SHANGHAI, Nov. 17 /PRNewswire-Asia-FirstCall/ -- Acorn International, Inc. (NYSE: ATV - News; "Acorn" or the "Company"), a leading integrated multi-platform marketing company in China engaged in developing, promoting and selling consumer products and services through an extensive distribution network, today announced its financial results for the quarter ended September 30, 2009.
Highlights for the Third Quarter 2009:
-- Net revenues were $91.8 million, an increase of 28.0% compared to $71.7
million in the third quarter of 2008.
-- Gross profit was $40.1 million, an increase of 15.5% compared to $34.7
million in the third quarter of 2008.
-- Gross margin was 43.7%, compared to 48.4% in the same period of 2008.
-- Operating income was $3.6 million, compared to an operating loss of
$8.6 million in the third quarter of 2008.
-- Net income from continuing operations was $2.5 million compared to an
$11.9 million net loss for the third quarter of 2008. Adjusted net
income from continuing operations, after eliminating the effects of
share-based compensation expenses and a non-cash charge for the
impairment of goodwill and intangible assets in the third quarter of
2008 (non-GAAP), was $2.7 million in the third quarter of 2009 compared
to a $2.3 million net loss in the same period last year.
-- Net income attributable to Acorn International, Inc. was $2.7 million
compared to a $10.8 million net loss for the third quarter of 2008.
-- Share-based compensation expenses were $0.2 million for the third
quarter of 2009, compared to $0.9 million for the same period last year.
-- Diluted income per ADS from continuing operations was $0.09. Excluding
share-based compensation expenses (non-GAAP), diluted income per ADS
from continuing operations was $0.10.
The third quarter came in lower than expected though we still finished
the season with double-digit growth in our top line sales and returned to
profitability in both operating and net income," said Mr. James Hu, Chairman
and CEO of Acorn. "The rapid increase in the cost of flash memory, a key
component of our electronic learning product, combined with the high marketing
cost associated with our branded Uking mobile phone launch resulted in a lower
than expected third quarter profitability. Nonetheless, we continue to see
positive development in our third party bank channel and cosmetics sales. And
on new business initiatives, we are also working hard on building strategic
alliances to strengthen our non-TV direct sales channels and source new
products from the U.S., Japan and Taiwan markets. Looking ahead, we will
continue to be prudent in media purchasing while pursuing a strategy that
focuses on building proprietary branded products. We remain positive for our
business's continued recovery."
Business Highlights for the Third Quarter of 2009: -- Ozing, the Company's electronic learning product, and Meijin, the Company's electronic dictionary, continued to recover, benefiting from the Company's focus on building proprietary branded products. In the third quarter 2009, sales of Ozing reached $36.6 million, growing 92.3% from $19.0 million in the same period in 2008. Sales of Meijin grew 37.8% to reach $7.8 million from $5.6 million in the third quarter 2008. Growth in sales of Ozing and Meijin products continues to benefit from increased advertising time, sales promotions, improved technology, competitive pricing and the consolidation of our distribution channels. -- Cosmetics sales continue to make up a larger percentage of total sales revenues in the third quarter. Cosmetics sales reached $9.6 million, accounting for 10.4% of total sales, compared to $4.4 million, accounting for 6.2% of total sales in the same period one year ago. During the third quarter, Acorn began a new business alliance with Softto, an established domestic cosmetic manufacturer, to promote its branded hair treatment shampoo. Sales of Softto branded hair treatment shampoo have been growing at an average rate of 100.1% per month since the initial cooperation agreement in July 2009. -- The Company's third party bank sales as an area of non-TV direct sales revenues continued to expand from the second quarter of 2009. With a total of 25 bank partners, revenue from third-party bank channel sales was $7.3 million in the third quarter of 2009, an increase of 40.4% from $5.2 million in the same period last year as a result of additional banking partners and increased sales volume. The Company will continue to expand its non-TV direct sales revenues including its third party bank channel sales, outbound calls and catalog business.
Financial Results Highlights for the Third Quarter of 2009:
For the third quarter of 2009, total net revenues grew 28.0% to $91.8 million from $71.7 million for the third quarter of 2008.
