Charm Communications Inc. Announces Unaudited First Quarter 2013 Results First Quarter 2013 turnover up 10.7% year over year

22 May 2013 14 h 54 min Comments Off

Charm communications logo

BEIJING, May 21, 2013  – Charm Communications Inc. (NASDAQ: CHRM) (“Charm” or the “Company”), a leading advertising agency in China, today announced its unaudited financial results for the first quarter ended March 31, 2013.

First Quarter 2013 Highlights

Turnover grew 10.7% year over year to $232.9 million in the first quarter of 2013

Revenues grew 13.6% year over year to $38.1 million in the first quarter of 2013

Revenues for Charm’s advertising agency business declined 1.7% year over year to $10.1 million in the first quarter of 2013

Revenues for Charm’s media investment management business grew 23.7% year over year to $27.5 million in the first quarter of 2013

Gross profit declined 2.3% year over year to $9.6 million in the first quarter of 2013

Net income declined 277.9% year over year to a net loss of $1.5 million in the first quarter of 2013

Non-GAAP net income, which excludes share-based compensation expenses, amortization of intangible assets and net change in fair value of consideration payable and call option, declined 142.0% year over year to a net loss of $0.8 million in the first quarter of 2013

“Despite continued softness in China’s macroeconomic environment and limited visibility in the overall advertising market, our total business volume continued to grow in the first quarter, driven in particular by better-than-market growth from our Charm Click business unit,” said Mr. He Dang, Charm’s founder, chairman and chief executive officer. “Moreover, our core agency business continued to strengthen its service capabilities with fully-integrated regional service centers now in place in northern, eastern, and southern China.”

“As we reposition our Shangxing Media brand from a media inventory seller to a media service agency, we will carefully balance our risk-adjusted return when adding inventory. At the same time, we have complementary business models available to ensure that we capture long-term growth opportunities with our media partners as the Chinese advertising market rebounds and develops,” concluded Mr. Dang.

Mr. Wei Zhou, Charm’s chief financial officer, added, “Our first quarter results came in at the high end of our guidance as our media business improved, with the channels we added in 2012 ramping up in sales. To adjust for the soft environment, we will focus on making productivity gains by streamlining and consolidating our cost base, but at the same time we will continue to invest in our digital business and other fast-growing areas.”

First Quarter 2013 Results

Turnover (non-GAAP)

US$ mm 1Q13 1Q12 4Q12 Y-o-Y % Q-o-Q%
Total turnover (non-GAAP) $233.0 $210.4 $201.6 10.7% 15.5%
Advertising agency $205.5 $188.2 $169.6 9.2% 21.2%
Media investment management $27.5 $22.2 $32.0 23.7% -14.3%
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 10.7% year-over-year increase in total turnover was mainly due to the increase in media investment business billings, which was primarily the result of the addition of BTV-Sports in the middle of 2012. The 15.5% quarter-over-quarter increase in turnover was largely attributed to the increased advertising agency spending, mainly on CCTV, in the first quarter of 2013.

The 9.2% year-over-year and 21.2% quarter-over-quarter increase in the advertising agency business (“agency business”) turnover was mainly due to the increase in advertising spending from existing agency clients and new clients.

The revenue extraction rate, which is defined as revenue divided by turnover, was 4.9% for the agency business, compared to 5.5% for the first quarter of 2012 and 7.4% for the fourth quarter of 2012. The year-over-year and quarter-over-quarter decreases were mainly due to increased advertising spending on CCTV media platforms, which typically exhibit lower extraction rates relative to those associated with non-CCTV platforms, such as satellite TV channels and the internet, during the first quarter of 2013 and during the Chinese New Year holiday period in particular.

The 23.7% year-over-year increase in turnover (equivalent to GAAP revenue) for the media investment management business (“principal media business”), which operates under the Shangxing Media brand, was mainly due to the addition of BTV-Sports in the middle of 2012. The 14.3% quarter-over-quarter decrease in turnover in the principal media business was mainly due to seasonal factors.

Revenues

US$ mm 1Q13 1Q12 4Q12 Y-o-Y % Q-o-Q%
Total revenues $38.1 $33.5 $47.1 13.6% -19.1%
Advertising agency $10.1 $10.3 $12.5 -1.7% -19.2%
Media investment management $27.5 $22.2 $32.0 23.7% -14.3%
Branding and identity services $0.5 $1.1 $2.6 -49.1% -79.0%

The changes in principal media business revenues are consistent with the changes in turnover, while the decreases in agency revenues are consistent with the decreases in the revenue extraction rate. The decreases in branding and identity services were primarily due to an overall decrease in client demand for creative services.

Gross Profit

US$ mm 1Q13 1Q12 4Q12 Y-o-Y % Q-o-Q%
Cost of revenues $28.5 $23.7 $34.1 20.2% -16.5%
Gross profit $9.6 $9.8 $13.0 -2.3% -26.1%
Gross margin 25.2% 29.3% 27.6%

Charm mainly attributes the year-over-year increase in cost of revenues to the addition of BTV-Sports in the middle of 2012. The declines in gross profit were due to a lower contribution from the principal media business.

Operating Profit (Loss)

US$ mm 1Q13 1Q12 4Q12 Y-o-Y % Q-o-Q%
Total operating expenses $11.5 $9.5 $17.2 20.7% -32.9%
Selling and marketing $8.7 $7.4 $11.3 17.5% -22.8%
General and administrative $2.8 $2.1 $5.9 31.8% -52.4%
Operating profit (loss) -$2.2 $0.2 -$3.5 -1032.1% -39.3%

The 17.5% year-over-year increase in selling and marketing expenses was primarily due to executive hires within the Company’s agency business. The 22.8% quarter-over-quarter decrease in selling and marketing expenses was primarily due to the Company streamlining and consolidating its cost base to improve productivity within its traditional agency business.

The 31.8% year-over-year increase in general and administrative expenses was mainly attributed to the increased office expenses. The 52.4% quarter-over-quarter decrease in general and administrative expenses was mainly due to less bad debt provision expense incurred as a result of the Company increasing its credit control and collection efforts in the first quarter of 2013.

Net Income (Loss)

US$ mm 1Q13 1Q12 4Q12 Y-o-Y % Q-o-Q%
Non-GAAP net income (loss)* -$0.8 $1.9 -$3.8 -142.0% -79.3%
Net income (loss) -$1.5 $0.8 $-4.2 -277.9% -65.1%
Basic net income (loss) per ADS (US$) -$0.05 $0.01 -$0.13
Diluted net income (loss) per ADS (US$) -$0.05 $0.01 -$0.13

*The Company’s non-GAAP net income (loss) excludes share-based compensation expenses, amortization of intangible assets and net changes in fair value of consideration payable and call option.

Each American depositary share (“ADS”) represents two common shares. The weighted average number of shares used to compute basic net loss per ADS for the first quarter of 2013 was 38,479,967. As of March 31, 2013, 40,032,131 ADSs were issued and outstanding.

full press release

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