Charm Communications Inc. Announces Unaudited Third Quarter 2012 Results

   Charm Communications Inc. Announces Unaudited Third Quarter 2012 Results

Q3 agency turnover up 13.6% year over year

Q3 agency business revenues up 47.3% year over year

PR Newswire

BEIJING, Nov. 19, 2012

BEIJING, Nov. 19, 2012 /PRNewswire-FirstCall/ -- Charm Communications Inc.
(NASDAQ: CHRM) ("Charm" or the "Company"), a leading advertising agency in
China, today announced its unaudited financial results for the third quarter
ended September 30, 2012.

Third Quarter 2012Highlights

  oTurnoverdecreased 1.7% year over year to $216.5 million in the third
    quarter of 2012
  oRevenues for Charm's advertising agency businessgrew 47.3% year over year
    to $13.6 million in the third quarter of 2012
  oRevenues for Charm's media investment management businessdeclined 42.8%
    year over year to $34.1 million in the third quarter of 2012
  oRevenuesdeclined 30.5% yearover year to $48.8 million in the third
    quarter of 2012
  oGross profitdeclined 36.2% year over year to $14.4 million in the third
    quarter of 2012
  oNet income declined 99.3% year over year to $0.1 million in the third
    quarter of 2012
  oNon-GAAP net income, which excludes share-based compensation expenses and
    amortization of intangible assets, declined 94.2% year over year to $0.8
    million in the third quarter of 2012

"Despite a challenging operating environment, our core advertising agency
business continued to outperform the market," said Mr. He Dang, Charm's
founder, chairman and chief executive officer. "In particular, our sports
marketing team and digital business won accounts that improved our extraction
rate substantially. While our principal media business continued to feel the
effects of the prevailing macro and regulatory conditions, we saw greater
contributions from our newly acquired assets. We will continue to look for
opportunities to deliver long-term growth in our media business, as well as
invest heavily in fast-growing areas like digital marketing, to provide
clients with full-service, integrated advertising solutions."

Mr. Wei Zhou, Charm's chief financial officer, added, "In terms of gross
billings, we remain in a healthy market position. Our core agency business
remains strong, with substantial growth year to date. At the same time,
margins for our media business continue to improve. Looking forward, we will
stay conservative with respect to our media business in the near term but will
continue to invest in key talent and assets to capture growth when the
macro-economic environment improves."

Third Quarter 2012Results

Turnover (non-GAAP)

US$ mm                         3Q12   3Q11   2Q12   Y-o-Y % Q-o-Q%
Total turnover (non-GAAP)      $216.5 $220.2 $195.4 -1.7%   10.8%
Advertising agency             $182.5 $160.6 $170.9 13.6%   6.8%
Media investment management    $34.1  $59.6  $24.5  -42.8%  39.2%
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 1.7% year-over-year decrease in total turnover was mainly due to the
decrease in the media investment business, which was a result of the Company
dropping several media assets at the beginning of 2012 to modify its media
inventory mix and reduce risks in the wake of regulatory changes in the
satellite market. The 10.8% quarter-over-quarter increase in turnover was
largely attributed to seasonal factors.

The 13.6% year-over-year increase in the advertising agency business ("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 6.8% quarter-over-quarter increase in turnover was mainly attributed to
seasonal factors.

The revenue extraction rate, which is defined as revenue divided by turnover,
was 7.5% for the agency business, compared to 5.8% for the third quarter of
2011 and 5.7% for the second quarter of 2012. The increase in the revenue
extraction rate was mainly due to Olympics-related branding placements, which
had relatively higher revenue extraction rates, and partly due to increased
advertising spending on non-CCTV media platforms, the internet and satellite
channels, all of which have exhibited higher extraction rates relative to
CCTV. The Company 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
and Charm Click.

The 42.8% year-over-year turnover decrease (equivalent to GAAP revenue) in the
media investment management business ("principal media business"), which
operates under the Shangxing Media brand, was mainly due to the slowdown in
the broader economic environment and the dropping of several media assets at
the beginning of 2012 following the aforementioned regulatory changes. The
39.2% quarter-over-quarter increase in turnover in the principal media
business stemmed mainly from our exclusive agency agreement with Beijing
Television's sports channel, ("BTV-Sports") signed in June 2012, as well as
seasonal factors.

Revenues

US$ mm                         3Q12  3Q11  2Q12  Y-o-Y % Q-o-Q%
Total revenues                 $48.8 $70.2 $36.0 -30.5%  35.7%
Advertising agency             $13.6 $9.3  $9.8  47.3%   39.3%
Media investment management    $34.1 $59.6 $24.5 -42.8%  39.2%
Branding and identity services $1.1  $1.4  $1.7  -17.9%  -34.2%

The changes in agency and principal media business revenues are consistent
with the changes in turnover and the revenue extraction rate. The decrease in
branding and identity services was primarily due to decreased client demand
for creative services in the third quarter of 2012.

