Charm Communications Inc. Announces Unaudited 2011 Third Quarter Results

Charm Communications Inc. Announces Unaudited 2011 Third Quarter Results

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 /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 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
-- Basic net income per ADS for the third quarter of 2011 was $0.32,
compared to $0.28 for the third quarter of 2010 and $0.28 for the second
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
-- Charm had 687 employees as of September 30, 2011, compared to 580 as of
June 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.

The revenue extraction rate, which is defined as revenue divided by turnover, was 5.8% for the Company's advertising agency business, or agency business, compared to 6.1% for the third quarter of 2010 and 4.4% for the second quarter of 2011. The quarter-over-quarter increase in the revenue extraction rate is mainly due to increased advertising spending on non-CCTV media platforms, especially the internet, which generally have higher extraction rates than CCTV. 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. 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 and Charm Click.

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.

Operating Profit
----------------
US$ mm 3Q11 3Q10 2Q11 Y-o-Y % Q-o-Q%
------ ---- ---- ---- ------- ------
Total operating expenses $9.3 $7.4 $7.7 25.5% 20.2%
------------------------ ---- ---- ---- ---- ----
Selling and marketing $6.7 $5.8 $5.8 15.9% 15.9%
--------------------- ---- ---- ---- ---- ----
General and administrative $2.6 $1.6 $2.0 59.3% 33.0%
-------------------------- ---- ---- ---- ---- ----
Operating profit $13.2 $11.4 $10.9 15.6% 21.3%
---------------- ----- ----- ----- ---- ----

The 15.9% year-over-year increase in selling and marketing expenses compared with the third quarter of 2010 was primarily due to increased headcount at Charm Interactive and Charm Click. Selling and marketing expenses represented 9.5% of the Company's total revenues for the third quarter of 2011, compared to 11.9% for the third quarter of 2010 and 8.6% for the second quarter of 2011.

General and administrative expenses in the third quarter of 2011 grew 59.3% year-over-year and 33.0% quarter-over-quarter to $2.6 million. The year-over-year growth is consistent with continuous investment in infrastructure to support long-term growth.

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.

Each ADS represents two common shares. The weighted average shares used in computation of basic net income per ADS for the third quarter of 2011 is 39,162,169. As of September 30, 2011, 39,168,724 ADS were issued and outstanding.

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.

Charm won the following new accounts in the third quarter of 2011:

Charm Advertising won the Kito Ceramics account and will be responsible for its overall television media business. Kito is one of the leading green and eco-friendly building material manufacturers, specializing in porcelain and ceramics.

Charm Advertising and Charm Interactive jointly won the Tailong Pharmaceutical account and will be responsible for its overall television media and digital marketing businesses. Tailong is a leading pharmaceutical manufacturer based in Henan Province.

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.

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, amortization of intangible assets 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, October 27, 2011.

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

United States: +1-718-354-1231
International: +65-6723-9381
United Kingdom Toll-Free: 0-808-234-6646
Hong Kong: +852-2475-0994
Passcode: 17941631

A replay of the call will be available from 11 a.m. October 27, 2011 until November 3, 2011 U.S. Eastern Time. Dial-in details for the replay are as follows:

International: +61-2-8235-5000
Passcode: 17941631

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

About Charm

Charm Communications Inc. (NASDAQ: CHRM) 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. 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. Rita Pan
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-Sep-11 30-Jun-11 31-Dec-10
(Unaudited) (Unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents 136,172 132,410 123,320
Notes receivable 5,454 4,387 15,323
Prepaid expenses 72,277 56,063 63,680
Deposits 28,867 27,829 28,409
Accounts receivable 104,121 77,746 49,746
Amount due from related parties 6,439 6,155 2,485
Other current assets 2,987 2,624 1,587
----- ----- -----
Total current assets 356,317 307,214 284,550
------- ------- -------

Fixed assets, net 2,096 1,972 2,082
Intangible assets, net 3,799 - -
Investments under equity method 1,431 1,369 -
Goodwill 4,277 - -
Other non-current assets 996 - -

Total non-current assets 12,599 3,341 2,082
------ ----- -----

TOTAL ASSETS 368,916 310,555 286,632
======= ======= =======

LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED SHARES AND EQUITY
Current Liabilities
Accounts payable (of which 1,240,
1,570 and 9,012, as of September
30, 2011, June 30, 2011 and
December 31, 2010 of the
consolidated VIE without recourse
to the Company, respectively) 52,961 32,859 19,341
Amounts due to related parties (of
which 196, nil and nil as of
September 30, 2011, June 30, 2011
and December 31, 2010 of the
consolidated VIE without recourse
to the Company, respectively) 6,917 3,939 4,701
Advances from customers (of which
8,324, 10,607 and 3,083 as of
September 30, 2011, June 30, 2011
and December 31, 2010 of the
consolidated VIE without recourse
to the Company, respectively) 59,936 54,683 57,970
Accrued expenses and other current
liabilities (of which 7,009,
7,981 and 14,843, as of September
30, 2011, June 30, 2011 and
December 31, 2010 of the
consolidated VIE without recourse
to the Company, respectively) 16,978 14,582 18,516
Dividends payable (of which nil as
of September 30, 2011, June 30
2011 and December 31, 2010 of the
consolidated VIE without recourse
to the Company, respectively) - - 5,829
Consideration payable (of which
nil as of September 30, 2011,
June 30 2011 and December 31,
2010 of the consolidated VIE
without recourse to the Company,
respectively) 4,344 - -
----- --- ---
Total current liabilities 141,136 106,063 106,357
------- ------- -------

