible assets and impairments on investments.

About Charm

Charm Communications Inc. is a leading advertising agency in China. Charm operates its business under four brands: Charm Advertising, Charm Interactive, Charm Click and Shangxing Media. Under the Charm Advertising and Charm Interactive brands, Charm offers integrated advertising agency services from planning and managing advertising campaigns to creating and placing advertisements, and under Charm Click, Charm offers specialized search engine marketing services. Under the Shangxing Media brand, Charm has established a portfolio of television advertising media resources through its exclusive arrangements with premium national television channels, which include not only advertising time but also opportunities for placing branded content. Charm’s clients include well-recognized brand names in China across many industries, as well as emerging domestic leading brands. In January 2010, Charm formed a consolidated joint venture with international 4A advertising group Aegis Media, its strategic investor, to operate its brand “Vizeum” in China. In October 2010, Charm also entered into agreement to establish a joint venture with Wasu Digital Group to operate all advertising-related businesses across Wasu’s IPTV, 3G mobile TV and broadband TV network platforms

SOURCE Charm Communications Inc.

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