Charm Communications Inc.

Q1 2011 Earnings Call

April 28, 2011 8:00 AM ET

Executives

Nicholas Manganaro – Ogilvy Financial

He Dang – Chairman and CEO

Wei Zhou – CFO

Analysts

James Marsh – Piper Jaffray

Nan Lee – SIG

Presentation

Operator

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 meeting 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 first fiscal quarter which ended March 31, 2011. The company’s earnings results were released yesterday and are available on the company’s IR website at ir.charmgroup.cn as well as on newswire services.

Today, you will hear opening remarks from Charm’s Founder and Chairman, Mr. Dang followed by the company’s Chief Financial Officer, Wei Zhou, who will provide a financial overview and guidance for the first quarter. 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 US 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 US GAAP financial measures and information reconciling these non-GAAP financial measures, the 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 ir.charmgroup.cn.

As a reminder, 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.

He Dang

Hello, and welcome to our first quarter 2011 earnings conference call. We’re pleased to announce that we had a good start to 2011. We delivered solid growth in the first quarter of the year in both our top and bottom line guidance. Against the positive macro industry backdrop and strong demand for integrated advertising services, we continued to build scale this quarter, further expanding our market share and solidifying our position as a leading advertising agency in China. We also made good headwind in our digital media business, Charm Interactive, as we ramped up our service capability and added a number of high profile clients.

In the first quarter, we once again saw a positive growth trends in the advertising market and continued to see strong spending by clients across media platforms. While traditional forms of media such as television still enjoy market dominance for advertisers, new media, particularly the internet are commanding more and more advertising dollars. In line with this industry trends, we’ve strategically positioned ourselves to continue to enhance our traditional advertising businesses as well as increasingly build out our new media platform. All-in-all, we expect a robust advertising market for 2011 with total advertising spending in China to increase 15% this year, driven by China’s continuous rapid economic development, the formation of mega cities and the increase in overall consumption and large metro policies as well as in second and third tier city.

In addition, in March of this year, we were once again awarded the title of CCTV’s top advertising agency for 2010, based on the total amount of advertising spending placed on behalf of clients on CCTV which is China’s biggest television network. This leadership position is important and it gives us a strategic advantage to enlarge national brand. And those brands with aspirations are becoming national brands. What I’m more pleased with is that we have been able to leverage this leadership position and our strong Blue Chip Client base to transform Charm into an integrated agency with a diversified media platform with only 37% of total revenues in the first quarter are attributed to CCTV related media. We are keen to further strengthen our integrated media offerings through deepening cooperation with our strategic partner, Aegis Media and with continued investments in our staff and infrastructure.

In terms of China’s advertising market, Charm continued to capture higher market share in the first quarter of 2011 by outgrowing the market as measured by gross billings. Our total customer advertising spending placed through or with Charm increased 40% year-over-year to $198 million in the first quarter of 2011. As such, we’re satisfied with the progress we’ve made across our business.

Moving on to highlights of our operations, we continued to execute on our strategy in the first quarter, winning new clients and expanding our business with existing clients.

For Charm advertising we saw robust billings growth of 34% in our agency business, driven by strong demand for television advertising. This translated into increased spending by existing customers as well as the addition of a number of new major clients including Baidu, Huayi Brothers, Yunnan Baiyao (ph) Pharmaceutical. Altogether, in another way seasonally weak first quarter, we added five new advertising client accounts, which significantly enhanced our market position and brand value.

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