Acorn International Reports Third Quarter 2013 Financial Results

Acorn International Reports Third Quarter 2013 Financial Results

SHANGHAI, Nov. 27, 2013 /PRNewswire/ -- Acorn International, Inc. (NYSE: ATV) ("Acorn" or the "Company"), a media and branding company in China engaged in developing, promoting and selling products through extensive direct and distribution networks, today announced its unaudited financial results for the quarter ended September 30, 2013.

Summary Results for the Third Quarter of 2013


-- Net revenues were $56.3 million, a decrease of 18.7% from $69.2 million
in the third quarter of 2012.
-- Gross profit was $27.5 million, a decrease of 11.7% from $31.1 million
in the third quarter of 2012.
-- Gross margin increased to 48.8%, as compared to 44.9% in the third
quarter of 2012.
-- Operating loss was $11.1 million, as compared to $2.2 million in the
third quarter of 2012.
-- Net loss attributable to Acorn was $10.5 million, as compared to $1.1
million in the third quarter of 2012.
-- Basic and diluted loss per American Depositary Share ("ADS", one ADS
represents three ordinary shares) was $0.39, as compared to basic and
diluted loss per ADS of $0.04 in the third quarter of 2012.
"Net revenues declined in the third quarter primarily due to lower sales of fitness products and mobile phones compared to the same period last year. Our Yierjian line of fitness products is entering the later stages of the product life cycle and is experiencing a significant decline in revenue, while our mobile phones sales decreased due to intense competition and a limited selection of mobile phone models available for TV infomercials. The third quarter is typically a seasonally stronger quarter for electronic learning product sales, and we made a large investment in television advertising to support our new models incorporating mobile interactive internet features. Although electronic learning products were our best selling product category this quarter, growing 15.1% year-over-year, the product line performed below our expectations. On a positive note, we are pleased with the performance of our kitchen and household products line, which accounted for 25.7% of gross revenues in the quarter and made a favorable contribution to gross margin. As a result of lower revenue and higher advertising and selling expenses associated with electronic learning products and our distribution channel, we reported a loss for the quarter. However, we plan on testing new products in several categories to increase revenue in coming quarters. Meanwhile, we are confident in our ability to scale up sales of electronic learning products in the future," said Mr. Don Yang, CEO of Acorn.

Business Results for the Third Quarter of 2013:


-- Electronic learning products were the largest product category in the
third quarter of 2013, generating revenues of $19.8 million and
representing 35.2% of total gross revenues. Increased sales of
electronic learning products was primarily due to the growing market
recognition of our new models incorporating mobile Internet interactive
features such as online tutoring services.
-- Kitchen and household products were the second-largest product category
in the third quarter, generating revenues of $14.5 million and
representing 25.7% of total gross revenues. The Company will continue to
test additional kitchen and household products in the fourth quarter of
2013.
-- Sales generated from other direct sales platforms, which consist of
outbound calls, Internet websites, and catalogs, decreased 26.3% in the
third quarter of 2013 compared to the third quarter of 2012. The
decrease in other direct sales was primarily due to lower sales from
outbound calls.
Financial Results for the Third Quarter of 2013:

Total net revenues were $56.3 million, a decrease of 18.7% from $69.2 million in the third quarter of 2012. Direct sales contributed to 61.6%, or $34.7 million, of total net revenues in the third quarter of 2013, representing a 30.4% decrease from $49.8 million in the same period of last year. The decrease in direct sales net revenue mainly resulted from lower sales of fitness products and mobile phones.

Distribution sales net revenues increased 11.0% year-over-year to $21.6 million, from $19.4 million in the third quarter of 2012. Sales of electronic learning products, which accounted for 90.0% of distribution sales, increased 15.1% year-over-year. The increase was primarily due to growing market recognition of the Company's newer model products which incorporate mobile Internet interactive features such as online tutoring services.

