Focus Media Reports Second Quarter 2011 Results

SHANGHAI, August 23, 2011 /PRNewswire-Asia/ -- Focus Media Holding Limited (Nasdaq: FMCN), China's largest out-of-home lifestyle interactive targeted digital media group, today announced its unaudited financial results for the second quarter ended June 30, 2011.

Highlights for Second Quarter 2011:

• Total net revenue for the second quarter of 2011 was $179.0 million, of which
  • Aggregate net revenue from the LCD display network (including the movie theater network), in-store network and poster frame network was $166.1 million, which exceeded by approximately 11% the mid-point of the Company's guidance range of $149-151 million. This represented year-on-year growth of 48% from $112.2 million for the second quarter of 2010 and quarter-on-quarter growth of 22% from $136.1 million for the first quarter of 2011.
  • Net revenue from the traditional outdoor billboard network for the second quarter of 2011 was $12.9 million, which exceeded by approximately 8% the midpoint of the Company's guidance of $11-13 million. This represented year-on-year growth of 25% from $10.3 million for the second quarter of 2010.
• GAAP net income attributable to Focus Media for the second quarter of 2011 was $42.8 million, representing an increase of 109% from $20.5 million for the first quarter of 2011 and an increase of 69% from $25.3 million for the second quarter of 2010.
• Non-GAAP net income attributable to Focus Media for the second quarter of 2011 was $62.9 million, exceeding the mid-point of the Company's guidance range of $54-$56 million by 14%, representing year-on-year growth of 42% from non-GAAP net income attributable to Focus Media of $44.3 million for the second quarter of 2010 and quarter-on-quarter growth of 48% from non-GAAP net income attributable to Focus Media of $42.4 million for the first quarter of 2011. Please see the sections on "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to non-GAAP" elsewhere in this announcement for more information about the non-GAAP measures referred to within this announcement.
• GAAP net income attributable to Focus Media per fully diluted ADS for the second quarter of 2011 was $0.30, representing an increase of 100% from $0.15 per fully diluted ADS for the first quarter of 2011 and an increase of 76% from $0.17 per ADS in the second quarter of 2010.
• Non-GAAP net income attributable to Focus Media per fully diluted ADS for the second quarter of 2011 was $0.44, representing year-on year growth of 47% from $0.30 per fully diluted ADS for the second quarter of 2010 and quarter-on-quarter growth of 47% from $0.30 for the first quarter of 2011.

Highlights for Balance Sheet and Cash Flow Results of Second Quarter 2011:

• Cash, cash equivalents and short-term investments were $590.9 million as of June 30, 2011, increasing by 6% from $557.9 million as of March 31, 2011.
• Net cash inflow from operating activities in the second quarter of 2011 was $50.6 million, increased by 249% from $14.5 million for the first quarter of 2011 and a 34% increase from $37.8 million for the second quarter of 2010.
• Net accounts receivable for the LCD display network (including the movie theater network), in-store network and poster frame network was $184.8 million as of June 30, 2011, an increase of 15% from $161.2 million as of March 31, 2011 as a result of sequential increase of revenues. Days sales outstanding on a rolling basis was 87 days in the second quarter of 2011 versus 95 days for the first quarter of 2011 due to improving cash collection in the second quarter as the first quarter is usually the slow cash collection season of the year.
• Capital expenditures were $11.5 million for the second quarter of 2011, mostly attributable to upgrading our LCD screens into interactive screens in seven major cities of China.
• Cash used in investment in equity method investee amounted to $12.2 million in the second quarter of 2011, representing the remaining payment for 15% stake in VisionChina, compared to $48.8 million in the first quarter of 2011, which was attributable to the initial payment for our acquisition of a 15% stake in VisionChina.
• Cash used in the purchase of subsidiaries in the second quarter of 2011 was $1.7 million, primarily attributable to acquisitions in the poster frame network business as part of our ongoing strategy in expanding into additional cities.

Jason Jiang, Chairman and Chief Executive Officer of Focus Media said, "We are on schedule to complete installation of Focus Media's interactive screens in seven cities by October. We believe installation of these interactive screens is a vital revolutionary step that will transform our relationships with Chinese consumers by forming an intimate and interactive tie between the Focus media platform and Chinese consumers, providing advertisers with an interactive and measurable advertising media platform that can make a direct sales impact. We believe our offering of an interactive and measurable media platform will not only meaningfully expand our media resources, but it will also greatly enhance our value proposition and pricing power to advertisers."

Kit Low, the Company Chief Financial Officer added, "In the second quarter of 2011, the Company achieved aggregate net revenue year on year growth in our LCD display (including the movie theater network), in-store and poster frame businesses of 48%. GAAP net income attributable to Focus Media and non-GAAP net income attributable to Focus Media for the second quarter of 2011 was $42.8 million and $62.9 million, respectively. We achieved a positive net cash inflow from operating activities after deducting the purchase of equipment and subsidiaries of $37.3 million in the second quarter of 2011 as compared to a net cash inflow of $5.0 million in the first quarter of 2011 and a net cash inflow of $26.6 million in the second quarter of 2010. We believe our investment in interactive capability afford us to build an online to offline media platform that offer tremendous value to advertisers. Our investment will pay off in the form of propelling us to sustain an above average revenue growth."