Direct sales contributed 45.8%, or $42.0 million, to total net revenue, and decreased 7.5% from $45.4 million for the third quarter of 2008 due to lower sales from the mobile phones sector.
Distribution sales net revenue increased 89.5% year-over-year to $49.8 million from $26.3 million in the third quarter of 2008 as a result of the strong sales performance of the Company's Ozing electronic learning products and the consolidation of Yiyang Yukang's mobile handset sales into the Company's financial results.
The table below summarizes the gross revenues from the three best selling product categories for the direct sales platform, distribution network and total direct and distribution sales, respectively:
Three Months Ended September 30, 2009 (in US dollars) Direct sales Cosmetics 9,196,800 Mobile handsets 8,952,278 Electronic learning product (Ozing) 7,286,108 Distribution sales Electronic learning product (Ozing) 29,271,115 Mobile handsets (Yiyang Yukang) 8,361,759 Electronic dictionary (Meijin) 7,755,098 Total direct and distribution sales Electronic learning product (Ozing) 36,557,223 Mobile handsets 17,314,037 Cosmetics 9,563,943
Cost of sales for the third quarter 2009 was $51.8 million, an increase of 39.8% from $37.0 million for the third quarter of 2008, primarily due to increased costs for distribution sales. Increase in distribution costs was due to larger percentage of sales from mobile phones, which generally have higher product costs.
Gross profit for the third quarter of 2009 was $40.1 million, up 15.5% compared to $34.7 million for the third quarter of 2008. Gross margin was 43.7% in the third quarter of 2009, down from 48.4% in the same period in 2008.
Gross profit from direct sales for the third quarter 2009 increased 6.5% to $24.1 million from $22.6 million for the third quarter of 2008. Gross margin for direct sales for the third quarter of 2009 was 57.3%, up from 49.8% in the same period last year. The increase in gross margin was largely due to greater contributions from sales of higher margin cosmetics and successful marketing of higher margin Ozing's V1 model compared with same period last year.
Gross profit from distribution sales for the third quarter of 2009 was $16.0 million, an increase of 32.3% from $12.1 million for the third quarter of 2008. Gross margin for distribution sales for the third quarter of 2009 was 32.1%, down from 46.0% for the same period last year. The decrease in gross margin was due to the margin compression of Ozing and Meijin products as a result of higher price discounts to Acorn's distributors as well as addition of lower margin mobile handset sales from the consolidation of Yiyang Yukang into the Company's financial statements.
Advertising expenses were $16.7 million for the third quarter of 2009, compared to $17.7 million for the third quarter of 2008 due to the continued reduction in the fixed portion of advertising spending in 2009. Gross profit over advertising expenses, a benchmark Acorn uses to measure return on multiple sales platforms, was 2.40 in the third quarter of 2009, up from 1.96 in the third quarter of 2008.
Other selling and marketing expenses increased 6.9% to $11.9 million from $11.1 million for the third quarter of 2008. The increase was mainly due to increased delivery costs associated with increased sales, as well as increased amortization of acquired intangible assets as a result of acquiring Yiyang Yukang.
General and administrative expenses were $8.4 million for the third quarter of 2009, a 25.4% increase from $6.7 million in the third quarter of 2008. The increase was largely due to increase in employee payroll in the third quarter 2009.
During the third quarter 2008, intangible assets impairment loss and goodwill impairment loss totaled $8.7 million. No such losses occurred in the third quarter 2009.
Other operating income, net, was $0.5 million for the third quarter of 2009, down from $0.9 million in the third quarter of 2008.
As a result, income from operations for the third quarter of 2009 was $3.6 million, compared to an operating loss of $8.6 million for the corresponding period last year.
Share-based compensation expenses for the third quarter 2009 were $0.2 million, compared to $0.9 million for the third quarter of 2008.
Excluding share-based compensation expenses and impairment of goodwill and intangible assets in the third quarter of 2008 (non-GAAP), income from operations for the third quarter of 2009 was $3.8 million compared to $1.0 million for the same period last year.
Other expenses for the three months ended September 30, 2009 was $0.1 million, compared to $2.5 million for the same period last year.
