Charm Communications Inc. (CHRM)

Q2 2012 Results Earnings Call

August 21, 2012 8:00 AM ET


Nicholas Manganaro - Ogilvy Financial, IR

He Dang - Founder, Chairman and CEO

Wei Zhou - Chief Financial Officer,


James Marsh - Piper Jaffray

Wallace Cheung - Credit Suisse



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Hello. And thank you for standing by for Charm Communications Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the call over to your host for today’s conference, Mr. Nicholas Manganaro from Ogilvy Financial.

Nicholas Manganaro

Hello, everyone. And welcome to Charm Communications earnings conference call for the second quarter ended June 30, 2012. The company’s earnings results were released yesterday and are available on the company’s IR website at, as well as on newswire services.

Today, you will hear opening remarks from Charm’s Founder, Chairman and CEO, Mr. Dang, followed by the company’s Chief Financial Officer, Wei Zhou, who will provide a financial overview and guidance for the third quarter of 2012. After their prepared remarks, they will be available to answer your questions.

Before we continue, please note that the discussion today will contain certain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Charm does not assume any obligation to update any forward-looking statements except as required under applicable law.

Also, please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G. The most directly comparable U.S. GAAP financial measures and information reconciling these non-GAAP financial measures to Charm’s financial results prepared in accordance with U.S. GAAP are included in Charm’s earnings release, which has been posted on the company’s IR website at Please note that this conference is being recorded. In addition, a webcast of this conference call will be available on Charm’s Investor Relations website.

I will now turn the call over to Charm Communications Founder, Chairman and CEO, Mr. Dang, for whom I will be the translation.

He Dang

[Foreign Language]

Hello, everyone. And welcome to our second quarter earnings conference call.

[Foreign Language]

During the second quarter of 2012, we continue to invest in our overall business, while generating strong growth in our core advertising agency business. The segments performed particularly well, in spite of a challenging advertising market and continue to gain market share with total advertising turnover or billings up 20.6% year-over-year outpacing industry market growth.

This increase speaks to the strategic investments we have made to provide more integrated advertising and digital solutions for our clients. Our digital billings driven especially by our search business under Charm Click grew 80% year-over-year and digital revenues increased to 30% of total agency revenues.

[Foreign Language]

China’s macro economics slowdown over the first half of 2012 had a substantial impact on the advertising industry. According to CTR market research, traditional media advertising increased just 3.9% in the first half of 2012, the lowest rate in the past five years. This slowdown in advertising demand was worst than we had anticipated and we now expect these challenging conditions to continue through the remainder of 2012.

[Foreign Language]

This softness in advertising demand combined with the previously imposed satellite TV regulations negatively impacted our Principal Media business. Although, we have partially mitigated the principal risk by taking on less media inventory at the beginning of the year, the performances of the inventory under contracts are below where they were last year and we expect this trend to continue in the second half of this year.

Nonetheless, we saw margin improvements in the second quarter, especially as sales our newly acquired assets ramped up and we will continue to push our sales efforts to minimize the inventory risk for the rest of this year. Looking longer term, we continue to search for attractive assets and looks to develop a more sustainable business model with our media partners.

[Foreign Language]

I would like to highlight the senior hires we have added to our executive management team over the past few quarters. With Mr. Tony Yu, joining as CTO in the fourth quarter of 2011 and Mr. Bao Li, joining as President of our Shangxing Media business in the first quarter of this year.

And continue to strengthen our agency business we brought in Ms. Cathy Chen to serve as President of our Agency Business Units, including Charm Advertising, Charm Interactive, and Charm Click.

Cathy has extensive management and marketing experience, excuse me, experience with Fortune 100 companies, and in her new role, she will lead our overall agency business. We welcome her to our team and our confidence that our continued investments in talent and infrastructure will help us to build the advertising platform to sustain our growth.

[Foreign Language]

Moving on now to our operating highlights for the second quarter.

[Foreign Language]

Our advertising agency revenues grew a robust 58.8% year-over-year, substantially outpacing the upper mentions 20.6% in billings growth. This is due to an increase revenue extraction rate of 5.7% in the second quarter of 2012, compared to 4.4% in the second quarter of 2011, which reflects our ability to deliver integrated advertising solutions to our clients.

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