Acorn Intl (NYSE:ATV)

First Quarter 2012 Results

• Net revenues were $68.1 million, down 18.9% from $84.0 million for the first quarter of 2011.
• Gross profit was $30.7 million, down 17.0% from $37.0 million for the first quarter of 2011.
• Gross margin increased 110 basis points to 45.1% from 44.0% for the first quarter of 2011.
• Operating loss was $4.1 million, compared to operating income of $1.7 million for the first quarter of 2011.
• Net loss attributable to Acorn was $2.3 million, compared to net income of $0.9 million for the first quarter of 2011.
• Diluted loss per American Depositary Share ("ADS") was $0.08, compared to earnings per ADS of $0.03 for the first quarter of 2011.

"Revenues declined in the first quarter of 2012 primarily due to fewer mobile phone sales resulting from a decrease in existing phone model sales and the delayed launch of new feature phones. As China's mobile phone market transitions from feature phones to smart phones over the next few years, we intend to offer mobile phone products in both categories. We plan to introduce two smart phone models in the second quarter of 2012. Also adversely impacting our revenues during the quarter was an increase in media prices. As a result, we reduced the total amount of TV advertising airtime by focusing on TV channels with the most effective media utilization and ceased cooperation with less effective TV channels," said Mr. Don Yang, CEO of Acorn International. "At the same time, our fitness products, including the Yierjian abdominal trainer, continued to perform well and we are currently testing several new fitness products for full-scale sales and marketing programs in the second and third quarters of 2012. Meanwhile, we will introduce new cosmetic products and begin testing new electronic learning products with mobile Internet interactive features in the second and third quarters of 2012."

Fiscal Year 2012 Business Outlook:

In fiscal year 2012, Acorn intends to further enhance its direct sales platforms and improve the effectiveness of its media spending, thereby generating strong interest in its brands, improving its conversion rate and driving repeat sales. Acorn plans to further diversify its product offerings by introducing smart phones, extending its popular line of fitness products and introducing other new products. Acorn also plans to enhance its human resources, especially in areas of data analysis and customer relationship management, to help tailor products and services to both existing and new customers. Acorn intends to build up new sales channels for its own branded products on the platforms of China's leading e-Commerce companies. At the same time, the management team remains focused on controlling costs and continuously improving operations to enhance bottom line performance.

For the full year 2012, the Company affirms its guidance for revenues between $380 million and $400 million and net income between $6 million and $8 million.

Third Quarter 2011 Results

• Net revenues were $107.8 million, an increase of 18.2% from $91.2 million for the third quarter of 2010.
   
• Gross profit was $45.3 million, an increase of 35.0% from $33.5 million for the third quarter of 2010.
   
• Gross margin increased 520 basis points to 42.0% from 36.8% for the third quarter of 2010.
   
• Operating income was $1.5 million, compared to $2.2 million for the third quarter of 2010. In the third quarter of 2011, the Company transitioned certain local delivery companies used to fulfill its direct sales orders to improve the successful goods delivery rate and, in connection therewith, made $1.5 million bad debt provisions.
   
• Net income attributable to Acorn was $1.5 million, compared to $3.2 million for the third quarter of 2010.
   
• Diluted earnings per American Depositary Share ("ADS") were $0.05 and $0.11 for the third quarters of 2011 and 2010, respectively.

