Focus Media Reports Third Quarter 2012 Results

SHANGHAI, Nov. 27, 2012 /PRNewswire/ -- Focus Media Holding Limited (Nasdaq: FMCN) today announced its unaudited financial results for the third quarter ended September 30, 2012.

Highlights for Third Quarter 2012:

• Total net revenue for the third quarter of 2012 was $256.3 million, of which
  • aggregate net revenues from the LCD display network, in-store network, poster frame network and movie theater network was $247.7 million, which exceeded by approximately 2% the mid-point of the Company's guidance range of $241-$243 million.  This represented a year-on-year increase of 26% from $196.1 million for the third quarter of 2011 and a quarter-on-quarter increase of 13% from $219.3 million for the second quarter of 2012;
  • net revenue from the traditional outdoor billboard network for the third quarter of 2012 was $8.6 million, below the guidance of $13-$14 million which was primarily due to classification of the revenues of a number of subsidiaries into "Net income from discontinued operations".   Due to medium term advertising spending uncertainties and the continued view of the Company that the traditional outdoor billboard network is not a core business segment, the Company has decided to downsize this business segment by divesting of four entities within the segment. Two of which have been divested prior to end of this third quarter while the remaining two are expected to be completed before the end of 2012. Consequently, the revenues of these four entities are reclassified into "Net income from discontinued operations" in statements of income.
• GAAP net income attributable to Focus Media for the third quarter of 2012 was $64.6 million, representing a year-on-year increase of 4% from $62.2 million for the third quarter of 2011 and a quarter-on-quarter increase of 10% from $58.9 million for the second quarter of 2012.    
• Non-GAAP net income attributable to Focus Media was $94.6 million, exceeding the mid-point of the Company's guidance range of $92-$94 million by 2%, and representing a year-on-year increase of 14% from non-GAAP net income attributable to Focus Media of $82.7 million for the third quarter of 2011 and a quarter-on-quarter increase of 16% from non-GAAP net income attributable to Focus Media of $81.9 million for the second quarter of 2012.  Please see the below sections on "Use of Non-GAAP Financial Measures" and "Reconciliation of GAAP to non-GAAP" for more information about the non-GAAP measures referred to within this announcement.
• GAAP net income attributable to Focus Media per fully diluted ADS was $0.48, representing a year-on-year increase of 9% from $0.44 per fully diluted ADS for the third quarter of 2011 and a quarter-on-quarter increase of 9% from $0.44 per fully diluted ADS for the second quarter of 2012.
• Non-GAAP net income attributable to Focus Media per fully diluted ADS was $0.71, representing a year-on year increase of 20% from $0.59 per fully diluted ADS for the third quarter of 2011 and a quarter-on-quarter increase of 15% from $0.62 per fully diluted ADS for the second quarter of 2012.

Highlights for Balance Sheet and Cash Flow Results of Third Quarter 2012:

