VisionChina Media Inc. ("VisionChina Media" or the "Company") (Nasdaq: VISN), one of China's largest out-of-home digital television advertising networks on mass transportation systems, today announced its unaudited financial results for the quarter ended June 30, 2012.
Key Quarterly Financial and Operating Data for the Second Quarter of 2012
Total revenues, consisting entirely of advertising service revenue, in the second quarter of 2012 were $28.1 million.
Gross loss in the second quarter of 2012 was $5.4 million.
Operating loss in the second quarter of 2012 was $200.8 million, primarily due to a non-cash impairment charge of $178.8 million, as the result of a write-down of goodwill and intangible assets associated with the Company's acquisitions of the six advertising agency businesses in 2008 and the Company's acquisition of Digital Media Group Company Limited ("Digital Media Group"), which was completed in 2010.
Net loss attributable to VisionChina Media shareholders in the second quarter of 2012 was $193.5 million.
In the second quarter of 2012, the Company's non-GAAP financial measure, net loss attributable to VisionChina Media shareholders, excluding share-based compensation expenses, amortization of intangible assets, provision for contingent loss in connection with litigation, impairment loss and income tax credit in connection with the impairment loss was $20.7 million.
Basic and diluted net loss per share attributable to VisionChina Media shareholders in the second quarter of 2012 was $1.91 and $1.91, respectively (each ADS representing one common share).
The Company had cash and cash equivalents of $74.7 million as of June 30, 2012. Net cash provided by operating activities was $0.9 million in the second quarter of 2012.
Total broadcasting hours in the Company's network in the second quarter of 2012 were 41,012 hours.
As of June 30, 2012, the Company's network covered 20 cities secured either by exclusive agency agreements or joint venture contracts, and included 136,075 digital displays on mass transit systems.
Average advertising revenue per broadcasting hour in the Company's network in the second quarter of 2012 was $658.
The Company sold an average of 6.56 advertising minutes per broadcasting hour in its network in the second quarter of 2012.
Mr. Limin Li, VisionChina Media's chairman and chief executive officer, commented, "Lingering macroeconomic uncertainty in China has impacted advertiser spending and subsequently our second quarter revenues. In addition, continuous increases in media cost also negatively impacted our company's profitability. To combat these challenges, we are striving to improve our execution capabilities and efficiencies by fully leveraging the government's support on cost reduction, enhancing team organization, optimizing our incentive scheme for sales staff, improving program content, as well as recruiting experienced salespeople from the traditional TV sector to expand our customer verticals. Furthermore, we are in the process of negotiation for early termination or cost reduction of certain exclusive agency agreements unfavorable to our profitability. Our underlying business development pipeline remains strong and we remain confident in our ability to capitalize on opportunities for our company's long-term growth."
Second Quarter 2012 Results
VisionChina Media's total revenues were $28.1 million in the second quarter of 2012, representing a decrease of 37.7% from $45.0 million in the second quarter of 2011 and a decrease of 0.8% from $28.3 million in the first quarter of 2012. Several factors led to the Company's decrease in total revenues in the second quarter of 2012, including further declining revenue contribution from the internet-based businesses sector, a slower-than-expected recovery in advertising spending by small- and medium-sized clients in reaction to rate-card increases across the Company's network in the fourth quarter of 2011, and the cautious sentiment of the current advertising market.
Total broadcasting hours in the second quarter of 2012 were 41,012 hours, compared to 44,379 hours in the second quarter of 2011 and 41,012 hours in the first quarter of 2012.
Average advertising revenue per broadcasting hour was $658 in the second quarter of 2012, compared to $1,003 in the second quarter of 2011 and $679 in the first quarter of 2012.
In the second quarter of 2012, the Company sold a total of 269,234 advertising minutes in its network, compared to 382,895 advertising minutes in the second quarter of 2011 and 258,827 advertising minutes in the first quarter of 2012.
The Company sold an average of 6.56 advertising minutes per broadcasting hour in the second quarter of 2012, compared to 8.63 advertising minutes per broadcasting hour in the second quarter of 2011 and 6.31 advertising minutes per broadcasting hour in the first quarter of 2012.
During the second quarter of 2012, 558 advertisers purchased advertising time on the Company's advertising network, either directly or through advertising agents, compared to 997 advertisers in the second quarter of 2011 and 490 advertisers in the first quarter of 2012.
Media cost, the most significant component of advertising service cost, was $27.2 million in the second quarter of 2012, representing 81.4% of total advertising service cost, compared to $25.6 million, or 80.5% of total advertising service cost, in the second quarter of 2011, and $26.7 million, or 82.7% of total advertising service cost, in the first quarter of 2012.
Gross loss in the second quarter of 2012 was $5.4 million, compared to gross profit of $13.2 million in the second quarter of 2011 and gross loss of $4.0 million in the first quarter of 2012.
Advertising service gross margin was negative 19.2% in the second quarter of 2012, compared to gross margin of 29.3% in the second quarter of 2011 and negative gross margin of 14.2% in the first quarter of 2012.
Selling and marketing expenses were $10.8 million in the second quarter of 2012, representing an increase of 20.2% from $9.0 million in the second quarter of 2011 and a decrease of 18.6% from $13.3 million in the first quarter of 2012. Selling and marketing expenses accounted for 38.6% of the Company's advertising service revenue in the second quarter of 2012, compared to 20.0% in the second quarter of 2011 and 47.0% in the first quarter of 2012. The year-over-year increase in selling and marketing expenses was primarily attributable to increased promotional expenses and spending in market research incurred by the sales and marketing department.