Second Quarter 2011 financial results

Advertising net revenue from the LCD display network (including the movie theatre network) was $113.0 million for the second quarter of 2011, representing an increase of 48% from $76.1 million for the second quarter of 2010 and an increase of 25% from $90.5 million for the first quarter of 2011.

Advertising net revenue from the poster frame network was $38.2 million for the second quarter of 2011, representing an increase of 52% from $25.2 million for the second quarter of 2010 and an increase of 6% from $36.1 million for the first quarter of 2011.

Advertising net revenue from the in-store network was $14.9 million for the second quarter of 2011, representing an increase of 37% from $10.9 million for the second quarter of 2010 and an increase of 57% from $9.5 million for the first quarter of 2011.

As of June 30, 2011, the total installed base of LCD displays in our LCD display network was 169,798 nationwide, including 162,244 displays through our directly owned networks, and 7,554 displays through our regional distributors, as compared to total LCD displays of 170,104 as of March 31, 2011 due to optimization of the network. The total number of non-digital frames ready to use in our poster frame network was 354,945 as of June 30, 2011, as compared to 342,728 as of March 31, 2011. In addition, as of June 30, 2011, we had 35,217 digital frames installed in our poster frame network, a slight decrease from 35,685 as of March 31, 2011 due to optimization of the network. The total number of displays installed in our in-store network was 50,129 as of June 30, 2011, as compared to 48,826 as of March 31, 2011.

Advertising net revenue from the traditional outdoor billboard network was $12.9 million for the second quarter of 2011, representing an increase of 25% from $10.3 million for the second quarter of 2010 and an increase of 23% from $10.5 million for the first quarter of 2011.

Non-GAAP gross profit from the LCD display network (including the movie theatre network) for the second quarter of 2011 was $89.7 million, representing an increase of 49% from $60.2 million for the second quarter of 2010 and an increase of 36% from $66.0 million for the first quarter of 2011.

Non-GAAP gross profit from the poster frame network for the second quarter of 2011 was $12.2 million, representing an increase of 61% from $7.6 million for the second quarter of 2010 and an increase of 5% from $11.6 million for the first quarter of 2011.

Non-GAAP gross profit from the in-store network for the second quarter of 2011 was $9.2 million, an increase of 96% from $4.7 million for the second quarter of 2010 and an increase of 142% from $3.8 million for the first quarter of 2011.

Non-GAAP gross profit from the traditional outdoor billboard network for the second quarter of 2011 was $3.6 million, representing an increase of 38% from $2.6 million for the second quarter of 2010 and representing a 100% increase from $1.8 million for the first quarter of 2011.

Non-GAAP operating expense for the second quarter of 2011 was $45.9 million, represented an increase of 24% from $37.0 million for the first quarter of 2011, which was mainly attributable to: 1) an increase of bad debt expenses in the amount of $1.8 million in the second quarter of 2011 in line with the sequential growth of revenue; 2) an increase of sales and marketing expenses also resulted by the sequential revenue growth; and 3) a decrease of government subsidies in the amount of $2.1 million compared with the first quarter of 2011 due to the government subsidies are highly subject to the tax paid while the first quarter is traditionally the peak season for tax payment. It also represented an increase of 59% from $28.9 million for the second quarter of 2010 mainly due to a reversal of bad debt in the amount of $3.6 million in the second quarter of 2010 as well as sales and marketing expenses increase as a result of year-on-year revenue growth.

Net cash inflow from operating activities in the second quarter of 2011 was $50.6 million, increased by 249% from $14.5 million for the first quarter of 2011 and a 34% increase from $37.8 million for the second quarter of 2010.

Net cash used in investing activities for the second quarter of 2011 was $12.1 million. In the second quarter of 2011, the Company incurred capital expenditures of $11.5 million, mostly attributable to upgrading our LCD screens into interactive screens in seven major cities of China, a payment of $12.2 million representing the remaining 20% payment for the acquisition of 15% stake in VisionChina, as well as $1.7 million consideration paid for our poster frame related acquisitions, partially offset by the net proceeds of $13.2 million from the short-term investments.

Business Outlook for Third Quarter 2011

The Company provides the following guidance with respect to the third quarter ending September 30, 2011:

Net revenues for the core business (inclusive of the LCD display network and other, the in-store network and the poster frame network) are expected to be in the range of $175-$177million, the mid-point of which would represent year-on-year growth of 37% and quarter-on-quarter growth of 6%. Net revenues for the non-core business (the traditional outdoor billboard network) are expected to be in the range of $11-$13 million. The Company's non-GAAP net income is expected to be in the range of $68-$70 million. Our non-GAAP net income guidance excludes any contribution from our 15% stake in VisionChina. The Company estimates the weighted average fully diluted ADS count for the quarter at 141.5 million, assuming no further share repurchases during the quarter.