• Cash, cash equivalents, restricted cash and short-term investments were $901.1 million as of September 30, 2012, as compared to $856.9 million as of June 30, 2012.  Restricted cash is deposited in bank accounts as security for bank borrowings. These deposits earn fixed interest rates and are released when the related bank borrowings are settled by the Company.  Restricted cash was $198.0 million as of September 30, 2012, as compared to $206.1 million as of June 30, 2012, and was comprised of current restricted cash of $99.0 million and non-current restricted cash of $99.0 million.   Short-term investments, consisting of longer term dated cash deposits that earn higher interest rates as compared to cash and cash equivalent, were $211.2 million as of September 30, 2012 as compared to $211.4 million as of June 30, 2012.
• Bank loans were $200.0 million inclusive of short-term bank loans of $100.0 million and long-term bank loans of $100.0 million as of September 30, 2012, as compared to bank loans of $207.5 million as of June 30, 2012, which were used to finance the Company's share repurchases and dividend payouts.  Operationally, as the Company generates cash inflow in Renminbi onshore, offshore bank loans are used to increase our offshore USD base cash resources mainly for future dividend payouts or share repurchases.   The entire bank loan facility was extended based on an equivalent Renminbi onshore cash deposit, which was deposited as restricted cash.
• Net accounts receivable for the LCD display network, in-store network, poster frame network and movie theater network was $284.1 million as of September 30, 2012, an increase of 19% from $238.4 million as of June 30, 2012 due to sequential growth of revenues.  Days sales outstanding was 92 days in the third quarter of 2012, similar to 91 days for the second quarter of 2012.
• Net cash inflow from operating activities in the third quarter of 2012 was $77.9 million, representing year-on-year decline of 10% from $86.3 million for the third quarter of 2011 and a quarter-on-quarter decline of 16% from $93.1 million for the second quarter of 2012.  The decline was mainly due to the slower cash collection particularly in the LCD display network in the third quarter of 2012 as compared to the third quarter of 2011 and the second quarter of 2012.  Despite slightly slower cash collection, the Company believes that overall accounts receivable remain healthy and has provided adequately for potential bad debt.
• Net cash inflow from operating activities for the third quarter of 2012, after deducting the purchase of equipment and subsidiaries as well as net cash outflows derived from disposition of subsidiaries was $71.7 million, slightly decreasing by 2% from the $72.9 million for the third quarter of 2011 and a quarter-on-quarter contraction of 18% from $87.2 million for the second quarter of 2012 which was mainly to the decline of net cash inflow from operating activities.
• Capital expenditures were $5.0 million for the third quarter of 2012, mostly attributable to the deployment of next generation interactive screens in a few of tier-2 cities in the LCD display network.
• Cash paid for the acquisition of subsidiaries in the third quarter of 2012 was $0.6 million, which was mainly attributable to the LCD display network.

Jason Jiang, Chairman and Chief Executive Officer of Focus Media said, "In the third quarter of 2012, we continue to see macroeconomic uncertainties impact on overall advertising spending in China despite we exceeded the previous guidance of the company. We expect similar trend to continue through the fourth quarter. Particularly the recent pressure on Japanese automotive sales in China also resulted in advertising budget cut-backs from a number of Japanese automotive labels. Despite near and possibly medium term pressure, we believe that our media platform remain strong and robust to weather these challenges."

Kit Low, the Company's Chief Financial Officer added, "In the third quarter of 2012, the Company achieved aggregate net revenue year-on-year growth in our LCD display, poster frame business, in-store and movie theater network of 26%. GAAP net income attributable to Focus Media and Non-GAAP net income attributable to Focus Media for the third quarter of 2012 was $64.6 million and $94.6 million, respectively.  In the third quarter of 2012, the Company generated a net cash inflow from operating activities after deducting the purchases of equipment and subsidiaries as well as net cash outflows derived from disposition of subsidiaries of $71.7 million."

Third Quarter 2012 financial results

Advertising net revenue from the LCD display network was $128.4 million for the third quarter of 2012, representing an increase of 6% from $120.6 million for the third quarter of 2011 and an increase of 5% from $122.1 million for the second quarter of 2012. 

Advertising net revenue from the poster frame network was $81.6 million for the third quarter of 2012, representing an increase of 75% from $46.6 million for the third quarter of 2011 and an increase of 19% from $68.6 million for the second quarter of 2012.

Advertising net revenue from the in-store network was $14.5 million for the third quarter of 2012, representing a decrease of 9% from $15.9 million for the third quarter of 2011 and an increase of 7% from $13.6 million for the second quarter of 2012.

Advertising net revenue from the movie theater network was $23.2 million for the third quarter of 2012, representing an increase of 78% from $13.0 million for the third quarter of 2011 and an increase of 53% from $15.2 million for the second quarter of 2012

Advertising net revenue from the traditional outdoor billboard network was $8.6 million for the third quarter of 2012, representing a decrease of 30% from $12.2 million for the third quarter of 2011 and a decrease of 11% from $9.7 million for the second quarter of 2012.  Due to medium term advertising spending uncertainties and the continued view of the Company that the traditional outdoor billboard network is not a core business segment, the Company has decided to downsize this business segment by divesting of four entities within the segment.  Two of which have been divested prior to end of this third quarter while the remaining two are expected to be completed before the end of 2012.  Consequently, the revenues of these four entities have been reclassified into "Net income from discontinued operations" in statements of income during the period.  Therefore, $4.6 million revenues of these four entities were reclassified into "Net income from discontinued operations" in statements of income in the third quarter of 2012 and as a comparison, $2.4 million and $4.0 million revenues of these four entities were also reclassified respectively in the third quarter of 2011 and in the second quarter of 2012 in this press release.

