Acorn International Reports First Quarter 2013 Financial Results

Acorn International Reports First Quarter 2013 Financial Results

SHANGHAI, May 29, 2013 /PRNewswire/ -- Acorn International, Inc. (NYSE: ATV) ("Acorn" or the "Company"), a media and branding company in China engaged in developing, promoting, and selling products through extensive direct and distribution networks, today announced its unaudited financial results for the quarter ended March 31, 2013.



Summary Results for the First Quarter of 2013:




-- Net revenues were $51.8 million, down 24.0% from $68.1 million for the
first quarter of 2012.
-- Gross profit was $24.7 million, down 19.4% from $30.7 million for the
first quarter of 2012.
-- Gross margin increased to 47.8% from 45.1% for the first quarter of
2012.
-- Operating loss was $7.8 million, compared to $4.1 million for the first
quarter of 2012.
-- Net loss attributable to Acorn was $6.9 million, compared to $2.3
million for the first quarter of 2012.
-- Basic and diluted loss per American Depositary Share ("ADS") was $0.23
compared to basic and diluted loss per ADS of $0.08 for the first
quarter of 2012.
"Revenue declined in the first quarter of 2013 primarily due to lower-than-expected sales of electronic learning products, lower sales of mobile phones, and decreased scale of TV advertising. It is taking a longer time than expected to scale up sales of our new electronic learning products. In addition, with higher media prices and a limited selection of products suitable for TV advertising, we selectively reduced our TV airtime purchases to improve our media efficiency and control our expenses. As a result, we recorded decreased revenues and a loss for the quarter. However, we are optimistic about our new electronic learning products as the mobile Internet interactive features have been well accepted by consumers in the initial marketing campaign and we are investing considerable resources and efforts in this product line to ramp up sales. We are also encouraged by the performance of our fitness products which accounted for 28.3% of our total gross revenues for the quarter and led to drive an improvement in gross margin. We are introducing new fitness products to our flagship Yierjian brand and plan to launch new Aoya cosmetics products this summer. Meanwhile, we continue to build Internet sales for our proprietary products on some of China's leading E-commerce websites. We believe all of these initiatives will increase our top line and drive profitability in 2013," said Mr. Don Yang, CEO of Acorn.

"Although our first quarter results are disappointing, we are currently developing comprehensive campaigns to improve utilization of our customer database and generate more revenues. In addition, we have seen some momentum in sales of insurance products through our partnership with Sino-US United MetLife Insurance Co., Ltd., and are using our extensive database and other available resources to grow this new business focus," said Mr. Robert Roche, Executive Chairman of Acorn.

Business Results for the First Quarter of 2013:


-- Sales of fitness products were the main revenue driver in the first
quarter of 2013, generating revenues of $14.7 million, representing
28.3% of total gross revenues. The Company plans to launch new fitness
products in 2013 and expects this product line to remain one of its
major revenue drivers.
-- Sales of mobile phones generated revenues of $12.1 million, representing
23.3% of total gross revenues, in the first quarter of 2013. Mobile
phone sales declined 27.5% from the first quarter of 2012, primarily due
to intense competition in China's mobile phone market, decreased demand
for existing mobile phone models and lower sales of the new mobile phone
models.
-- Sales generated from other direct sales platforms, which consist of
outbound calls, Internet websites, catalog, and third-party bank
channels, declined 4.3% in the first quarter of 2013 as compared to the
first quarter of 2012. The decline in other direct sales was primarily
due to lower sales from third-party bank channels and catalog sales,
partially offset by strong growth in Internet sales. The Company will
seek to grow database sales by utilizing its outbound telephone sales
system and continue to drive Internet sales in 2013.
Financial Results for the First Quarter of 2013:

Total net revenues were $51.8 million, down 24.0% from $68.1 million for the first quarter of 2012. Direct sales contributed to 77.0%, or $39.9 million, of the total net revenues for the first quarter of 2013, representing a 23.2% decrease from $51.9 million for the same period last year. The decrease in direct sales revenues mainly resulted from a decline in sales generated from mobile phones, consumer electronics, and cosmetics.

Distribution sales net revenues decreased 26.6% year-over-year to $11.9 million from $16.2 million for the first quarter of 2012. Sales of electronic learning products accounted for 78.8% of total distribution sales and declined 31.5% year-over-year primarily due to a reduction in the number of products offered by the Company in order to focus on its newer model products incorporating mobile internet interactive features. Compared to the fourth quarter of 2012, sales of electronic learning products rose 25.7% in the first quarter of 2013, due in part to growing market recognition of our newer model products.