The table below summarizes the gross revenues of the Company in the third quarters of 2012 and 2013, respectively, broken down by product category:



2013 Q3 Sales 2012 Q3 Sales

$'000 % $'000 %
===== === ===== ===

Electronic learning products 19,842 35.2% 17,238 24.8%
---------------------------- ------ ---- ------ ----

Kitchen and household products 14,493 25.7% 591 0.9%
------------------------------ ------ ---- --- ---

Collectible products 7,200 12.8% 5,112 7.4%
-------------------- ----- ---- ----- ---

Fitness products 5,302 9.4% 17,819 25.7%
---------------- ----- --- ------ ----

Mobile phones 4,529 8.0% 17,423 25.1%
------------- ----- --- ------ ----

Health products 2,895 5.1% 4,082 5.9%
--------------- ----- --- ----- ---

Other products 2,144 3.8% 7,125 10.2%
-------------- ----- --- ----- ----

Total gross revenues 56,405 100.0% 69,390 100.0%
-------------------- ------ ----- ------ -----

Sales taxes (148) (158)
----------- ---- ----

Total net revenues 56,257 69,232
------------------ ------ ------
Cost of sales in the third quarter of 2013 was $28.8 million, representing a 24.5% decrease from $38.1 million in the third quarter of 2012, primarily due to the decrease in overall sales.

Gross profit in the third quarter of 2013 was $27.5 million, representing an 11.7% decrease as compared to $31.1 million in the third quarter of 2012. Gross margin was 48.8% in the third quarter of 2013, as compared to 44.9% in the same period of 2012. The increase in gross margin was largely due to the larger contribution by kitchen and household products, which generally carry higher gross margin, in our product mix.

Advertising expense was $16.4 million in the third quarter of 2013, up 14.9% from $14.3 million in the third quarter of 2012. Gross profit over advertising expense, a benchmark Acorn uses to measure return on its multiple sales platforms, was 1.67 in the third quarter of 2013, down from 2.17 in the third quarter of 2012 and also down from 1.94 in the second quarter of 2013. The decrease was primarily due to lower sales of electronic learning products relative to the amount spent on television advertising, partially offset by a greater contribution of kitchen and household products in the product mix.

Other selling and marketing expense was $15.4 million in the third quarter of 2013, up 14.7% from $13.4 million in the third quarter of 2012. The increase in selling and marketing expense despite a decrease in total net revenues resulted primarily from higher labor costs, and marketing expenses related to the electronic learning products.

General and administrative expense was $7.3 million in the third quarter of 2013, representing an 8.0% increase from $6.8 million in the third quarter of 2012. The increase in general and administrative expense resulted primarily from higher labor costs.

Other operating income, net, was $0.5 million in the third quarter of 2013, as compared to $1.2 million in the third quarter of 2012.

The operating loss was $11.1 million, as compared to $2.2 million in the third quarter of 2012.

Other income was $0.9 million, as compared to $0.8 million in the third quarter of 2012.

Share-based compensation was $107,000 in the third quarter of 2013, as compared to $123,246 in the third quarter of 2012.

Income tax expense was $0.2 million in the third quarter of 2013 as compared to an income tax benefit of $0.2 million in the third quarter of 2012.

Net loss attributable to Acorn was $10.5 million, as compared to $1.1 million in the third quarter of 2012.

Basic and diluted loss per ADS was $0.39 compared to basic and diluted loss per ADS of $0.04 in the third quarter of 2012.

As of September 30, 2013, Acorn's cash and cash equivalents, with current restricted cash and short-term investments, totaled $86.4 million, as compared to $101.5 million as of December 31, 2012. The decrease in the Company's cash and cash equivalents was primarily due to the losses from operations for the first nine months of 2013 and the $9.6 million non-current restricted cash, which was deposited to obtain long-term debt for a share repurchase transaction completed in March 2013.