"The solid performance of our direct sales segment helped us maintain growth momentum during the third quarter of 2011. Non-TV direct sales were the main contributor, primarily as a result of sales generated from third-party bank channels and outbound calls that utilized our vast customer database resources for active sales outreach. While mobile handsets remained an essential product line supported by strong demand for our Gionee A320 and A350 models, direct sales in this product line were lower compared to the second quarter of 2011 due to the lower-than-expected contribution of our new high-end handset Gionee W100. We shifted marketing resources from our older models to support the newly launched model in August 2011, but have yet to reap the rewards of the campaign. On the other hand, the recovery in distribution sales of our electronic learning product (Ozing), which was primarily driven by our higher margin M8 model, was a positive development and we continue to closely follow the performance of this product line," said Mr. Don Yang, CEO and President of Acorn. "Our operating performance this quarter was significantly impacted by the $1.5 million bad debt provisions related to the transitioning of certain local delivery companies used to fulfill our direct sales orders to improve the successful goods delivery rate. However, one year after implementing significant management changes, our turnaround strategy has begun to show results in terms of top-line growth and improved gross margins. Looking forward, we aim to further develop our direct sales network and proprietary products, while working to maintain a nimble cost structure."

Fiscal Year 2011 Business Outlook

To date, Acorn has made significant investments to its TV direct sales platform and continues to optimize its growth and profitability by aligning media spending with its product portfolio. Non-TV direct sales remain the primary focus for growth as the Company continues to leverage its customer database mining efforts to generate repeat sales. Following the restructuring of its mobile handset product portfolio and the reallocation of advertising resources within this product line, the Company expects some quarter-to-quarter fluctuation in its mobile handset sales. Cosmetics, collectibles and health and fitness products offer additional support for direct sales, while the Company carefully monitors distribution sales of electronic learning products to assess the future growth potential of this product line.

For full year 2011, the Company reiterates its guidance of revenue between $340 million and $380 million. Due to $0.4 million in unbudgeted professional fees associated with the July 2011 Tender Offer, $1.5 million in additional bad debt provisions related to the transition of certain local delivery companies used to fulfill the direct sales orders to improve the successful goods delivery rate, and an increase in the expected operating loss from $0.8 million, which was initially forecasted at the beginning of 2011, to $2.9 million related to the Company's decision to stop selling "Uking" branded mobile handsets, the Company is adjusting its net income guidance for full year 2011 to be between $5 million and $7 million.

Second Quarter 2011 Results

• Net revenues increased 36.0% to $82.9 million from $60.9 million for the second quarter of 2010, driven by a 68.2% increase in the sales of mobile handsets.
• Net income was $3.7 million, as compared to a net loss of $1.8 million in the second quarter of 2010.
• Diluted earnings per American Depositary Share ("ADS") were $0.13, as compared to loss per ADS of 0.06 for the second quarter of 2010.

"This quarter, we made significant improvements in our top and bottom lines. Direct sales drove overall revenue growth, which is consistent with our strategy to shift our sales mix toward more profitable channels and products." said Mr. Don Yang, CEO and President of Acorn, "Overall sales increased 36.0% from the second quarter of 2010, substantially faster than the increase in overall retail sales in China. The overall sales of mobile handsets grew 68.2% to $54.5 million for the second quarter of 2011 from $32.4 million for the same period of 2010, and were robust as we gained incremental market share in the mobile handsets market."

Fiscal Year 2011 Business Outlook

Acorn will continue seeking to optimize its media spending and product mix in order to drive revenue growth, enhance margins and achieve sustainable cash returns on investment. The Company plans to focus on its direct sales platforms and the growing demand for mobile handsets, collectibles, cosmetics and English learning products.

For fiscal year 2011, the Company reiterates its guidance of revenue between $340 million and $380 million and guidance of net income between $8 million and $10 million.

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. 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.

Tender Offer

In early July 2011, an investment vehicle controlled by Acorn's Chairman and a co-founder, Mr. Robert Roche, and his wife and Acorn's CEO, President and a co-founder, Mr. Don Yang, successfully completed a tender offer to acquire 20 million ordinary shares of the Company at a price of $2.00 per share (or $6.00 per ADS).

We believe that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs for the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments, joint ventures or acquisitions we may decide to pursue.