Non-GAAP gross profit from the LCD display network for the third quarter of 2012 was $99.8 million, slightly increasing from $99.5 million for the third quarter of 2011 and an increase of 3% from $96.7 million for the second quarter of 2012.    

Non-GAAP gross profit from the poster frame network for the third quarter of 2012 was $52.5 million, more than doubling the $19.6 million for the third quarter of 2011 due to significant year-on-year growth of revenues, and representing an increase of 36% from $38.6 million for the second quarter of 2012.

Non-GAAP gross profit from the in-store network for the third quarter of 2012 was $9.1 million, representing a decrease of 9% from $10.0 million for the third quarter of 2011 due to year-on-year decline of revenues and an increase of 10% from $8.3 million for the second quarter of 2012.

Non-GAAP gross profit from the movie theater network for the third quarter of 2012 was $14.5 million, more than doubling both the $6.4 million for the third quarter of 2011 and the $6.6 million for the second quarter of 2012 which was due to robust revenue growth in the third quarter of 2012

Non-GAAP gross loss from the traditional outdoor billboard network for the third quarter of 2012 was $0.4 million, as compared to non-GAAP gross profit of $2.0 million for the third quarter of 2011 and non-GAAP gross profit of $0.6 million for the second quarter of 2012.  The decrease in non-GAAP gross profit was mainly due to higher fixed costs associated with the expansion of the traditional outdoor billboard network areas around intercity high-speed rail lines dragged down the overall gross profit margin of this segment during the quarter.

Non-GAAP operating expenses for the third quarter of 2012 was $57.5 million, an increase of 23% from $46.6 million for the third quarter of 2011, which was attributable to an increase in selling and marketing expenses from year-on-year revenue growth and professional fee increase in general and administrative expenses. It also represented a decrease of 14% from $66.7 million for the second quarter of 2012

Net cash inflow from operating activities in the third quarter of 2012 was $77.9 million, representing year-on-year decline of 10% from $86.3 million for the third quarter of 2011 and a quarter-on-quarter decline of 16% from $93.1 million for the second quarter of 2012.  The decline was mainly due to the slower cash collection particularly in the LCD display network in the third quarter of 2012 as compared to the third quarter of 2011 and the second quarter of 2012.  Despite slightly slower collection, the Company continues to monitor account receivables very closely, and believes that overall accounts receivable remain healthy and has provided adequately for potential bad debt.

Net cash provided by investing activities for the third quarter of 2012 was $0.9 million.  In the third quarter of 2012, the Company incurred capital expenditures of $5.0 million and subsidiary acquisition payments of $0.6 million.  Meanwhile, the Company incurred net cash inflows from net investment in short-term investments and deposits in restricted cash of $7.2 million during the quarter. Short-term investments are longer term dated cash deposits normally with maturities between three and twelve months that earn higher interest rates as compared to cash and cash equivalents.  Restricted cash is deposited in bank accounts as security for bank borrowings.

Net cash used by financing activities for the third quarter of 2012 was $24.9 million.  In the third quarter of 2012, the Company repaid bank loans of $7.5 million.  Meanwhile, the Company paid $17.4 million for the dividend payout for the second quarter of 2012.

Cash and cash equivalents in held-for-sale assets as of September 30, 2012 was $1.0 million.

Operating Data Summary

The Company is providing a breakdown of operating data as follows:

1) The approximate number of displays in the LCD display network was as follows:

Note:  LCD screens have excluded LCD 1.0 picture frame devices since the fourth quarter of 2011.  The increase in the total number of LCD screens and LCD 2.0 digital picture screens as of September 30, 2012 as compared to that as of June 30, 2012 was due to organic network expansion.  Of the total LCD screens of 136,870 as of September 30, 2012, 9,589 screens were operated through our regional distributors as compared to 9,734 screens as of June 30, 2012.

