Charm Communications Inc. Announces Unaudited Fourth Quarter and Full Year 2011 Results

BEIJING, March 5th, 2012 /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 fourth quarter and full year ended December 31, 2011.

Fourth Quarter 2011 Highlights

• Revenues in the fourth quarter of 2011 grew 41.7% year over year to $80.3 million
• Revenues for Charm's advertising agency business grew 51.5% year over year to $11.7 million in the fourth quarter of 2011
• Revenues for Charm's media investment management business grew 40.0% year over year to $65.6 million in the fourth quarter of 2011
• Revenues for Charm's branding and identity services business grew 42.5% year over year to $3.0 million in the fourth quarter of 2011
• Gross profit for the fourth quarter of 2011 grew 29.0% year over year to $28.5 million
• Net income for the fourth quarter of 2011 grew 29.4% year over year to $15.7 million
• Non-GAAP net income, which excludes share-based compensation expenses, amortization of intangible assets and impairment on investments, grew 17.4% year over year to $17.1 million in the fourth quarter of 2011
• Basic net income per ADS for the fourth quarter of 2011 was $0.38, compared to $0.31 for the fourth quarter of 2010 and $0.32 for the third quarter of 2011
• Cash flow from operations was positive for the fourth quarter of 2011, with cash and cash equivalents of $139.4 million as of December 31, 2011
• In the fourth quarter of 2011, Charm added five new advertising client accounts to its agency business, bringing total agency accounts to 148 as of December 31, 2011
• In the fourth quarter of 2011, Charm's principal media business had 303 advertisers, compared to 282 advertisers in the fourth quarter of 2010
• Charm had 697 employees as of December 31, 2011, compared to 687 as of September 30, 2011

Full Year 2011 Highlights

• Revenues in the full year 2011 grew 45.6% year over year to $280.1 million
• Revenues for Charm's advertising agency business in the full year 2011 grew 38.4% year over year to $34.3 million
• Revenues for Charm's media investment management business in the full year 2011 grew 46.9% year over year to $238.8 million
• Revenues for Charm's branding and identity service business in the full year 2011 grew 40.3% year over year to $7.0 million
• Gross profit for the full year 2011 grew 23.2% year over year to $84.5 million
• Net income for the full year 2011 grew 24.8% year over year to $48.0 million
• Non-GAAP net income, which excludes share-based compensation expenses, amortization of intangible assets and impairment on investments, for the full year 2011 grew 20.9% year over year to $51.7 million
• Basic net income per ADS for the full year 2011 was $1.18, compared to $1.02 for the full year 2010

"2011 was a very successful year for Charm, as we were able to solidify our market-leading position in television advertising with our ninth straight year as China Central Television's (CCTV) number one agency. At the same time we were able to build up scale within the faster-growing digital space, which contributed 16% of our agency revenues for the full year." said Mr. He Dang, founder, chairman and chief executive officer of Charm.

"In 2012, we are excited by the long-term growth prospects of our agency business, in which we will be investing more aggressively in terms of talent and infrastructure, especially with respect to our digital business, which we see as our new growth driver. We also proactively modified the inventory mix of our media investment management business to address the weakening of the satellite TV market in the wake of new regulatory policies," concluded Mr. Dang.

Mr. Wei Zhou, Charm's chief financial officer, added, "We delivered an outstanding performance for full year 2011, achieving robust top-line and bottom-line growth. Although we expect to see a softer than usual advertising environment in the first quarter of this year, we remain confident in the long-term growth of China's advertising market, as well as in the sustainable and profitable growth at Charm."

Fourth Quarter 2011 Results

Turnover (non-GAAP)

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 28.1% 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 15.7% quarter-over-quarter increase in turnover was largely attributed to the increase in agency advertising spending in the fourth quarter of 2011, which was mainly due to seasonal factors.

The 24.5% 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 17.8% quarter-over-quarter increase in turnover was mainly attributed to the increase in agency advertising spending on non-CCTV media platforms, especially on the internet in the fourth quarter of 2011. In the fourth quarter of 2011, Charm provided advertising agency services to 148 advertising client accounts, five of which were acquired in the fourth quarter of 2011.