SHANGHAI, June 17, 2011 /PRNewswire-Asia/ -- 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 sales and distribution sales platforms, today announced that its Board of Directors voted to recommend that Acorn shareholders reject the Bireme Limited ("Bireme") cash tender offer (the "Offer") of $2.00 per ordinary share (equivalent to $6.00 per American Depositary Share) (the "Offer Price") as inadequate and not in the best interests of Acorn and its shareholders.

The Company has filed a Schedule 14D-9 with the Securities and Exchange Commission ("SEC") detailing the reasons for its rejection of Bireme's offer. The full text of the filing will be available in the Investor Relations section of Acorn's website at http://ir.chinadrtv.com.and on the SEC website at http://www.sec.gov/.

The two shareholders of Bireme are Ms. Ritsuko Hattori-Roche, who is the wife of Robert Roche, the co-founder and the Chairman of the Board of Directors of Acorn, and Don Dongjie Yang, who is a co-founder, the Chief Executive Officer and a member of the Board of Directors of Acorn.

The Offer was reviewed and considered by members of the Board of Directors of Acorn who are unaffiliated with Bireme, Mr. Roche, Ms. Hattori-Roche and Mr. Yang. In making its determination, the Board, taking into account advice received from its financial and legal advisors, considered numerous factors, including their belief that:

The Offer is inadequate

• The Board does not believe that the Offer Price reflects the underlying value of Acorn's assets, operations and growth prospects, and the additional value that the Board believes would result from the continued implementation of Acorn's strategic business initiatives.

• Acorn's book value per share, as of December 31, 2010, is approximately $2.04 per Ordinary Share (or $6.13 per ADS) based on the number of Ordinary Shares outstanding as of June 3, 2011, which is higher than the Offer Price, and this book value is derived without taking into consideration the actual market value of Acorn's properties or the value of Acorn's intellectual property, brand, reputation and revenue producing businesses.

• Acorn has strong cash reserves. As of December 31, 2010, Acorn had cash and cash equivalents of $91.7 million and no long term debt. This unlevered cash represents approximately $1.03 per Ordinary Share, or $3.08 per ADS, based on the number of Ordinary Shares outstanding as of June 3, 2011.

• The Offer undervalues the key strengths of Acorn, including its:

◦ proven track record of developing, promoting and selling consumer products through its vertically integrated sales platform;

◦ ability to efficiently access media channels and manage Acorn's media time on its TV direct sales platform; and

◦ ability to adapt and evolve its business model in conjunction with China's direct sales industry and market conditions over the years.

• The implementation of Acorn's current and future plans will bring additional value to Acorn and its shareholders, which are not reflected in the Offer Price.

 

The Offer is opportunistic

• The Board believes that Mr. Roche and Mr. Yang, as insiders of the Company and long-time industry participants, recognize the significant medium- and long-term value creation potential of the Company's assets and recent strategic initiatives and the potential returns from the pursuit of such initiatives, and have opportunistically timed their Offer to acquire control of the Company before the full impact of these factors can be reflected in the Company's results of operations and share price.

• The Board also believes that the Offer is being made at a time when market valuations of PRC-based companies are being driven down, thus the current market condition is not reflective of a more normal market environment.

 

The Offer, if fully subscribed, will give the Offer Participants actual control of the Company

• If the Offer is fully subscribed, Mr.Roche, Ms.Hattori-Roche and Mr.Yang (the "Offer Participants") together with certain entities that are affiliated with or related to them will beneficially own in the aggregate approximately 52% of the outstanding shares of the Company. As a result, if the Offer Participants act together, they will be able to exert substantial influence and actual control over the Company and its policies, including the ability to prevent certain types of corporate transactions that other shareholders might favor, such as a merger or scheme of arrangement with a third party buyer.

• Further, if they act together, the Offer Participants will have the ability to control the vote regarding such matters as the election or removal of the Company's directors.

 

The Offer is coercive

• The Board believes that a partial, or limited, tender offer for a small-cap company like Acorn is structurally coercive because shareholders may be concerned that if they do not tender their shares in the Offer they may be left holding illiquid securities, because of the small public float and the risk that Acorn may become delisted.