Gross Profit

US$ mm           3Q12  3Q11  2Q12  Y-o-Y % Q-o-Q%
Cost of revenues $34.5 $47.7 $24.9 -27.7%  38.7%
Gross profit     $14.4 $22.5 $11.1 -36.2%  29.2%
Gross margin     29.4% 32.1% 30.9%

Charm mainly attributes the year-over-year decrease in cost of revenues to the
dropping of several media assets in order to modify the Company's media
inventory mix following the aforementioned regulatory changes. The
year-over-year decline in gross profit was due to a lower contribution from
the principal media business. The quarter-over-quarter increase in cost of
revenues in the media investment management business was mainly due to the
addition of a new media asset, BTV-Sports, in June 2012. The slight
quarter-over-quarter decrease in gross profit was mainly due to the ramp-up of
new media assets.

Operating Profit

US$ mm                     3Q12  3Q11  2Q12  Y-o-Y % Q-o-Q%
Total operating expenses   $14.8 $9.3  $10.7 59.1%   38.0%
Selling and marketing      $9.4  $6.7  $7.9  40.6%   19.0%
General and administrative $5.4  $2.6  $2.8  106.2%  91.0%
Operating profit           -$0.2 $13.2 $0.3  -101.5% -172.8%

The 40.6% year-over-year increase and 19.0% quarter-over-quarter increase in
selling and marketing expenses were primarily due to increased headcount,
including executive hires Cathy Chen, president of the Company's agency
business, and Leon Liu, general manager of Charm Interactive for eastern
China.

The 106.2% year-over-year increase and 91.0% quarter-over-quarter increase in
general and administrative expenses were mainly attributed to a bad debt
provision of US$2.8 million in the third quarter of 2012.

Net Income

US$ mm                                 3Q12   3Q11  2Q12  Y-o-Y % Q-o-Q%
Non-GAAP net income*                   $0.8   $14.2 $1.5  -94.2%  -46.6%
Net income                             $0.1   $13.2 $0.8  -99.3%  -89.0%
Basic net income per ADS (US$)         -$0.01 $0.32 $0.01
Fully diluted net income per ADS (US$) -$0.01 $0.31 $0.01

*The Company's non-GAAP net income excludes share-based compensation expenses
and amortization of intangible assets.

Each American Depositary Share ("ADS") represents two common shares. The
weighted average number of shares used to compute basic net income per ADS for
the third quarter of 2012 was 38,657,508. As of September 30, 2012, 38,290,088
ADS were issued and outstanding.

Cash Flows and Cash Position

Net cash flow from operations for the third quarter 2012 was negative $4.8
million, mainly due to cash outflows for the newly acquired BTV-Sports, which
was in its ramp-up stage. As of September 30, 2012, the Company had cash and
cash equivalents of $117.9 million, compared to $124.3 million at the end of
the second quarter of 2012.

Customers

In the third quarter of 2012, Charm's agency business had 167 advertisers,
compared to 165 advertisers in the second quarter of 2012 and 148 advertisers
in the third quarter of 2011.

In the third quarter of 2012, Charm's principal media business had 231
advertisers, compared to 207 advertisers in the second quarter of 2012 and 303
advertisers in the third quarter of 2011.

Employee Headcount

As of September 30, 2012, the Company had 842 employees, compared to 809
employees as of June 30, 2012.

Recent Business Developments

In October 2012, Charm Click was chosen as Baidu's official SEM agency for its
European business for the period of September 1, 2012 through December 31,
2013. As Baidu's European SEM agency, Charm Click will promote Baidu's
technology services across 42 countries. Charm Click is one of the first
Baidu-certified four-star and five-star SEM agencies and is a member of the
Baidu Search Marketing Expert Committee.

The Company won the following accounts in the third quarter of 2012:

  oCharm Advertising won the CCTV business for COFCO Group, China's largest
    food manufacturer and processor, and the satellite TV business for Mengniu
    Dairy.
  oCharm Interactive won the digital marketing business for CONBA, a
    China-based, OTC pharmaceutical company.
  oCharm Click won the search engine marketing businesses for Bosideng,
    Michelin and Guangdong Development Bank.

In November 2012, Charm Advertising again secured the number one position in
terms of successful bidding volume at the annual CCTV prime-time auction,
which was held on November 18, 2012. The total value of auctioned and pre-sold
advertising resources for CCTV hit an all time high of RMB 15.88 billion, an
increase of 11.39% compared to the previous year. Charm has held the number
one position as top bidder for ten consecutive years.

