Press Releases

Unedited news and product information from vendors.

Charm Communications Inc. Announces Unaudited 2011 Second Quarter Results
Jul 27, 2011 (05:07 PM EDT)


Q2 revenues up 48.5% year over year

Q2 net income up 30.5% year over year

Q2 non-GAAP net income up 28.0% year over year

BEIJING, July 27, 2011 /PRNewswire-Asia-FirstCall/ -- Charm Communications Inc. (NASDAQ: CHRM) ("Charm" or the "Company"), a leading advertising agency in China, today announced its unaudited financial results for the second quarter ended June 30, 2011.

Second Quarter 2011 Highlights

  • Revenues in the second quarter of 2011 grew 48.5% year over year to $67.3 million

  • Revenues for Charm's advertising agency business grew 14.4% year over year to $6.2 million in the second quarter of 2011

  • Revenues for Charm's media investment management business grew 52.9% year over year to $60.0 million in the second quarter of 2011

  • Revenues for Charm's branding and identity services business grew 64.6% year over year to $1.6 million in the second quarter of 2011

  • Gross profit for the second quarter of 2011 grew 22.3% year over year to $18.6 million

  • Net income for the second quarter of 2011 grew 30.5% year over year to $11.0 million

  • Non-GAAP net income, which excludes share-based compensation expenses and impairment on investments, grew 28.0% year over year to $11.7 million in the second quarter of 2011

  • Basic net income per ADS for the second quarter of 2011 was $0.28, compared to $0.23 for the second quarter of 2010 and $0.20 for the first quarter of 2011

  • Cash flow from operations was positive for the second quarter of 2011, with cash and cash equivalents of $132.4 million as of June 30, 2011

  • In the second quarter of 2011, Charm added 3 new advertising client accounts to its agency business, bringing total agency accounts for 2011 to 143

  • In the second quarter of 2011, Charm's principal media business had 290 advertisers, compared to 264 advertisers in the second quarter of 2010

  • Charm had 580 employees as of June 30, 2011, compared to 560 as of March 31, 2011

"In the second quarter of 2011, we continued to execute on our company strategies and gained additional market share," said Mr. He Dang, founder, chairman and chief executive officer of Charm. "We achieved solid growth, secured key client wins, and expanded our product offerings in the digital space."

Mr. Dang continued, "As media prices rise across the advertising industry, we see clients continuing to move toward integrated media solutions with increased focus on targeting and effectiveness, and we have been able to extend our integrated service capabilities by leveraging our core strength in television advertising, which still accounts for more than 60% of all advertising spending in China. We seek to protect our core competitiveness by maintaining our number one position with China's largest television network, CCTV, and by growing our television related inventory at a healthy rate."

Mr. Dang concluded, "To meet our clients' needs for integrated traditional and digital campaigns, we have also strengthened our service offerings through a combination of impressive organic growth at Charm Interactive, the strategic acquisition of ClickPro, and our continued partnership with Aegis Media in forming a joint-digital trading platform."

Mr. Wei Zhou, Charm's chief financial officer, added, "We made solid progress in executing our integrated media strategy in the second quarter as internet advertising agency revenues increased to 13% of total advertising agency revenues, as compared to approximately 5% for the full year 2010. We also made good headway at Hubei Provincial Economic TV during the quarter, as we ramped up sales operations and achieved profitability. This success demonstrates our ability to take on new media and reinforces the applicability of our media investment strategy across various television channels and programs. We will continue to implement our strategic initiatives to deliver long-term growth for our shareholders."

Second Quarter 2011 Results

Turnover (non-GAAP)


US$ mm

2Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Total turnover (non-GAAP)

$201.3

$150.9

$198.2

33.3%

1.5%

Advertising agency

$141.7

$112.0

$144.2

26.5%

-1.7%

Media investment management

$59.6

$39.0

$54.0

52.9%

10.2%

Branding and identity services

-

-

-

-

-




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 33.3% 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 1.5% quarter-over-quarter increase in turnover was largely attributed to a stronger demand from clients on media investment resources in the second quarter of 2011 due to seasonal factors.