Other Information

China's State Administration of Press, Publication, Radio, Films and Television, issued a circular at the end of October 2013 strengthening the administration of infomercials broadcast via satellite TV channels. Once effective on January 1, 2014, satellite TV channels can neither broadcast infomercials between 6:00 p.m. to 12:00 a.m. nor broadcast more than one infomercial per hour. In addition, each infomercial cannot exceed three minutes in length and infomercials with the same content or selling the same product cannot be broadcast more than three times per day. Acorn's management is currently evaluating the circular and its potential impact on the Company's business and operations and is in the process of forming new strategies and initiatives in response to the circular.

Business Outlook:

Based on current trends, the company is maintaining its previously announced revenue guidance for the full year 2013 of between $190 million and $210 million and anticipates a net loss at or somewhat larger than its prior full year 2013 net loss guidance of $30 million.

Going forward, Acorn plans to introduce new products in several categories. The Company will make further enhancements to its electronic learning products in an effort to scale up sales and enhance their overall market recognition. The Company continues to focus on improving the efficiency of its call center operations and increasing the effectiveness of its outbound telemarketing efforts by leveraging its customer database to increase sales.

These estimates are subject to change. Acorn also reminds investors that its operating results in each period vary significantly as a result of the mix of products sold in the period and the platforms through which they are sold. Therefore, operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Consequently, in evaluating the overall performance of Acorn's multiple sales platforms in any period, management also considers metrics such as operating margin and gross profit return on advertising expenses.

Conference Call Information

The Company will host a conference call at 8:00 a.m. ET on November 27, 2013 (9:00 p.m. Beijing Time) to review the Company's financial results and answer investors' questions. You may access the live interactive call via:


-- 1-877-870-4263 (U.S. Toll Free)
-- 1-412-317-0790 (International)
-- 1-855-669-9657 (Canada Toll Free)
-- 06-800-20175 (Hong Kong Toll Free)
-- 4001-201203 (China South Toll Free)
-- 4001-201203 (China North Toll Free)
Please dial-in approximately 5 minutes in advance to facilitate a timely start.

A replay will be available until 9:00 a.m. ET on December 4, 2013 and may be accessed via:


-- 1-877-344-7529 (U.S. Toll Free)
-- 1-412-317-0088 (International)
-- Conference number: 10036503
A live and archived webcast of the call will be available on the Company's website at http://ir.chinadrtv.com.

About Acorn International, Inc.

Acorn is a media and branding company in China, operating one of China's largest TV direct sales businesses in terms of revenues and TV airtime, and other direct sales platforms and a nationwide distribution network. Acorn's TV direct sales platform consists of airtime purchased from both national and local channels. Acorn's other direct sales platforms include outbound telemarketing centers, e-commerce websites, and catalogs. Acorn has built a proven track record of developing, promoting and selling proprietary-branded products, as well as products from established third parties. For more information, please visit http://ir.chinadrtv.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains "forward-looking statements," including, among other things, Acorn's anticipated operating results for 2013; Acorn's ability to realize its planned new product testing, launches and upgrades; Acorn's ability to scale up sales of its electronic learning products; Acorn's expectation regarding accelerated growth in customer acceptance of its new electronic learning products with mobile interactive internet features; Acorn's ability to form and implement business strategies and initiatives in response to the recent Circular issued by China's State Administration of Press, Publication, Radio, Films and Television restricting infomercials; the Company's ability to improve its Internet sales, its outbound telephone sales and distribution channel sales; the Company's ability to improve the efficiency of its call center operations and to increase the effectiveness of its outbound marketing efforts; and the Company's new media purchase strategy. These forward-looking statements are not historical facts but instead represent only the Company's belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. The Company's actual results and financial condition and other circumstances may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Acorn may fail to meet the operating results expectations. In particular, the operating results of the Company for any period are impacted significantly by the mix of products and services sold by the Company in the period and the platforms through which they are sold, causing the operating result to fluctuate and making them difficult to predict. The Company may not be able to maintain the sales and margin of such products at current level in the event that there is a change in the customers' preference, which may result in a material adverse impact on the Company's results of operations and financial conditions.