General and administrative expenses were $4.2 million in the second quarter of 2012, representing an increase of 14.8% from $3.6 million in the second quarter of 2011 and an increase of 6.8% from $3.9 million in the first quarter of 2012.
The Company recorded a contingent loss of $1.4 million in the first quarter of 2012 and $1.4 million in the second quarter of 2012 in connection to the pending litigation with the selling shareholders and former management of Digital Media Group. The Company did not incur any contingent loss in the second quarter of 2011.
Share of loss from equity method investments amounted to $0.2 million in the second quarter of 2012, compared to share of profits of $0.2 million in the second quarter of 2011 and share of profits of $0.1 million in the first quarter of 2012.
Operating loss was $200.8 million in the second quarter of 2012, compared to operating profit of $0.7 million in the second quarter of 2011 and operating loss of $22.5 million in the first quarter of 2012. The operating loss in the second quarter of 2012 was primarily attributable to a non-cash impairment charge of $178.8 million as the result of a write-down of goodwill and intangible assets in connection with the Company's acquisitions consummated in 2008 and 2010. The lingering cautious sentiment in the advertising market, which resulted in the Company's modification of its 2012 second quarter revenue guidance in early July 2012 and indicated the uncertainty in the Company's future revenue growth, and the continuous decrease in the Company's market capitalization in the second quarter of 2012 triggered this impairment charge. To date, the impairment assessments are in process and have not been finalized. Management believes that the impairment loss on goodwill of $142.4 million and impairment loss on intangible assets of $36.4 million are probable and represent management's best estimate.
The Company recorded net interest expense of $0.4 million in the second quarter of 2012, compared to net interest expense of $0.6 million in the second quarter of 2011 and net interest expense of $0.2 million in the first quarter of 2012.
The Company recorded income tax benefits of $8.0 million in the second quarter of 2012, including tax credit of $9.1 million in connection with the impairment loss on intangible assets, compared to income tax expenses of $0.8 million in the second quarter of 2011 and income tax benefits of $1.4 million in the first quarter of 2012. No tax credit in connection with the impairment loss was recorded in the second quarter of 2011 or in the first quarter of 2012.
Net loss attributable to VisionChina Media shareholders (GAAP) was $193.5 million in the second quarter of 2012, compared to net loss attributable to VisionChina Media shareholders of $0.4 million in the second quarter of 2011 and net loss attributable to VisionChina Media shareholders of $21.1 million in the first quarter of 2012. The net loss in the second quarter of 2012 was, as mentioned previously, primarily attributable to the non-cash impairment charge of $178.8 million as the result of a write-down of goodwill and intangible assets in connection with the Company's acquisitions consummated in 2008 and 2010.
Basic and diluted net loss per share (GAAP) was $1.91 and $1.91, respectively, in the second quarter of 2012.
Net loss attributable to VisionChina Media shareholders, excluding share-based compensation expenses, amortization of intangible assets, provision for contingent loss in connection with litigation, impairment loss and income tax credit in connection with the impairment loss (non-GAAP) was $20.7 million in the second quarter of 2012, compared to non-GAAP net income of $0.9 million in the second quarter of 2011 and non-GAAP net loss of $18.0 million in the first quarter of 2012.
As of June 30, 2012, the Company had 136,075 digital television displays in its network, compared to 136,522 as of June 30, 2011 and 135,762 as of March 31, 2012.
As of June 30, 2012, the Company had 803 employees, compared to 860 employees as of June 30, 2011 and 845 employees as of March 31, 2012.
As of June 30, 2012, the Company had cash and cash equivalents of $74.7 million, compared to $75.9 million as of March 31, 2012. The Company's net cash provided by operating activities was $0.9 million in the second quarter of 2012.
Depreciation and amortization was $2.8 million and capital expenditures were $0.3 million in the second quarter of 2012.
Recent Developments
Litigation with the Selling Shareholders and Former Management of Digital Media Group
On August 13, 2012, VisionChina Media and its subsidiary Vision Best Limited ("Vision Best") received a written order from the New York court dated July 31, 2012 (the "August 13 Order") requiring VisionChina Media and Vision Best, on or before August 21, 2012, (a) to transfer $60 million in assets readily convertible into U.S. currency into New York State, to be held in the custody of the New York City Sheriff's Office, (b) to deposit $60 million into an escrow account controlled by the Sheriff or (c) to make other arrangements satisfactory to the plaintiffs in the litigation for security with respect to the final judgment plaintiffs seek in that amount. VisionChina Media and Vision Best are in the process of seeking to comply with the August 13 Order to the fullest extent possible. Because a majority of the assets of VisionChina Media and Vision Best are located in the People's Republic of China ("the PRC"), however, the Company believes that transfer of such assets are subject to approval of the relevant PRC authorities, which is outside the control of VisionChina Media or Vision Best. Accordingly, VisionChina Media and Vision Best are seeking to appeal the August 13 Order and to obtain a stay of its enforcement. An emergency application for a stay was denied by a single judge of the appellate court in New York on August 17, 2012, but that application will be submitted to a five-judge panel on August 27, 2012, and VisionChina Media and Vision Best plan to perfect their appeal from the August 13 Order by September 4, 2012.
Business Outlook
The Company estimates its advertising service revenue in the third quarter of 2012 to be between $33.0 million and $35.0 million.
These estimates are based on an exchange rate of RMB6.3089 per $1.00.
The Company noted that its guidance is based on its current network that, as of the date of this press release, has already been secured by exclusive agency agreements or joint venture contract and based on management's current assessment of the possible outcome of pending litigation with the selling shareholders and former management of Digital Media Group. If the number of cities in the Company's network expands or contracts, or if there is any progress in the pending litigation that affects management's assessment of the possible outcome, management's forecast could be affected.