The 26.5% year-over-year increase in advertising agency business, or agency business, turnover was mainly due to the increase in the number of new agency clients and the increase in advertising spending from existing agency clients. The 1.7% quarter-over-quarter decrease in turnover was mainly attributed to a slight decrease in demand from clients in the second quarter of 2011 due to seasonal factors, and was also partly attributed to the suspension of advertising placement by a Vizeum client in Japan after the earthquake there. In the second quarter of 2011, Charm provided advertising agency services to 143 advertising client accounts, three of which were acquired in the second quarter of 2011.

The revenue extraction rate, which is defined as revenue divided by turnover, was 4.4% for the agency business, compared to 4.8% for the second quarter of 2010 and 4.9% for the first quarter of 2011. The slight decrease in the extraction rate is mainly due to the Company's competitive pricing strategy when acquiring new clients to increase market share. Charm expects the revenue extraction rate to increase as the Company expands its full service offerings across all media platforms under Charm Advertising and ramps up digital media offerings under Charm Interactive. The revenue extraction rate would have been 5.5% for the second quarter of 2011, as compared to 5.5% for the second quarter of 2010 and 6.0% for the first quarter of 2011, had the Company included the commission from Charm Advertising clients for advertising placements on Shangxing Media's resources. The inter-business unit commission charge assumes a fair market rate based on an arm's length transaction.

The 52.9% 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 first quarter of 2011, the 10.2% increase was mainly due to the ramp up of Hubei Provincial Economic TV revenue and stronger demand from clients on Dongfang and Tianjin Satellite Channels due to seasonal factors. For the second quarter of 2011, Charm had 290 advertisers for its principal media business, compared with 264 advertisers for the second quarter of 2010.

Revenues


US$ mm

2Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Total revenues

$67.3

$45.3

$62.3

48.5%

8.0%

Advertising agency

$6.2

$5.4

$7.1

14.4%

-13.3%

Media investment management

$59.6

$39.0

$54.0

52.9%

10.2%

Branding and identity services

$1.6

$0.9

$1.1

64.6%

39.0%




The increases or decrease in agency and principal media business revenues are consistent with the changes in turnover, while the quarter-over-quarter increases in branding and identity services were primarily due to more client demand for branding and creative services as well as internet public relations related services in the second quarter of 2011.

Gross Profit


US$ mm

2Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Cost of revenues

$48.7

$30.1

$47.4

61.8%

2.7%

Gross profit

$18.6

$15.2

$14.8

22.3%

25.2%

Gross margin

27.6%

33.5%

23.8%






Charm mainly attributes the 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 is still in its ramp-up phase.

Operating Profit


US$ mm

2Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Total operating expenses

$7.7

$6.4

$6.8

20.7%

14.2%

Selling and marketing

$5.8

$4.8

$5.0

19.9%

15.4%

General and administrative

$2.0

$1.6

$1.8

23.1%

10.9%

Operating profit

$10.9

$8.8

$8.1

23.5%

34.5%




The 19.9% year-over-year increase in selling and marketing expenses compared with the second quarter of 2010 was primarily due to increased headcount at Charm Interactive. Selling and marketing expenses represented 8.6% of the Company's total revenues for the second quarter of 2011, compared to 10.6% for the second quarter of 2010 and 8.0% for the first quarter of 2011.

General and administrative expenses in the second quarter of 2011 grew 23.1% year-over-year and 10.9% quarter-over-quarter to $2.0 million, which is consistent with our continuous investment in infrastructure to support our long-term growth.

Net Income

US$ mm

2Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Non-GAAP Net income*

$11.7

$9.1

$8.9

28.0%

31.9%

Net income

$11.0

$8.4

$8.2

30.5%

33.9%

Basic net income per ADS (US$)

$0.28

$0.23

$0.20



Fully diluted net income per ADS (US$)

$0.26

$0.22

$0.19



*The Company's non-GAAP net income excludes share-based compensation expenses and impairments on investments.