Other factors that could cause forward-looking statements to differ materially from actual future events or results include risks and uncertainties related to: the Company's ability to successfully improve or introduce new products and services, including to offset declines in sales of existing products and services; the Company's ability to stay abreast of consumer market trends and maintain the Company's reputation and consumer confidence; the Company's ability to execute and maintain a successful market strategy, continued access to and effective usage of TV advertising time and pricing related risks; relevant government policies and regulations relating to TV media time and TV direct sales programs, including regulations issued by China's State Administration of Press, Publication, Radio, Films and Television and actions that may make TV media time unavailable to the Company or require the Company to suspend or terminate a particular TV direct sales program; potential unauthorized use of the Company's intellectual property; potential disruption of the Company's manufacturing processes; increasing competition in China's consumer market; the Company's U.S. tax status as a passive foreign investment company; and general economic and business conditions in China. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2012 annual report on Form 20-F filed with Securities and Exchange Commission on April 18, 2013. For a discussion of other important factors that could adversely affect the Company's business, financial condition, results of operations and prospects, see "Risk Factors" beginning on page 6 of the Company's Form 20-F for the fiscal year ended December 31, 2012. The Company's actual results of operations for the third quarter of 2013 are not necessarily indicative of its operating results for any future periods. Any projections in this release are based on limited information currently available to the Company, which is subject to change. Although such projections and the factors influencing them will likely change, the Company will not necessarily update the information. Such information speaks only as of the date of this release.

Statement Regarding Unaudited Financial Information

The condensed, consolidated financial statements included herein are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, and financial position. The results reported in these condensed, consolidated financial statements are unaudited and subject to change in conjunction with our annual audit and should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our 2012 consolidated financial statements.

Contact:






Acorn International, Inc. Compass Investor Relations

Ms. Natalie Li Ms. Elaine Ketchmere, CFA

Phone: +86-21-51518888 Ext. 2540 Phone: +1-310-528-3031

Email: natalie@chinadrtv.com Email: Eketchmere@compass-ir.com

www.chinadrtv.com www.compassinvestorrelations.com






ACORN INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In US dollars)


December 31, 2012 September 30, 2013
----------------- ------------------

(audited) (unaudited)

Assets

Current assets:

Cash and cash equivalents 90,975,155 85,508,735

Restricted cash 246,599 865,322

Short-term investments 10,271,142 -

Accounts receivable, net 14,279,638 11,329,575

Notes receivable 127,859 -

Inventory 22,619,874 18,216,969

Prepaid advertising expenses 8,562,723 4,747,304

Other prepaid expenses and current assets, net 12,144,929 7,268,483

Deferred tax assets, net 281,391 287,684

Total current assets 159,509,310 128,224,072

Prepaid land use right 7,952,068 7,997,378

Property and equipment, net 29,002,372 29,648,048

Acquired intangible assets, net 1,796,366 1,555,787

Investments in affiliates 8,111,603 8,151,955

Restricted cash - 9,799,723

Other long-term assets 1,024,845 1,257,996
--------- ---------

Total assets 207,396,564 186,634,959
=========== ===========

Liabilities and equity

Current liabilities:

Accounts payable 11,137,295 10,715,005

Accrued expenses and other current liabilities 13,571,654 13,235,132

Notes payable 700,024 3,741,054

Income taxes payable 449,426 91,725

Deferred revenue 903,945 810,013

Total current liabilities 26,762,344 28,592,929

Long-term debt - 8,454,342

Deferred tax liability 833,042 851,673

Total liabilities 27,595,386 37,898,944
---------- ----------

Equity

Acorn International, Inc. shareholders' equity:

Ordinary shares 946,175 949,372

Additional paid-in capital 161,056,595 161,392,810

Accumulated deficits (1,965,802) (28,070,202)

Accumulated other comprehensive income 30,720,703 34,154,471

Treasury stock, at cost (11,463,946) (20,109,451)