 

The Offer does not require a favorable recommendation by the Board

• The Offer does not require a favorable recommendation by the Board. Further, the Offer Participants have not indicated a willingness to negotiate the Offer Price with the Company or the Board and therefore the Board cannot be certain the Offer Price represents the highest price Bireme would be willing to offer for the Company's shares.

 

The Offer has numerous conditions

• The Offer includes many conditions to the obligations of Bireme to purchase the shares tendered in the Offer, many of which vest a great deal of discretion in Bireme to determine whether or not they are satisfied, resulting in substantial uncertainty as to whether Bireme would be obligated to consummate the Offer.

• More specifically, the Offer states that the conditions described in the Offer are for the sole benefit of Bireme and may be asserted or waived by Bireme in whole or in part at any time and from time to time in its sole discretion at or prior to the expiration of the Offer (other than those involving the receipt of any requisite governmental approvals). The determination as to whether any condition to the Offer has or has not been satisfied is based on the reasonable judgment of Bireme and, subject to applicable law, will be final and binding on all parties.

 

Houlihan Lokey (China) Limited is acting as financial advisor to Acorn and O'Melveny & Myers LLP is providing legal advice. Maples and Calder is providing Cayman law advice.

SHANGHAI, June 6, 2011 /PRNewswire-Asia-FirstCall/ -- 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 sales and distribution sales platforms, today confirmed that Bireme Limited, a Cayman Islands company ("Bireme"), has commenced a cash tender offer to acquire ordinary shares, par value $0.01 per share ("Ordinary Shares"), of Acorn, and American Depositary Shares ("ADSs"), each representing three Ordinary Shares, in an aggregate amount not to exceed 20,000,000 Ordinary Shares, for $2.00 per Ordinary Share, which represents $6.00 per ADS.

First Quarter Results:

• Net revenues were $84.0 million, an increase of 19.4% from $70.3 million for the first quarter of 2010.
• Gross profit was $37.0 million, an increase of 19.6% from $30.9 million for the first quarter of 2010.
• Gross margin was 44.0%, same as the first quarter of 2010.
• Operating income was $1.7 million, compared to an operating loss of $0.5 million for the first quarter of 2010.
• Net income was $0.8 million, same as the first quarter of 2010.
• Net income attributable to Acorn was $0.9 million, same as the first quarter of 2010.
• Diluted earnings per American Depositary Share ("ADS") were $0.03 for the first quarter of both 2011 and 2010.

"The year began on a positive note reflecting top-line growth and improved profitability. Direct sales were the primary driver of our growth, as we maintained the momentum in non-TV direct sales, in particular our sales of mobile handsets. During the quarter, we introduced the new Gionee A350 model, which is an updated version of Gionee A320 model, our best selling product in 2010. The new product launch enabled us to introduce premium pricing, improving the profitability of our mobile handset sales," said Mr. Don Yang, CEO and President of Acorn. "Following our efforts to re-position our business, we have adopted a new performance review system which focuses on the optimization of our media return and spending. We also plan to further enhance our customers' loyalty through a more effective business strategy: higher product quality and better customer service, thereby achieving higher product profitability."

For fiscal year 2011, the Company maintains its guidance of revenue between $340 million and $380 million and net income between $8 million and $10 million.

Fourth Quarter Highlights:

• Net revenues were $70.8 million, an increase of 18.6% compared to $59.7 million in the fourth quarter of 2009.
• Gross profit was $21.0 million, a decrease of 27.4% compared to $28.9 million in the fourth quarter of 2009.
• Operating loss was $11.9 million, compared to an operating loss of $14.7 million in the fourth quarter of 2009.
• Loss from continuing operations was $9.4 million, compared to a loss of $10.6 million in the fourth quarter of 2009.
• Net loss attributable to Acorn was $8.7 million, compared to a net loss of $10.7 million in the fourth quarter of 2009.
• Diluted loss per American Depositary Share ("ADS") from continuing operations were $0.32 and $0.36 for the fourth quarters of 2010 and 2009, respectively.