2) The approximate number of devices in the poster frame network was as follows:

Note: Frame 1.0 picture frames have included LCD 1.0 picture frame devices since the fourth quarter of 2011. The increase in the total number of Frame 1.0 picture frames as of September 30, 2012 as compared to that as of June 30, 2012 was due to organic network expansion.

3) The total number of displays installed in our in-store network was approximately 53,239 as of September 30, 2012, as compared to 51,995 as of June 30, 2012.  The increase was due to organic network expansion.

4) The number of movie screens on which the Company had the right to lease advertising time as of September 30, 2012 was approximately 2,470, as compared to 2,320 as of June 30, 2012.  The increase was due to organic network expansion.

Business Outlook for Fourth Quarter 2012

The Company provides the following guidance with respect to the quarter ending December 31, 2012:

Net revenues for the core business (inclusive of the LCD display network, the in-store network, the poster frame network and the movie theater network) are expected to be in the range of $237-$246 million, the mid-point of which would represent year-on-year growth of 1% and quarter on quarter decline of 3%.  Net revenues for the non-core business (the traditional outdoor billboard network) are expected to be in the range of $6-$7 million.  The Company's non-GAAP net income is expected to be in the range of $93-$98 million.  The Company estimates the weighted average fully diluted ADS count for the quarter at 133.2 million.

Announced Receipt of "Going Private" Proposal

As previously announced on August 13, 2012, the Company's Board of Directors received a preliminary non-binding proposal letter, dated August 12, 2012, from affiliates of The Carlyle Group , FountainVest Partners, CITIC Capital Partners, CDH Investments, China Everbright Limited and Mr. Jason Nanchun Jiang, Chairman of the Board and Chief Executive Officer of Focus Media (together, the "Consortium Members"), that proposes a "going-private" transaction (the "Transaction") for $27.00 in cash per American depositary share, or $5.40 in cash per ordinary share. The committee of independent directors formed by the board to consider the proposal (the "Independent Committee") is continuing to consider the proposed transaction.  No decisions have been made by the Independent Committee with respect to the Company's response to the Transaction. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated. The Company does not undertake any obligation to provide any updates with respect to this or any other transaction, except as required under applicable law.

Announced Share Repurchase Program

As of November 27, 2012, the Company has cumulatively spent $491 million in share repurchases out of the share repurchase program totaling $650 million. 

Arrangements regarding announced recurring payout

Focus Media announced on January 10, 2012 that the Company is committed to a 55% annual payout based on prior year non-GAAP net income. Of which 25% of the payout is expected to be dividend payments paid on a quarterly basis, which will be paid out in the following calendar year to shareholders of record as of March 31, June 30, September 30 and December 31 respectively, while the remaining 30% payout is expected to be either dividend payments and/or share repurchases. The payout commenced in 2012 in respect of Focus Media's non-GAAP net income for 2011.

Based on the Company 2011 non-GAAP net income of $284.1 million, a cash dividend of US$0.0274 per ordinary share (or US$0.137 per American Depositary Share) was paid on April 16, 2012 to shareholders of record as of the close of business on March 30, 2012, a cash dividend of US$0.0272 per ordinary share (or US$0.136 per American Depositary Share) was paid on July 16, 2012 to shareholders of record as of the close of business on July 10, 2012 and a cash dividend of US$0.0272 per ordinary share (or US$0.136 per American Depositary Share) was paid on October 16, 2012 to shareholders of record as of the close of business on September 28, 2012. 

The board has resolved to postpone approval of future cash dividends through December 31, 2012 due to ongoing considerations relating to the going private proposal. The board will make a determination regarding the remaining dividends in respect of 2011 non-GAAP net income at that time, depending on the status of the going private proposal. 

Value-added tax reform in Shanghai and Beijing

The government implemented a value-added tax reform pilot program, which replaced the business tax with value-added tax on selected sectors including the advertising sector, in Shanghai effective January 1, 2012 and in Beijing effective September 1, 2012.  The value-added tax rate applicable to the subsidiaries of our group in Shanghai and Beijing is 6% as compared to the 5% business tax rate which was applicable prior to the reform. 