Net income from continuing operations was $2.5 million compared to an $11.9 million net loss for the third quarter of 2008.
Adjusted net income from continuing operations, after eliminating the effects of share-based compensation expenses and a non-cash charge for the impairment of goodwill and intangible assets in the third quarter of 2008 (non-GAAP), was $2.7 million in the third quarter of 2009 compared to a $2.3 million net loss for the same period last year.
Diluted income per ADS from continuing operations was $0.09, compared to a diluted loss per ADS from continuing operations of $0.42 in the same period last year. Non-GAAP diluted income per ADS from continuing operations was $0.10, compared to a diluted loss per ADS from continuing operations of $0.08 in the same period last year.
As of September 30, 2009, Acorn's cash and cash equivalents totaled $150.4 million, an increase of $21.5 million from June 30, 2009.
Other Updates:
In September 2009, China's State Administration of Radio, Film and Television (SARFT) issued a circular to be implemented on January 1, 2010 to standardize regulation of TV direct sales programs in China. The SARFT circular describes their policies as aiming to monitor product selection, ensure product quality, and maximize customer satisfaction. The new regulations impacting the TV direct sales and home shopping industry include the rules that may have a material impact on Acorn's business.
In March 2009, Acorn received a complaint from the Advertising Broadcasting Center of Liaoning TV Station, or Liaoning TV, which filed a suit against Shanghai Acorn Advertising Broadcasting Co., Ltd., or Shanghai Acorn Advertising, claiming that Shanghai Acorn Advertising breached its advertisement broadcasting contract with Liaoning TV by not fully performing its payment obligation under the 2007 contract and asserted damages of approximately RMB19 million (approximately $2.8 million). Liaoning TV further applied for provisional seizure of Shanghai Acorn Advertising's bank account in the same amount of its claim. In June 2009, the Intermediate Court ruled in favor of Liaoning TV in the suit and awarded Liaoning TV total compensation of RMB10.9 million (approximately $1.6 million). In July 2009, Acorn appealed to the High Court, which affirmed the decision of the Intermediate Court in September 2009. Acorn is preparing to submit the case to the Supreme Court for retrial.
Full Year 2009 Business Outlook:
"We are generally pleased with the progress made in the first nine months of 2009. However, we recognize several challenges and unfavorable factors in our business. First, due to the partial divestiture of Yimeng in the second quarter of 2009, we could no longer consolidate the revenues and profitability from Yimeng. Second, Yukang's overall underperformance and the higher marketing cost associated with the September launch of our proprietary branded Uking mobile handset series resulted in lower than expected mobile handset sales and profitability in the third quarter. Third, starting in the third quarter, the rising cost in flash memory, a key component of our electronic learning products, exerted incremental pressure on our cost structure. Finally, we failed to secure the preferential tax treatment for our Ozing business in 2009. Due to these challenges and unfavorable conditions, we will lower our financial outlook for 2009. We now expect to achieve net revenues in the range of $280 million to $290 million and net income from continuing operations excluding share-based compensation expenses and non-recurring impairment charges to be $10 million to $11 million," said Mr. James Hu. "Despite changes in our financial guidance, we remain confident of the direction of our corporate strategy and abilities to execute against that. With SARFT's recent regulation promoting a healthier TV direct sales industry, we remain confident in the prospects of our business to continue to grow with the industry."
These estimates are subject to change. Also, Acorn reminds investors that its operating results in each period are impacted significantly by the mix of products and services sold in the period and the platforms through which they are sold. 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. EST on November 17, 2009 (9:00 p.m. Beijing Time) to review the Company's financial results and answer questions. You may access the live interactive call via:
-- +1 888 339 2688 (U.S. Toll Free) -- +1 617 847 3007 (International) -- Passcode: 726 710 87
Please dial-in approximately 10 minutes in advance to facilitate an on-time start.
A replay will be available for 14 days after the call and may be accessed via:
-- +1 888 286 8010 (U.S. Toll Free) -- +1 617 801 6888 (International) -- Passcode: 360 699 64
A live and archived webcast of the call will be available on the Company's website at http://www.ccgirasia.com