Total Acorn International, Inc. shareholders' equity 179,293,725 148,317,000

Non-controlling interests 507,453 419,015
------- -------

Total equity 179,801,178 148,736,015
----------- -----------

Total liabilities and equity 207,396,564 186,634,959
=========== ===========








ACORN INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In US dollars, except share data)


3 Months Ended September 30 9 Months Ended September 30
--------------------------- ---------------------------

2012 2013 2012 2013
---- ---- ---- ----

(unaudited) (unaudited) (unaudited) (unaudited)

Net revenues

Direct sales 49,784,085 34,671,297 144,731,986 109,970,526

Distribution sales 19,447,548 21,585,655 38,741,343 39,000,818

Total 69,231,633 56,256,952 183,473,329 148,971,344
---------- ---------- ----------- -----------


Cost of revenues

Direct sales (23,870,923) (14,243,748) (70,718,908) (47,620,375)

Distribution sales (14,268,991) (14,549,222) (27,785,856) (26,745,843)

Total (38,139,914) (28,792,970) (98,504,764) (74,366,218)
----------- ----------- ----------- -----------


Gross profit

Direct sales 25,913,162 20,427,549 74,013,078 62,350,151

Distribution sales 5,178,557 7,036,433 10,955,487 12,254,975

Total 31,091,719 27,463,982 84,968,565 74,605,126
---------- ---------- ---------- ----------


Operating (expenses) income

Advertising expenses (14,295,576) (16,423,319) (43,031,395) (41,009,046)

Other selling and marketing expenses (13,385,983) (15,357,221) (38,252,213) (41,522,174)

General and administrative expenses (6,752,726) (7,289,720) (19,888,039) (22,293,625)

Other operating income, net 1,163,965 458,642 2,525,347 1,738,546

Total operating expenses (33,270,320) (38,611,618) (98,646,300) (103,086,299)
----------- ----------- ----------- ------------

Loss from operations (2,178,601) (11,147,636) (13,677,735) (28,481,173)


Other income 780,945 896,141 4,827,823 2,588,557

Loss before income taxes, and equity (1,397,656) (10,251,495) (8,849,912) (25,892,616)

in losses of affiliates


Income tax (expenses) benefits

Current 237,826 (208,787) 2,433,978 (112,799)

Deferred - - (2,252,622) -

Total income tax (expenses) benefits 237,826 (208,787) 181,356 (112,799)


Equity in losses of affiliates - (109,533) - (197,619)


Net loss (1,159,830) (10,569,815) (8,668,556) (26,203,034)


Net loss attributable to noncontrolling 41,336 30,636 126,318 98,634

interests

Net loss attributable to Acorn (1,118,494) (10,539,179) (8,542,238) (26,104,400)

International, Inc.
===


Loss per ADS

Basic (0.04) (0.39) (0.28) (0.93)

Diluted (0.04) (0.39) (0.28) (0.93)


Weighted average number of ordinary

shares used in calculating income per ADS

(each ADS represents three ordinary shares)

Basic 89,972,637 82,449,791 89,959,795 84,676,396

Diluted 90,054,258 82,449,791 90,007,837 84,681,050








ACORN INTERNATIONAL, INC.

STATEMENTS OF COMPREHENSIVE LOSS

(In US dollars)


3 Months Ended September 30 9 Months Ended September 30
--------------------------- ---------------------------

2012 2013 2012 2013
---- ---- ---- ----

(unaudited) (unaudited) (unaudited) (unaudited)


Net loss (1,118,494) (10,539,179) (8,542,238) (26,104,400)

Other comprehensive income

Foreign currency translation (436,616) 726,633 (1,100,207) 3,433,768

adjustments

Comprehensive loss (1,555,110) (9,812,546) (9,642,445) (22,670,632)

Comprehensive loss attributable to (42,372) (28,491) (128,995) (88,438)

non-controlling interest

Comprehensive loss attributable to (1,597,482) (9,841,037) (9,771,440) (22,759,070)

Acorn International, Inc.
===


SOURCE Acorn International, Inc.

Acorn International, Inc.

Web Site: http://ir.chinadrtv.com


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