Business Outlook

US$ mm             4Q12E
Total revenues     47.0 to 49.5
Non-GAAP net loss* 2.5 to 2.0

*The Company's non-GAAP net income (loss) excludes share-based compensation
expenses and amortization of intangible assets.

The Company bases these estimates on a foreign exchange rate of RMB6.30 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 ("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 (loss)," which
is defined as GAAP net income (loss) excluding stock-based compensation
expenses and amortization of intangible assets.

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 U.S.
GAAP, the Company also provides non-GAAP financial measures, including
"turnover" and "non-GAAP net income (loss)." 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:

  othese non-GAAP financial measures are limited in their usefulness and
    should be considered only as a supplement to the Company's GAAP financial
    measures;
  othese non-GAAP financial measures should not be considered in isolation
    from, or as a substitute for, the Company's GAAP financial measures;
  othese non-GAAP financial measures should not be considered to be superior
    to the Company's GAAP financial measures; and
  othese 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 (9 p.m. Beijing/Hong Kong Time) on Tuesday, November 20, 2012.

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

U.S.:  +1-718-354-1231
International:   +65-6723-9381
United Kingdom:       +44-20-3059-8139
Hong Kong:       +852-2475-0994
Passcode:       69059198

A replay of the call will be available from 11 a.m. November 20, 2012 until
November 27, 2012 U.S. Eastern Time. Dial-in details for the replay are as
follows:

International:  +61-2-8199-0299
Passcode:    69059198

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 group
in China that offers integrated advertising services with particular focus on
television and the internet. Charm's integrated advertising services include
full media planning and buying, as well as creative and branding services.
Charm has built a full service digital advertising platform, which offers
digital campaign capabilities across all key digital media, including search
engines, display portals, online video sites and social networking services.
Charm also secures advertising inventory and other advertising rights, such as
sponsorships and branded content, from premium media networks and resells to
clients as part of its integrated media offerings. Charm's clients include
China's top domestic brands, as well as some major international brands,
across a wide range of industries. Since 2003 Charm has been the top agency
every year for China's leading television network, China Central Television
(CCTV). For more information, please go tohttp://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. Jenny Wang
IR Department
Charm Communications Inc.
Phone: +86-10-8556-2527
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.
Unaudited Condensed Consolidated Balance Sheets
(Amounts in thousands of U.S. dollars)
                                                 30-Sep-12 30-Jun-12 31-Dec-11
ASSETS
Current Assets
 Cash and cash equivalents                       117,901   124,322   139,406
 Notes receivable                                13,084    9,592     28,880
 Prepaid expenses                                68,002    77,868    106,393
 Deposits                                        24,085    25,426    25,730
 Accounts receivable                             115,314   94,078    103,920
 Amount due from related parties                 3,000     955       3,494
 Deferred tax assets                             125       124       125
 Other current assets                            4,838     4,870     2,139
Total current assets                             346,349   337,235   410,087
 Fixed assets, net                               7,100     6,870     4,344
 Intangible assets, net                          2,616     2,847     3,397
 Investments under equity method                 1,491     1,238     1,445
 Goodwill                                        4,341     4,294     4,335
 Other non-current assets                        1,721     1,415     1,009
Total non-current assets                         17,269    16,664    14,530
TOTAL ASSETS                                     363,618   353,899   424,617
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
 Accounts payable (of which 648 , 6,208 and 687,
 as of September 30, 2012, June 30, 2012 and     46,061    44,165    63,141
 December 31,2011 of the consolidated VIE
 without recourse to the Company, respectively)
 Amounts due to related parties (of which 310,
 307 and nil as of September 30, 2012, June 30,
 2012 and December 31,2011 of the consolidated  14,356    7,099     4,460
 VIE without recourse to the Company,
 respectively)
 Advances from customers (of which 1,666, 1,631
 and 12,028 as of September 30, 2012, June 30,
 2012 and December 31,2011 of the consolidated  53,833    51,914    85,720
 VIE without recourse to the Company,
 respectively)
 Accrued expenses and other current liabilities
 (of which 3,473, 3,589 and 4,411 as of
 September 30, 2012, June 30, 2012 and December  14,548    16,679    22,876
 31,2011 of the consolidated VIE without
 recourse to the Company, respectively)
 Consideration payable (of which nil as of
 September 30, 2012, June 30, 2012 and December  2,817     2,787     2,813
 31,2011 of the consolidated VIE without
 recourse to the Company, respectively)
Total current liabilities                        131,615   122,644   179,010
 Consideration payable (of which nil as of
 September 30, 2012, June 30, 2012 and December 2,479     2,453     2,476
 31, 2011 of the consolidated VIE without
 recourse to the Company, respectively)
Total non-current liabilities                    2,479     2,453     2,476
Total liabilities                                134,094   125,097   181,486
Redeemable noncontrolling interest               5,137     4,991     4,723
Equity:
Charm Communications Inc.'s equity
 Ordinary shares                                 8         8         8
 Additional paid-in capital                     100,782   102,788   116,637
 Retained earnings                               106,285   106,795   105,930
 Accumulated other comprehensive income          13,695    11,291    13,384
Total Charm Communications Inc. shareholders'    220,770   220,882   235,959
equity
Noncontrolling interest                          3,617     2,929     2,449
Total equity                                     224,387   223,811   238,408
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING
INTEREST AND EQUITY                             363,618   353,899   424,617





