Acorn International, Inc. (ATV)
Q4 2012 Earnings Call
March 19, 2013 8:00 AM ET
Executives
Samuel Paterson [ph] – IR Manager
Dong Yang – CEO
Jeffrey Dahl – VP
Presentation
Operator
Hello, ladies and gentlemen, and welcome to Acorn International’s Fourth Quarter and Full-Year 2012 Earnings Conference Call. This is Denise [ph] and I’ll be the operator for this conference call. All telephone lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question.
Now, I would like to transfer the call to the moderator, Mr. Samuel Paterson [ph], IR Manager of Acorn International.
Samuel Paterson
Good morning, everyone. Thank you for joining us today for our fourth quarter and full-year 2012 earnings conference call. With me today are Mr. Don Yang, our Chief Executive Officer; and Jeffrey Dahl, our Vice President. After our prepared remarks, we will open the lines for question. Mr. Robert Roche, our Chairman of the Board of Directors will participate in the Q&A section of this call.
As a reminder, this conference call is being recorded. A live webcast and replay of this conference call will be available via the Investor Relations section of our website at ir.chinadrtv.com. Before we continue, I would like to remind you that the discussion today will contain certain forward-looking statements. These forward-looking statements include among others those regarding Acorn’s anticipated business outlook, strategies, future revenue mix and operating results. A number of the potential inherent risk and uncertainties that Acorn’s businesses involve are outlined in the Company’s public filings with the U.S. Securities and Exchange Commission. As such, actual results may be materially different from the views expressed or anticipated results described today.
Acorn International does not undertake any obligation to update any forward-looking statement except as required by applicable law. I would like to introduce our CEO, Mr. Don Yang, who will provide introductory remarks.
Dong Yang
In 2012, net revenues were $242.6 million, down 33% compared to 2011, primarily due to lower sales of mobile phones, electric running products and cosmetics products. So we were able to partially offset these declines with exceptional performance from our Yierjian line of fitness products which accounted for a quarter of the year’s gross revenue and was the main driver behind the 2.5% in gross margin.
Despite the improving gross margin and tighter control over our operating expenses; the lower revenue base resulted in a larger than anticipated net loss in 2012. Our financial results were also impacted by higher cost for television air time. In response, we adjusted our media-spending strategy by promoting our most profitable products categories on the TV channels that has generated the most productive results. As a result of higher advertising cost and lower sales volumes, our gross profit of advertising expenses ratio declined to 1.90 compared to 2.28 in 2011. With media cost expected to increase again in 2013, we will continue our efforts to optimize our media spending.
Now I’d like to discuss the key products sold on our various platforms which represent the core of our business. Mobile phone sales were $64.7 million and accounted for about 27% of total gross revenues in 2012, down 51% compared to 2011, primarily due to decreased demand for existing mobile phone models and lower than expected sales of the newer mobile phone models. However, we do intend to maintain our presence in the mobile phone market and launch new products that meet our margin requirements. We are currently planning on introducing mobile phones with larger screens and other high-performance models in 2013.
Our popular line of Yierjian fitness products performed well in 2012, accounting for 26% of the year’s gross revenue and making a positive contribution to gross margin. In 2012, we extended the line to include an exercise bike and an electronic abdominal exercise belt. We expect Yierjian to be one of our major sales drivers in 2013. And we will introduce several new product upgrades over the next few months. We will allocate a healthy amount of media spending to Yierjian to drive sales and build upon our growing reputation as one of China’s top fitness brands.
Sales of cosmetic products were disappointing in 2012, accounting for only 2.9% of gross revenues and declining 71% from 2011. We’ve recently developed a new brand image for our line of Aoya cosmetic products and expanded its product lines. We are optimistic about the future performance of Aoya and we will feature it prominently on our direct TV sales channels. We will also develop a cost-effective Internet distribution channel to support Aoya cosmetics products that will come online in the coming months.
Sales of our electronic learning products primarily sold via our distribution platform contributed $41.3 million or 17% of gross revenue in 2012 and declined about 34% year over year. This was a year of transition for this product category as we began phasing out older products and offering model with mobile Internet interactive features in the later-half of the year. Based on positive consumer response to our new products, we will broaden our marketing efforts to include advertising on our direct TV sales channel which we expect to have a meaningful impact on sales in 2013. We have plans to enhance our distribution network this year by adding new distributors, providing them with better support and seizing cooperation with underperforming distributors.
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