Consideration payable (of which
nil as of September 30, 2011,
June 30 2011 and December 31,
2010 of the consolidated VIE
without recourse to the Company,
respectively) 2,442 - -
----- --- ---
Total non-current liabilities 2,442 - -
----- --- ---

Total liabilities 143,578 106,063 106,357
------- ------- -------

Redeemable noncontrolling interest 4,533 - -

Equity:
Charm Communications Inc.'s equity
Ordinary shares 8 8 8
Additional paid-in capital 117,517 116,821 115,288
Retained earnings 91,139 78,456 59,783
Accumulated other comprehensive
income 10,446 7,867 4,319
------ ----- -----
Total Charm Communications Inc.
shareholders' equity 219,110 203,152 179,398
------- ------- -------
Noncontrolling interest 1,695 1,340 877
Total equity 220,805 204,492 180,275

TOTAL LIABILITIES, CONVERTIBLE REDEEMABLE
PREFERRED SHARES, REDEEMABLE ORDINARY
SHARES AND EQUITY 368,916 310,555 286,632
======= ======= =======

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,
---------------------
September September
30, 30, June 30,
2011 2010 2011
(Unaudited) (Unaudited) (Unaudited)

Revenues:
Media investment
management 59,605 40,994 59,568
Advertising
agency 9,262 6,335 6,165
Branding and
identity
services 1,370 1,096 1,551
----- ----- -----
Total revenues 70,237 48,425 67,284
------ ------ ------

Cost of
revenues:
Media investment
management 45,998 28,231 47,012
Advertising
agency 998 694 716
Branding and
identity
services 693 661 972
--- --- ---
Total cost of
revenues: 47,689 29,586 48,700
------ ------ ------
Gross profit 22,548 18,839 18,584
------ ------ ------

Operating
expenses:
Selling and
marketing
expenses 6,693 5,773 5,776
General and
administrative
expenses 2,615 1,642 1,966
Total operating
expenses 9,308 7,415 7,742
----- ----- -----
Gain from equity
method
investees -37 44
--- ---
Operating profit 13,203 11,424 10,886
------ ------ ------

Interest income 637 371 644
Interest
expenses - -110 -
--- ---- ---

Income before
income tax
expense 13,840 11,685 11,530
Income tax
expense 685 584 577
--- --- ---
Net income 13,155 11,101 10,953
------ ------ ------
Net income
attributable to
noncontrolling
interest 472 200 154
Net income
attributable to
Charm
Communications
Inc. 12,683 10,901 10,799
------ ------ ------

Net income(loss)
attributable to
Charm
Communications
Inc.
shareholders
per ADS:
Basic 0.32 0.28 0.28
Diluted 0.31 0.27 0.26
Shares used in
computation of
net
income(loss)
per ADS:
Basic 39,162,169 39,122,662 39,160,113
Diluted 41,165,262 40,517,732 41,015,064

Notes:
(1) Share-based
compensation
expenses during
the period
included in:
Cost of revenues 1 2 1
Selling and
marketing
expenses 536 385 450
General and
administrative
expenses 256 220 277
--- --- ---
Total 793 607 728
--- ---

Reconciliation from Net income to Non-GAAP net income:
(Amounts in thousands of U.S. dollars)
For the three months ended,
---------------------------
September September June 30,
30, 2011 30, 2010 2011

Net income 13,155 11,101 10,953

Add back share-based compensation
expenses
during the related
periods 793 607 728

Add back amortization on
intangible assets 207 - -

Add back impairment on
investments - - -

Non-GAAP net income 14,155 11,708 11,681
------ ------ ------

Reconciliation from Turnover (non-GAAP) to USGAAP
Revenues:
(Amounts in thousands of U.S. dollars)
For the three months ended,
---------------------------
September 30, September 30, June 30,
2011 2010 2011
Turnover (non-GAAP):
Media investment
management 59,605 40,994 59,568
Advertising agency 160,627 104,466 141,690
Branding and identity
services N/A N/A N/A
Total turnover 220,232 145,460 201,258
------- ------- -------

Extracted rate:
Media investment
management 100.0% 100.0% 100.0%
Advertising agency 5.8% 6.1% 4.4%
Branding and identity
services N/A N/A N/A

USGAAP Revenue:
Media investment
management 59,605 40,994 59,568
Advertising agency 9,262 6,335 6,165
Branding and identity
services 1,370 1,096 1,551
Total revenue 70,237 48,425 67,284
------ ------ ------

SOURCE Charm Communications Inc.

Charm Communications Inc.

Web Site: http://ir.charmgroup.cn

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