Charm Communications' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Charm Communications Inc. (CHRM)

Q1 2012 Earnings Conference Call

May 17, 2012 8:00 AM ET

Executives

Nicholas Manganaro – Ogilvy Financial

Mr. He Dang – Chairman, Founder and CEO

Wei Zhou – Chief Financial Officer

Analysts

James Marsh – Piper Jaffray

Amanda Chin – Credit Suisse

Eddie Huang - AIF Capital

Presentation

Operator

Hello and thank you for standing by for Charm Communication 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 first quarter ended March 31, 2012. 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 second quarter of 2012. After their prepared remarks, they will be available to answer your questions.

Before we begin, 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, 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. 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.

Mr. He Dang

(Foreign Language)

(Interpreted)

Hello everyone and welcome to our first quarter earnings conference call.

(Foreign Language)

(Interpreted)

In the first quarter of 2012, we continue to expand the scale of our overall business, with total advertising turnover or billings drawing 6% year-over-year. We achieved this against the backdrop of one of the weakest quarters for advertising growth in recent years. According to the CTR market research, the Chinese advertising market grew just 1.7% year-over-year in the first quarter of 2012.

(Foreign Language)

(Interpreted)

For our core advertising agency business, our gain in market share was much higher than in previous quarters, with year over year turnover growth of 31%. This growth speaks to the strategic investments we’ve been making to enhance our capabilities and client services. Another key driver of this robust growth is the increasing contribution from the digital space. Our advertising turnover was almost 4 times greater than in the first quarter of 2011.

(Foreign Language)

(Interpreted)

Given the current challenging macro environment, we firmly believe with an investment in talent and infrastructure within our core agency business will improve our competitive position in the market place, and allow us to capture significantly greater market share, especially as our competitors turn cautious with their investments. When the market rebounds and growth normalizes, we want to be able to provide our clients with an integrated full service television and internet advertising platform, capable of providing the best advertising solutions.

(Foreign Language)

(Interpreted)

The part of our business that has been most affected by the macro slowdown and regulatory changes is our satellite television media business. Foreseeing these challenges at the end of 2011, we reduced our exposure to China’s satellite channels. However, the combined attack was greater than anticipated and as a result first quarter’s sales came in below expectations. These challenges have continued in the second quarter, so we will continue to ramp up sales in order to minimize the short term media inventory risk. We do believe however, that these challenging conditions offer us a unique chance to opportunistically secure media deals with significant long term value, especially as media prices rationalize.

(Foreign Language)

(Interpreted)

Finally, I’d like to raise a key observation we’ve made in speaking to many of our advertisers across the market place. We believe these challenges are short term, as the advertisers have not reduced their annual advertising budgets like they did in 2009. Instead, they are simply holding on to their budgets and waiting for an appropriate time to spend, which we believe will be in the second half of the year, if there is (inaudible). Overall, we remain confident that China’s advertising market will be the long term beneficiary of the country’s growth and consumer spending. As long as we remain steadfast in executing our strategies, we will be well positioned to capture long term growth from this trend.

(Foreign Language)

(Interpreted)

Moving on to our operating highlights for the first quarter.

(Foreign Language)

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