The table below summarizes the gross revenues of the Company for the first quarter of 2012 and 2013, broken down by product categories:



2013 Q1 Sales 2012 Q1 Sales

$'000 % $'000 %
===== === ===== ===

Fitness
products 14,687 28.3% 15,035 22.0%
--------- ------ ---- ------ ----

Mobile phones 12,061 23.3% 16,642 24.4%
------------- ------ ---- ------ ----

Electronic
learning
products 9,507 18.3% 14,077 20.6%
---------- ----- ---- ------ ----

Collectible
products 6,929 13.4% 5,594 8.2%
----------- ----- ---- ----- ---

Health products 2,381 4.6% 3,085 4.5%
--------------- ----- --- ----- ---

Cosmetics 760 1.5% 2,750 4.0%
--------- --- --- ----- ---

Consumer
electronics 336 0.6% 3,928 5.8%
------------ --- --- ----- ---

Other products 5,180 10.0% 7,160 10.5%
-------------- ----- ---- ----- ----

Total gross
revenues 51,841 100.0% 68,271 100.0%
----------- ------ ----- ------ -----
Cost of sales for first quarter of 2013 was $27.0 million, representing a 27.8% decrease from $37.4 million for the first quarter of 2012, primarily due to the decrease in overall sales.

Gross profit for the first quarter of 2013 was $24.7 million, representing a 19.4% decrease as compared to $30.7 million for the first quarter of 2012. Gross margin was 47.8% in the first quarter of 2013, as compared to 45.1% in the same period in 2012. The increase in gross margin was largely due to the larger revenue contribution by fitness products, which generally carry higher gross margins.

Advertising expenses were $13.1 million for the first quarter of 2013, down 17.5% from $15.8 million for the first quarter of 2012. Gross profit over advertising expenses, a benchmark Acorn uses to measure return on its multiple sales platforms, was 1.89 in the first quarter of 2013, down slightly from 1.94 in the first quarter of 2012 but up from 1.68 in the fourth quarter of 2012. The year-over-year decline was primarily the result of higher media prices, as well as the decline in overall sales. The improvement from the fourth quarter of 2012 was due to the larger proportion of fitness products in the product mix, as well as the Company's strategy to focus on more effective media partners.

Other selling and marketing expenses were $13.3 million for the first quarter of 2013. Although total net revenues declined in the first quarter of 2013, other selling and marketing expenses remained at the same level primarily due to higher labor costs and marketing expenses related to promoting new products in our distribution channel.

General and administrative expenses were $7.0 million for the first quarter of 2013, representing an 8.0% increase from $6.5 million in the first quarter of 2012.

Other operating income, net, was $0.8 million for the first quarter of 2013, relatively the same level from the first quarter of 2012.

As a result, operating loss was $7.8 million, as compared to $4.1 million in the first quarter of 2012.

Other income, primarily from interest income, was $0.8 million, as compared to $1.0 million in the first quarter of 2012.

Share-based compensation was $120,809 for the first quarter of 2013, as compared to $55,162 in the first quarter of 2012.

The Company recorded income tax benefits of $0.2 million in the first quarter of 2013 as compared to $0.8 million in the first quarter of 2012.

Net loss attributable to Acorn was $6.9 million, compared to $2.3 million for the first quarter of 2012.

Basic and diluted loss per ADS was $0.23 compared to basic and diluted loss per ADS of $0.08 for the first quarter of 2012.

As of March 31, 2013, Acorn's cash and cash equivalents, including current restricted cash and short-term investments, totaled $86.6 million, as compared to $101.5 million as of December 31, 2012. The decrease in the Company's cash and cash equivalents was primarily due to the $9.4 million non-current restricted cash, which was deposited to obtain long-term debt for a share repurchase transaction completed in March 2013, and losses from operations in the first quarter of 2013.



Fiscal Year 2013 Business Outlook:

Based upon the current evaluation of our business and prospects throughout the year, the Company affirms guidance for the full year 2013 for revenues between $290 million and $310 million and net income between $0 million and $2 million.

In 2013, the Company will seek to increase TV media supported sales and improve the effectiveness of its media spending by promoting its most profitable products and working with the most productive TV channel partners. The Company also believes its Internet channels, including its own branded website and the platforms of China's leading E-commerce companies, database sales through its other direct sales channels, and distribution channel will contribute to overall revenue growth. Acorn believes its best-selling product categories will be fitness products and electronic learning products, and plans to launch new products in each category throughout the year. Acorn's management will continue to enhance cost efficiencies across the organization to improve profitability.