In the second quarter of 2011, the Company obtained the "HNTE" (High and New Technology Enterprises) certification for one of the Company's subsidiaries and thus, this subsidiary is eligible for a tax holiday (i.e. two-year tax exemption followed by a three-year 50% tax reduction) effective from January 1, 2010. With the application of a 0% tax rate to that particular subsidiary in this year, the effective tax rate for fiscal year 2011 for the Company is expected to be approximately 14%-15%.

Announced Share Repurchase Program

On June 22, 2011, Focus Media announced an increase in the size of its share repurchase program to US$450 million and to extend the termination date of the repurchase plan to December 31, 2013. As of August 22, 2011, the Company has cumulatively spent approximately $306 million in share repurchases.

2011 Annual General Meeting of Shareholders

The Company announced that it scheduled to hold its annual general meeting of shareholders of 2011 on November 1, 2011.

Management Changes

The Company announced that the Vice President of Finance, Mr. Ge Xu, is resigning from his current role, effective August 31, 2011. "I feel lucky for being able to work with Jason and other members of Focus Media's management team. The good memory will accompany me all the time," said Mr. Ge Xu.

"We greatly appreciate the contribution of Mr. Ge Xu and we wish him every success in his future endeavors," said Mr. Kit Low, the Chief Financial Officer of Focus Media.

Foreign Currency Translation

Assets and liabilities are translated at the exchange rate as of June 30, 2011, which was $1 to RMB6.4716. Equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the second quarter of 2011, which was $1 to RMB6.4999. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statement of equity and comprehensive income (loss).

USE OF NON-GAAP FINANCIAL MEASURES

In addition to Focus Media's consolidated financial results under GAAP, the Company also provides non-GAAP financial measures, including non-GAAP gross profit (cumulatively and by segment), non-GAAP operating expenses, non-GAAP operating profit (loss), non-GAAP net income and non-GAAP fully-diluted Earnings per ADR, all excluding share-based compensation expenses, amortization of acquired intangible assets, loss from disposal of previously acquired subsidiaries, gain or loss from equity method investee and impairment charges of goodwill. Management uses these non-GAAP financial measures to better assess operating performance of the Company. The Company believes that these non-GAAP financial measures provide investors with another method for assessing Focus Media's operating results in a manner that is focused on the performance of its ongoing operations. 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, and should refer to the reconciliation of GAAP results with non-GAAP results in the attached financial information. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of Focus Media and when planning and forecasting future periods. The Company computes its non-GAAP financial measures using a consistent method from quarter to quarter and the reconciliation items mostly include share-based compensation expenses, amortization of acquired intangible assets, profit or loss from disposal of previously acquired subsidiaries, gain or loss from equity method investee and impairment charges. The accompanying tables have more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliation between these financial measures.

CONFERENCE CALL

The Company will host a conference call to discuss the second quarter 2011 results at 9:00 p.m. U.S. Eastern Time on August 22, 2011 (6:00 p.m. U.S. Pacific Time on August 22, 2011 and 9:00 a.m. Beijing/Hong Kong Time on August 23, 2011). The dial-in details for the live conference call are set forth below: U.S. Toll Free Number 1.877.556.5921, Hong Kong dial-in number +852.3002.1672, International dial-in number 1.617.597.5474; Pass code: 77298094.

A replay of the call will be available from August 23, 2011 12:00 am until August 30, 2011 (US Eastern Time). The dial-in details for the replay are set forth below: U.S. Toll Free Number 1 888 286.8010, International dial-in number +1 617 801.6888; Pass code 13703580. Additionally, a live and archived web cast of this call will be available on the Focus Media web site at http://ir.focusmedia.cn

SAFE HARBOR: FORWARD-LOOKING STATEMENTS

This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the 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. Focus Media may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 20-F and 6-K., in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Focus Media's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, risks outlined in Focus Media's filings with the U.S. Securities and Exchange Commission, including its registration statements on Form F-1, F-3 and 20-F, in each case as amended. Focus Media does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

This release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.

ABOUT FOCUS MEDIA HOLDING LIMITED

Focus Media Holding Limited (Nasdaq: FMCN) operates China's largest lifestyle targeted interactive digital media network. The Company offers one of the most comprehensive targeted interactive digital media platforms aimed at Chinese consumers at various urban locations. The increasingly fragmented and mobile lifestyle of Chinese urban consumers has created the need for more efficient media means to capture consumer attention. Focus Media's mission is to build an increasingly comprehensive and measurable interactive urban media network that reaches consumers at various out-of-home locations. As of June 30, 2011, Focus Media's out-of-home lifestyle interactive digital media network had approximately 170,000 LCD displays in about 95,000 commercial buildings that covered more than 90 cities, 390,000 in-elevator poster and digital picture frames in residential buildings that covered more than 30 cities, approximately 50,000 LCD displays in more than 2,700 hypermarkets, supermarkets and convenience stores and approximately 1,900 movie screens in about 280 movie theaters throughout China.

Note 1: Details of net revenues by segment are as follows (U.S. Dollars in thousands):