"2010 saw many changes in Acorn. After twelve years since Robert and I founded Acorn, we both returned to more active management roles in the Company in October last year. We have since been working hard on re-positioning Acorn based on the Company's core values and re-evaluating Acorn's various business lines to steer the Company back to growth. Much of the restructuring is still taking place as we expect the process to continue into the early part of 2011," said Mr. Don Yang, CEO and President of Acorn. "We aim to build Acorn as the premium media and branding company in China. Through a focus on media efficiency, a gauge on which we intend to measure all parts of the company's business, we can effectively improve Acorn's overall profitability while expanding its media and industry presence. With Robert's success in running Oaklawn, a Japan-based TV direct sales operator, and Acorn's existing media resources, we are optimistic of Acorn's ability to regain its growth momentum."

Summary Results for the Third Quarter 2010:

• Net revenues were $91.2 million, a decrease of 0.7% compared to $91.8 million in the third quarter of 2009.
• Gross profit was $33.5 million, a decrease of 16.4% compared to $40.1 million in the third quarter of 2009.
• Gross margin was 36.8%, compared to 43.7% in the same period of 2009.
• Income from operations was $2.2 million, a decrease of 39.6% compared to $3.6 million in the third quarter of 2009.
• Other income was $0.7 million, compared to other expenses of $0.1 million in the third quarter of 2009.
• Income from continuing operations was $3.2 million, an increase of 27.6% compared to $2.5 million for the third quarter of 2009.
• Net income from continuing operations attributable to Acorn was $3.2 million, an increase of 21.7% compared to $2.7 million in the third quarter of 2009.
• Share-based compensation expenses were $0.04 million for the third quarter of 2010, compared to $0.2 million for the same period last year.
• Diluted earnings per ordinary share and per American Depositary Share ("ADS") from continuing operations were $0.04 and $0.11, respectively.  

"The third quarter 2010 financial results came largely in line with our expectations.  While net sales declined by 0.7% to reach $91.2 million in the third quarter 2010 from $91.8 million in the same period last year, our income from continuing operations increased by 27.6% to reach $3.2 million from $2.5 million in the same period last year.  TV direct sales continue to grow with our success in customer database mining and strong sales in mobile handsets while market downturn in English Learning Products continues to affect our sales in Ozing and limit our growth in distribution sales in the third quarter 2010," said Mr. Don Yang, CEO and President of Acorn.  "We are carefully accessing each part of our business with the recent change in management and hope to take the opportunity to sharpen our focus and re-grow our business.  As founder and now also CEO and President of the Company, I am proud of what Acorn has achieved thus far and delighted for the great responsibilities newly bestowed upon me for taking the Company to a higher ground."

Full Year 2010 Business Outlook:

For fiscal year 2010, the Company reiterates guidance of revenue between $290 million and $310 million and breakeven in net income from continuing operations (excluding share-based compensation expenses).

These estimates are subject to change. Also, Acorn reminds investors that its operating results in each period are impacted significantly by the mix of products and services sold in the period and the platforms through which they are sold. 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.

"While the second quarter is traditionally a slow season for our distribution business, we expect year over year improvement in our direct sales in the second quarter of 2010 from continued growth in our non-TV direct sales business and improved mobile handset sales led by the diversification of handset models," said Mr. James Hu, Chairman and CEO of Acorn. "We understand the challenges ahead and will focus our efforts on improving the sales of our Ozing electronic learning products and mobile handsets while continuing to expand our non-TV direct sales and identify new products to be marketed on our platform. With the current business outlook, we will maintain our guidance previously set forth and will strive to achieve the financial targets of:

• Revenue between $290 million to $310 million
• Income from continuing operations of $12 million and $14 million for fiscal year 2010."