Each ADS represents two common shares. The weighted average shares used in computation of basic net income per ADS for the second quarter of 2011 is 39,160,113. As of June 30, 2011, 39,178,612 ADS were issued and outstanding.

Cash Flows and Cash Position

Cash flow from operations for the second quarter of 2011 was positive. As of June 30, 2011, the Company had cash and cash equivalents of $132.4 million compared to $130.5 million at the end of the first quarter of 2011.

Employee Headcount

As of June 30, 2011, the Company had 580 employees, compared to 560 employees as of March 31, 2011.

Recent Business Developments

On May 16, 2011, Charm was named Lashou.com's public relations and media agency. The account for Lashou, one of China's largest domestic group-buying websites, will be jointly serviced by Charm Interactive and Vizeum.

On June 13, 2011, Charm established a joint digital media trading platform with Aegis Media China ("Aegis Media"), the international 4A advertising group. The new platform allows Charm and Aegis Media to consolidate their buying and negotiation activities to gain better scale in China's advertising market, thereby boosting the companies' buying power and increasing the efficiency of digital media investment for clients. The joint trading platform is an extension of Charm's existing partnership with Aegis Media, by which Charm operates the "Vizeum" brand in China.

On June 14, 2011, Charm announced it had entered into an agreement to acquire a 60% stake in privately-held ClickPro (www.clickpro.cn), a leading Chinese performance and search engine marketing ("SEM") firm with proprietary technology and full-service capabilities, through an all-cash transaction expected to close in the third quarter of 2011. The newly acquired group will strengthen Charm's performance marketing platform by integrating with Charm's existing search and performance marketing business, which operates under Charm's digital marketing agency Charm Interactive, to form Charm's fourth major brand, Charm Click.

On July 12, 2011, Charm announced it had won Zhongpin Inc.'s brand and communications account. Zhongpin, Inc. (Nasdaq: HOGS) is a meat and food processing company that specializes in pork and pork products, and fruits and vegetables in China. The company is a leading enterprise in developing nationally recognized, high-quality meats and food products through a brand image that appeals to the new, Chinese middle-class lifestyle. The company was ranked the sixth largest producer in the national meat industry in terms of revenue in 2005. Its customers include Wal-Mart, Metro, KFC, Carrefour, and McDonalds.

Business Outlook


US$ mm

3Q11E

Total revenues

$69.0 to $70.5

Non-GAAP net income*

$13.75 to $14.25

*The Company's non-GAAP net income excludes share-based compensation expenses and impairments on investments.



The Company bases these estimates on a foreign exchange rate of RMB6.50 to US$1.00. This forecast reflects the Company's current and preliminary view, which is subject to change.

Non-GAAP Financial Measures:

To supplement the unaudited condensed consolidated financial information presented in accordance with Accounting Principles Generally Accepted in the United States of America ("GAAP"), the Company also provides the following non-GAAP financial measures: "turnover," which is defined as total customer advertising spending placed through or with Charm, and "non-GAAP net income," which is defined as GAAP net income excluding stock-based compensation expenses and impairment on investments.

The non-GAAP financial measures are provided to enhance investors' overall understanding of the Company's current and past financial performance in ongoing core operations as well as prospects for the future. These measures should be considered in addition to results prepared and presented in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. Management uses both GAAP and non-GAAP information in evaluating and operating the Company's business internally and therefore deems it important to provide all of this information to investors.

Cautions on Use of Non-GAAP Measures

In addition to Charm's consolidated financial results prepared under US GAAP, the Company also provides non-GAAP financial measures, including "turnover" and "non-GAAP net income." The Company believes that the non-GAAP financial measures provide investors with another method for assessing its operating results in a manner that is focused on the performance of its ongoing operations.

Management believes investors will benefit from greater transparency in referring to these non-GAAP financial measures when assessing the Company's operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

  • these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to the Company's GAAP financial measures;
  • these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the Company's GAAP financial measures;
  • these non-GAAP financial measures should not be considered to be superior to the Company's GAAP financial measures; and
  • these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not assume that the non-GAAP financial measures presented in this earnings release were prepared under a comprehensive set of rules or principles.