The revenue extraction rate, which is defined as revenue divided by turnover, was 6.2% for the agency business, compared to 5.1% for the fourth quarter of 2010 and 5.8% for the third quarter of 2011. The quarter-over-quarter increase in the revenue extraction rate was mainly due to increased advertising spending on the internet, which has a higher extraction rate. For example, internet agency revenue in the fourth quarter of 2011 accounts for approximately 20% of the Company's total agency revenue compared with 5% in the fourth 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.

The 40.0% 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 third quarter of 2011, the 10.1% quarter-over-quarter increase was mainly attributed to the strong demand from clients on Shanghai Dragon Satellite Channel due to seasonal factors. For the fourth quarter of 2011, Charm had 303 advertisers for its principal media business, compared with 282 advertisers for the fourth quarter of 2010.

Revenues

The increases in agency and principal media business revenues are consistent with the changes in turnover, while the quarter-to-quarter increases in branding and identity services were primarily due to more client demand for creative services in the fourth quarter of 2011.

Gross Profit

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 three 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.

Operating Profit

The 75.8% year-over-year increase in selling and marketing expenses compared with the fourth quarter of 2010 was primarily due to increased headcount at Charm Interactive and Charm Click. The 44.1% quarter-over-quarter increase in selling and marketing expenses compared with the third quarter of 2011 was primarily due to infrastructure investment to support Charm's long-term growth, such as the Company's office expansion. Selling and marketing expenses represented 12.0% of the Company's total revenues for the fourth quarter of 2011, compared to 9.7% for the fourth quarter of 2010 and 9.5% for the third quarter of 2011.

General and administrative expenses in the fourth quarter of 2011 grew 34.8% year over year and 28.1% quarter over quarter to $3.4 million. The increase is consistent with the Company's overall investment in senior talent and infrastructure.

Net Income

*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 fourth quarter of 2011 is 39,075,906. As of December 31, 2011, 38,983,088 ADS were issued and outstanding.

Cash Flows and Cash Position

Cash flow from operations for the fourth quarter of 2011 was positive. As of December 31, 2011, the Company had cash and cash equivalents of $139.4 million, compared to $136.2 million at the end of the third quarter of 2011.

Employee Headcount

As of December 31, 2011, the Company had 697 employees, compared to 687 employees as of September 30, 2011.

Full Year 2011 Results

Turnover

Revenues

Gross Profit

Operating Profit

Net Income

*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 ADSs for the full year 2011 is 39,133,419.

Recent Business Developments

In November 2011, Charm secured the number-one position in terms of successful bidding volume at the CCTV Prime-time Auction, regarded as the most important annual event in China's advertising industry.

In December 2011, Charm appointed Mr. Tony Yu, former chief technology officer of Zhaopin Limited, as the Company's chief technology officer. Through this newly-created position, Mr. Yu is expected to support the strategic development of Charm's digital initiatives and spearhead the building and upgrading of the Company's corporate information technology ("IT") infrastructure.

In December 2011, Charm terminated its exclusive agency agreement with Hubei Provincial Economic TV.

In December 2011, Charm signed a three-year exclusive agency agreement with Guangdong Southern Satellite Television Channel.

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

Charm Advertising won the overall television media business for Guizhou Xi Wine, China Guangdong Development Bank, Shandong Gold and Shanxi Travel and Tourism Bureau.

Charm Interactive won the full digital campaign for Huaxia Bank, Chcedo Cosmetics and Rongchang Pharmaceuticals.

Charm Click won the search engine marketing business for Standard Chartered Bank, Forever 21, DBS China and Midea Water Cooler.

Business Outlook

*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.

Caution 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 (9 p.m. Beijing/Hong Kong Time) on Tuesday, March 6, 2012.

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

A replay of the call will be available from 11 a.m. March 6, 2012 until March 13, 2012 U.S. Eastern Time. Dial-in details for the replay are as follows:

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 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:
Mr. Kevin Sun
IR Department
Charm Communications Inc.
Phone: +86-10-8556-2666 ext. 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