Foreign Currency Translation

Assets and liabilities are translated at the exchange rate as of September 30, 2012, which was $1 to RMB 6.3410.  Equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the third quarter of 2012, which was $1 to RMB 6.3257.  Translation adjustments are reported as cumulative translation adjustments and are a separate component of other comprehensive income.

USE OF NON-GAAP FINANCIAL MEASURES

In addition to Focus Media's consolidated financial results under GAAP, the Company also provides non-GAAP financial measures, including non-GAAP gross profit (cumulatively and by segment), non-GAAP operating expenses, non-GAAP operating profit (loss), non-GAAP net income and non-GAAP fully-diluted earnings per ADR, all excluding share-based compensation expenses, amortization of acquired intangible assets, loss from equity method investee and goodwill impairment.  Management uses these non-GAAP financial measures to better assess operating performance of the Company.  The Company believes that these non-GAAP financial measures provide investors with another method for assessing Focus Media's operating results in a manner that is focused on the performance of its ongoing operations.  Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results in the attached financial information.  The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of Focus Media and when planning and forecasting for future periods.  The Company computes its non-GAAP financial measures using a consistent method from quarter to quarter, mostly excluding share-based compensation expenses, amortization of acquired intangible assets, loss from equity method investee and goodwill impairment.  The accompanying tables have more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliation between these financial measures.

CONFERENCE CALL

1) The Company will host a conference call to discuss the third quarter 2012 results at 8:00 p.m. U.S. Eastern Time on November 27, 2012 (5:00 p.m. U.S. Pacific Time on November 27, 2012 and 9:00 a.m. Beijing/Hong Kong Time on November 28, 2012). The dial-in details for the live conference call are set forth below:

International Toll Dial-In Number: + 65.6723.9381

Local Dial-In Number(s):
China, Domestic Mobile: 400.620.8038
China, Domestic: 800.819.0121
Hong Kong: +852.2475.0994
United States: +1.718.354.1231

International Toll Free Dial-in Number(s):
Hong Kong: +852.800.930.346
United States: +1.866.519.4004

Conference ID # 71489860

2) A replay of the call will be available from November 27, 2012 11:00pm until December 5, 2012 7:59am (U.S. Eastern Time). The dial-in details for the replay are set forth below:

International Toll Dial-In Number: +61.2.8199.0299

Local Dial-In Number(s):
Hong Kong: +852.3051.2780  

United States: +1.646.254.3697

International Toll Free Dial-in Number(s):
China 400: 400.120.0932
China 800: 800.870.0205
Hong Kong: +852.800.963.117
United States: +1.855.452.5696

Conference ID # 71489860

Additionally, a live and archived web cast of this call will be available on the Focus Media web site at http://ir.focusmedia.cn.

SAFE HARBOR: FORWARD-LOOKING STATEMENTS

This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements, as well as the consideration of the going private proposal and the impact on the Company resulting from the success or failure of that proposal. Focus Media may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 20-F and 6-K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Focus Media's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, risks outlined in Focus Media's filings with the U.S. Securities and Exchange Commission, including its registration statements on Form F-1, F-3 and 20-F, in each case as amended. Focus Media does not undertake any obligation to update any forward-looking statement, except as required under applicable law. 

This release is not an offer of securities for sale in the United States.  Securities may not be offered or sold in the United States absent registration or an exemption from registration.  Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.

ABOUT FOCUS MEDIA HOLDING LIMITED

Focus Media Holding Limited (Nasdaq: FMCN) operates China's largest lifestyle targeted interactive digital media network. The Company offers one of the most comprehensive targeted interactive digital media platforms aimed at Chinese consumers at various urban locations. The increasingly fragmented and mobile lifestyle of Chinese urban consumers has created the need for more efficient media means to capture consumer attention. Focus Media's mission is to build an increasingly comprehensive and measurable interactive urban media network that reaches consumers at various out-of-home locations. 

Note 1: Details of net revenues by segment are as follows (U.S. Dollars in thousands):

SOURCE Focus Media Holding Limited