Further, these non-GAAP financial measures may be unique to the Company, as they may be different from non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company's results to the results of other companies. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies.

A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure or measures appears at the end of this press release.

Conference Call

Charm's management team will hold an earnings conference call at 8 a.m. U.S. Eastern Time (8 p.m. Beijing/Hong Kong Time) on Thursday, July 28, 2011.

Dial-in details for the conference call are as follows:

U.S. / International:

+1-617-597-5326

United Kingdom:

+44-207-365-8426

Hong Kong:

+852-3002-1672

Passcode:

77007145



A replay of the call will be available from 11 a.m. July 28, 2011 until 11 a.m. August 4, 2011 U.S. Eastern Time. Dial-in details for the replay are as follows:

International:

+1-617-801-6888

Passcode:

94614616



Additionally, an archived webcast of this call will be available on the Investor Relations section of the Charm web site at http:/ir.charmgroup.cn.

About Charm

Charm Communications Inc. (NASDAQ: CHRM) is a leading advertising agency in China. Charm operates its business under three brands: Charm Advertising, Charm Interactive, 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. 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. For more information please go to http://ir.charmgroup.cn.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995.  These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. All statements other than statements of historical fact in this press release are forward-looking statements and involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These forward-looking statements are based on management's current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates, but involve a number of unknown risks and uncertainties. Further information regarding these and other risks is included in Charm's filings with the U.S. Securities and Exchange Commission, including its registration statement on Form F-1. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and actual results may differ materially from the anticipated results. You are urged to consider these factors carefully in evaluating the forward-looking statements contained herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements.

For investor and media inquiries, please contact:


In China:

Ms. Cindy Wang

IR Department

Charm Communications Inc.

Phone: +86-10-6581-3885

Email: ir@charmgroup.cn


In the U.S.:

Ms. Jessica Barist Cohen

Ogilvy Financial, New York

Phone: +1-646-460-9989

Email: chrm@ogilvy.com




Charm Communications Inc.

Condensed Consolidated Balance Sheets

(Amounts in thousands of U.S. dollars)



30-Jun-11

31-Mar-11

31-Dec-10



(Unaudited)

(Unaudited)

(Audited)

ASSETS




Current Assets





Cash and cash equivalents

132,410

130,509

123,320


Notes receivable

4,387

14,292

15,323


Prepaid expenses

56,063

63,736

63,680


Deposits

27,829

27,922

28,409


Accounts receivable

77,746

62,913

49,746


Amount due from related parties

6,155

2,159

2,485


Other current assets

2,624

2,677

1,587

Total current assets

307,214

304,208

284,550







Fixed assets, net

1,972

1,981

2,082


Investments under equity method

1,369

-

-

Total non-current assets

3,341

1,981

2,082






TOTAL ASSETS

310,555

306,189

286,632






LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED SHARES AND EQUITY



Current Liabilities





Accounts payable (of which 1,570, 5,834 and 9,012, as of June 30, 2011, March 31, 2011 and December 31, 2010 of the consolidated VIE without recourse to the Company, respectively)

32,859

29,978

19,341


Amounts due to related parties (of which nil as of June 30, 2011,  March 31, 2011 and December 31, 2010 of the consolidated VIE without recourse to the Company, respectively)

3,939

3,561

4,701


Advances from customers (of which 10,607, 3,462 and 3,083 as of June 30, 2011, March 31, 2011 and December 31, 2010 of the consolidated VIE without recourse to the Company, respectively)

54,683

61,744

57,970


Accrued expenses and other current liabilities (of which 7,981, 9,296 and 14,843, as of June 30, 2011, March 31, 2011 and December 31, 2010 of the consolidated VIE without recourse to the Company, respectively)

14,582

14,586

18,516


Dividends payable (of which nil as of June 30m 2011, March 31, 2011 and December 31, 2010 of the consolidated VIE without recourse to the Company, respectively)