These estimates are subject to change. Also, Acorn reminds investors that its operating results in each period vary significantly as a result of the mix of products sold in the period and the platforms through which they are sold. Therefore, the operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. 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. EDT on May 29, 2013 (8:00 p.m. Beijing Time) to review the Company's financial results and answer questions. You may access the live interactive call via:


-- 1-800-860-2442 (U.S. Toll Free)
-- 1-412-858-4600 (International)
-- 1-866-605-3852 (Canada Toll Free)
-- 800-962475 (Hong Kong Toll Free)
-- 10-800-120-2304 (China South Toll Free)
-- 10-800-712-2304 (China North Toll Free)
Please dial-in approximately 5 minutes in advance to facilitate a timely start.

A replay will be available until 9:00 a.m. EDT on June 10, 2013 and may be accessed via:


-- 1-877-344-7529 (U.S. Toll Free)
-- 1-412-317-0088 (International)
-- Conference number: 10028924
A live and archived webcast of the call will be available on the Company's website at http://ir.chinadrtv.com.

About Acorn International, Inc.

Acorn is a media and branding company in China, operating one of China's largest TV direct sales businesses in terms of revenues and TV airtime, and other direct sales platforms and a nationwide distribution network. Acorn's TV direct sales platform consists of airtime purchased from both national and local channels. Acorn's other direct sales platforms include outbound telemarketing center, e-commerce websites, catalogs, and third-party bank channels. Acorn has built a proven track record of developing, promoting and selling proprietary-branded products, as well as products from established third parties. For more information, please visit http://ir.chinadrtv.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains "forward-looking statements," including, among other things, Acorn's anticipated operating results for 2013; Acorn's ability to maximize the effectiveness of its media spending and enhance media return; Acorn's ability to realize its planned new product launches and upgrades; the Company's ability to implement its business strategy to achieve revenue growth and improve profitability; the ability for the fitness product line to remain one of its major revenue drivers in 2013; the ability for the fitness products and electronic learning products to be the best selling product categories in 2013; the potential growth in Acorn's electronic learning products, insurance business and Internet and outbound call sales; the Company's ability to improve its distribution channel; the Company's ability to further enhance its direct sales platforms; and the Company's ability to further enhance its cost-efficiency. These forward-looking statements are not historical facts but instead represent only the Company's belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. The Company's actual results and financial condition and other circumstances may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Acorn's business may not improve in the remainder of 2013 and the Company may fail to meet the operating results expectations. In particular, the operating results of the Company for any period are impacted significantly by the mix of products and services sold by the Company in the period and the platforms through which they are sold, causing the operating results to fluctuate and making them difficult to predict. The Company may not be able to maintain the sales and margin of such products at current level in the event that there is a change in the customers' preference, which may results in a material adverse impact on the Company's results of operations and financial conditions.



Other factors that could cause forward-looking statements to differ materially from actual future events or results include risks and uncertainties related to: the Company's ability to effectively expand its distribution channels, the Company's ability to successfully improve or introduce new products and services, including to offset declines in sales of existing products and services; the Company's ability to stay abreast of consumer market trends and maintain the Company's reputation and consumer confidence; the Company's ability to execute and maintain a successful market strategy, continued access to and effective usage of TV advertising time and pricing related risks; relevant government policies and regulations relating to TV media time and TV direct sales programs, including SARFT regulations and actions that may make TV media time unavailable to the Company or require the Company to suspend or terminate a particular TV direct sales program; potential unauthorized use of the Company's intellectual property; potential disruption of the Company's manufacturing processes; increasing competition in China's consumer market; the Company's U.S. tax status as a passive foreign investment company; and general economic and business conditions in China. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2012 annual report on Form 20-F filed with Securities and Exchange Commission on April 18, 2013. For a discussion of other important factors that could adversely affect the Company's business, financial condition, results of operations and prospects, see "Risk Factors" beginning on page 6 of the Company's Form 20-F for the fiscal year ended December 31, 2012. The Company' s actual results of operations for the first quarter of 2013 are not necessarily indicative of its operating results for any future periods. Any projections in this release are based on limited information currently available to the Company, which is subject to change. Although such projections and the factors influencing them will likely change, the Company will not necessarily update the information. Such information speaks only as of the date of this release.



Statement Regarding Unaudited Financial Information



The condensed, consolidated financial statements included herein are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, and financial position. The results reported in these condensed, consolidated financial statements are unaudited and subject to change in conjunction with our annual audit and should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our 2012 consolidated financial statements.