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,
                                     Sep. 30, 2012 Sep. 30, 2011 June 30, 2012
                                     (Unaudited)   (Unaudited)   (Unaudited)
Revenues:
     Media investment management     34,073        59,605        24,477
     Advertising agency              13,646        9,262         9,793
     Branding and identity services  1,125         1,370         1,711
Total revenues                       48,844        70,237        35,981
Cost of revenues:
     Media investment management     32,301        45,998        22,435
     Advertising agency              1,371         998           1,174
     Branding and identity services  796           693           1,245
Total cost of revenues:              34,468        47,689        24,854
Gross profit                         14,376        22,548        11,127
Operating expenses:
     Selling and marketing expenses  9,413         6,693         7,907
     General and administrative      5,393         2,615         2,823
     expenses
Total operating expenses             14,806        9,308         10,730
     Gain(Loss) from equity method   237           (37)          (132)
     investees
Operating profit                     (193)         13,203        265
     Interest income                 472           637           570
Income before income tax expense     279           13,840        835
     Income tax expense              192           685           42
Net income                           87            13,155        793
Net income attributable to           597           472           480
noncontrolling interest
Net income attributable to Charm     (510)         12,683        313
Communications Inc.
Net income(loss) attributable to
Charm Communications Inc.
shareholders per ADS:
Basic                                (0.01)        0.32          0.01
Diluted                              (0.01)        0.31          0.01
Shares used in computation of net
income(loss) per ADS:
Basic                                38,765,702    39,162,169    39,066,416
Diluted                              38,765,702    41,165,262    40,952,959
Notes:
Share-based compensation expenses
during the period included in:
Cost of revenues                     -             1             -
Selling and marketing expenses       323           536           330
General and administrative expenses  156           256           163
Total                                479           793           493
                                     For the three months ended,
                                     Sep. 30, 2012 Sep. 30, 2011 June 30, 2012
                                     (Unaudited)   (Unaudited)   (Unaudited)
Net income                           87            13,155        793
Other comprehensive income:
Change in cumulative foreign         2,404         2,579         (1,967)
exchange translation adjustment
Comprehensive income                2,491         15,734        (1,174)
Less: Comprehensive income
attributable to non-controlling      (688)         (355)         (233)
interest
Less: Comprehensive income
attributable to redeemable           (146)         (4,533)       (247)
non-controlling interest
Comprehensive income attributable    1,657         10,846        (1,654)
to Charm Communications Inc.



Reconciliation from Net income to Non-GAAP net income:
(Amounts in thousands of U.S. dollars)
                                     For the three months ended,
                                     Sep.30,2012 Sep.30,2011 June30,2012
 Net income                          87            13,155        793
 Add back share-based compensation expenses
 during the related periods          479           793           493
 Add back amortization on intangible 259           207           260
 assets
 Non-GAAP net income                 825           14,155        1,546



Reconciliation from Turnover (non-GAAP) to USGAAP Revenues:
(Amounts in thousands of U.S. dollars)
                                   For the three months ended,
                                   Sep.30,2012 Sep.30,2011 June30,2012
 Turnover (non-GAAP):
 Mediainvestmentmanagement 34,073        59,605        24,477
 Advertising agency                182,457       160,627       170,904
 Branding and identity services    N/A         N/A         N/A
 Total turnover                    216,530       220,232       195,381
 Extracted rate:
 Media investment management       100.0%        100.0%        100.0%
 Advertising agency                7.5%          5.8%          5.7%
 Branding and identity services    N/A         N/A         N/A
 USGAAP Revenue:
 Media investment management       34,073        59,605        24,477
 Advertising agency                13,646        9,262         9,793
 Branding and identity services    1,125         1,370         1,711
 Total revenue                     48,844        70,237        35,981

SOURCE Charm Communications Inc.

Website: http://ir.charmgroup.cn
 
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