-

5,875

5,829

Total current liabilities

106,063

115,744

106,357

Total liabilities

106,063

115,744

106,357






Equity:




Charm Communications Inc.'s equity





Ordinary shares

8

8

8


Additional paid-in capital

116,821

115,983

115,288


Retained earnings

78,456

67,657

59,783


Accumulated other comprehensive income

7,867

5,611

4,319

Total Charm Communications Inc. shareholders' equity

203,152

189,259

179,398

Non-controlling interest

1,340

1,186

877

Total equity

204,492

190,445

180,275





TOTAL LIABILITIES, CONVERTIBLE REDEEMABLE




PREFERRED SHARES, REDEEMABLE ORDINARY




SHARES AND EQUITY

310,555

306,189

286,632





Charm Communications Inc.

Condensed Consolidated Statements of Operations

(Amounts in thousands of U.S. dollars, except for number of shares and per share data)




For the three months ended,




June 30,
2011

June 30,
2010

March 31,
2011




(Unaudited)

(Unaudited)

(Unaudited)







Revenues:






Media investment management


59,568

38,971

54,046


Advertising agency


6,165

5,387

7,113


Branding and identity services


1,551

942

1,116

Total revenues


67,284

45,300

62,275







Cost of revenues:






Media investment management


47,012

29,060

46,007


Advertising agency


716

612

816


Branding and identity services


972

432

611

Total cost of revenues:


48,700

30,104

47,434

Gross profit


18,584

15,196

14,841







Operating expenses:






Selling and marketing expenses


5,776

4,817

5,007


General and administrative expenses


1,966

1,597

1,773

Total operating expenses


7,742

6,414

6,780


Gain from equity method investees


44



Operating profit


10,886

8,782

8,061








Interest income


644

251

553


Interest expenses


-

-200

-







Income before income tax expense


11,530

8,833

8,614


Income tax expense


577

442

431

Net income


10,953

8,391

8,183

Net income attributable to noncontrolling interest


154

92

309

Net income attributable to Charm Communications Inc.


10,799

8,299

7,874







Accretion of Series A convertible redeemable preferred shares


-

231

-

Net income(loss) attributable to ordinary shareholders


10,799

8,068

7,874






Net income(loss) attributable to Charm Communications Inc. shareholders per ADS:





Basic


0.28

0.23

0.20

Diluted


0.26

0.22

0.19

Shares used in computation of net income(loss)  per ADS:





Basic


39,160,113

34,647,811

39,135,833

Diluted


41,015,064

36,044,209

40,911,713







Notes:






(1) Share-based compensation expenses during the period included in:





Cost of revenues


1

2

1

Selling and marketing expenses


450

340

422

General and administrative expenses


277

390

250

Total



728

732

673





Reconciliation from Net income to Non-GAAP net income:

(Amounts in thousands of U.S. dollars)



For the three months ended,



June 30, 2011

June 30, 2010

March 31, 2011


Net income

10,953

8,391

8,183







Add back share-based compensation expenses




during the related periods

728

732

673







Add back impairment on investments

-

-

-







Non-GAAP net income

11,681

9,123

8,856










Reconciliation from Turnover (non-GAAP) to USGAAP Revenues:

(Amounts in thousands of U.S. dollars)



For the three months ended,





June 30, 2011

June 30, 2010

March 31, 2011




Turnover (non-GAAP):







Media investment management

59,568

38,971

54,046




Advertising agency

141,690

111,978

144,159




Branding and identity services

N/A

N/A

N/A




Total turnover

201,258

150,949

198,205











Extracted rate:







Media investment management

100.0%

100.0%

100.0%




Advertising agency

4.4%

4.8%

4.9%




Branding and identity services

N/A

N/A

N/A











US GAAP Revenue:







Media investment management

59,568

38,971

54,046




Advertising agency

6,165

5,387

7,113




Branding and identity services

1,551

942

1,116




Total revenue

67,284

45,300

62,275






SOURCE Charm Communications Inc.