Contact:



Acorn International, Inc. CCG Investor Relations

Natalie Li Elaine Ketchmere, CFA

Phone: +86-21-5151-8888 Ext. 2540 Phone: +1-310-954-1345 (Los Angeles)

Email: natalie@chinadrtv.com Email: elaine.ketchmere@ccgir.com

www.chinadrtv.com www.ccgirasia.com
-Financial Tables Follow-





ACORN INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In US dollars)


December 31, 2012 March 31, 2013
----------------- --------------

(audited) (unaudited)

Assets

Current assets:

Cash
and
cash
equivalents 90,975,155 76,337,863

Restricted
cash 246,599 483,338

Short-
term
investments 10,271,142 9,816,009

Accounts
receivable,
net 14,279,638 14,437,864

Notes
receivable 127,859 -

Inventory 22,619,874 24,581,077

Prepaid
advertising
expenses 8,562,723 8,176,822

Other
prepaid
expenses
and
current
assets,
net 12,144,929 9,621,571

Deferred
tax
assets,
net 281,391 282,136

Total
current
assets 159,509,310 143,736,680

Prepaid
land
use
right 7,952,068 7,929,798

Property
and
equipment,
net 29,002,372 28,482,693

Acquired
intangible
assets,
net 1,796,366 1,713,802

Investments
in
affiliates 8,111,603 8,062,955

Restricted
cash - 9,411,540

Other
long-
term
assets 1,024,845 1,220,375
--------- ---------

Total
assets 207,396,564 200,557,843
=========== ===========

Liabilities and equity

Current liabilities:

Accounts
payable 11,137,295 11,627,796

Accrued
expenses
and
other
current
liabilities 13,571,654 12,115,261

Notes
payable 700,024 1,882,308

Income
taxes
payable 449,426 -

Deferred
revenue 903,945 851,830

Total
current
liabilities 26,762,344 26,477,195

Long-
term
debt - 8,450,000

Deferred
tax
liability 833,042 835,247

Total
liabilities 27,595,386 35,762,442
---------- ----------

Equity

Acorn International, Inc.
shareholders' equity:

Ordinary
shares 946,175 949,273

Additional
paid-
in
capital 161,056,595 161,174,305

Retained
earnings (1,965,802) (8,832,142)

Accumulated
other
comprehensive
income 30,720,703 31,146,868

Treasury
stock,
at
cost (11,463,946) (20,109,451)

Total
Acorn
International,
Inc.
shareholders'
equity 179,293,725 164,328,853

Non-
controlling
interests 507,453 466,548
------- -------

Total
equity 179,801,178 164,795,401
----------- -----------

Total
liabilities
and
equity 207,396,564 200,557,843
=========== ===========













ACORN INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In US dollars, except share data)


3 Months Ended March 31
-----------------------

2012 2013
---- ----

(unaudited) (unaudited)

Net revenues

Direct sales 51,885,002 39,857,334

Distribution sales 16,229,946 11,915,637

Total 68,114,948 51,772,971
---------- ----------


Cost of revenues

Direct sales (26,771,056) (18,533,796)

Distribution sales (10,652,306) (8,498,181)

Total (37,423,362) (27,031,977)
----------- -----------


Gross profit

Direct sales 25,113,946 21,323,538

Distribution sales 5,577,640 3,417,456

Total 30,691,586 24,740,994
---------- ----------


Operating (expenses) income

Advertising expenses (15,832,960) (13,067,128)

Other selling and
marketing expenses (13,313,906) (13,303,860)

General and
administrative expenses (6,489,620) (7,006,910)

Other operating income,
net 812,206 845,981

Total operating expenses (34,824,280) (32,531,917)
----------- -----------

Loss from operations (4,132,694) (7,790,923)


Other income 1,014,377 759,942

Loss before income taxes,
and equity in losses of
affiliates (3,118,317) (7,030,981)


Income tax benefits 811,877 189,121


Equity in losses of
affiliates - (66,685)


Net loss (2,306,440) (6,908,545)


Net income attributable
to noncontrolling
interests 42,257 42,205

Net loss attributable to
Acorn International,
Inc. (2,264,183) (6,866,340)
========== ==========


Loss per ADS

Basic (0.08) (0.23)

Diluted (0.08) (0.23)


Weighted average number of ordinary shares used in calculating income per ADS (each ADS represents three
ordinary shares)

Basic 89,946,103 89,208,413

Diluted 89,963,271 89,215,505













ACORN INTERNATIONAL, INC.

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In US dollars)


3 Months Ended March 31
-----------------------

2012 2013
---- ----

(unaudited) (unaudited)


Net loss (2,264,183) (6,866,340)

Other comprehensive income

Foreign currency translation
adjustments 186,391 426,165

Comprehensive loss (2,077,792) (6,440,175)

Comprehensive loss
attributable to non-
controlling interest (41,766) (40,905)

Comprehensive loss
attributable to Acorn
International, Inc. (2,119,558) (6,481,080)
========== ==========


SOURCE Acorn International, Inc.

Acorn International, Inc.

Web Site: http://ir.chinadrtv.com


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