Business News

XFMedia Announces Financial Results for the First Quarter 2008

Tuesday 13. May 2008 - Xinhua Finance Media Limited ("XFMedia" or "the Company"; Nasdaq: XFML), a leading media group in China, today announced its unaudited financial results for the first quarter ended March 31, 2008.

First Quarter 2008 Highlights
— Net revenue for the first quarter exceeded mid-point guidance by 33.5%
to $36.7 million
— Strong y-o-y performance in adjusted EBITDA (non-GAAP)(1) growing by
70% to $3.1 million
— Adjusted net income(1) per diluted ADS for the first quarter of 2008
was $0.02
— Continued expansion in Broadcast, Print, and Outdoor, our higher margin
businesses
— Full year 2008 net revenue forecast increased to range from $195
million to $205 million and full year 2008 adjusted net income per
diluted ADS estimated to range from $0.31 to $0.33
— Second quarter 2008 net revenue estimated to range from $48 million to
$50 million and adjusted net income per diluted ADS to range from $0.07
to $0.09



“We are pleased to report a great start to the year,” said Ms Fredy Bush, XFMedia’s Chief Executive Officer, “with strong year-over-year growth for the first quarter and overall results ahead of management forecasts. We focused on expanding our higher margin businesses such as Broadcast, Print and Outdoor. Integration has also been proceeding smoothly, with Production integrated into the Broadcast Group and Research integrated into the Advertising Group, giving us three business groups from five before. Current ranking for the NMTV satellite station reached a high of 23rd out of 35 provincial satellite stations in April 2008, boosted by the growing popularity of our Fortune China TV programs and the launch of ‘The Scene’, a daily lifestyle program for the upwardly mobile.”

“In line with our promised expansion in Print, we announced the launch of Investor Journal, a weekly newspaper aimed at informing the growing retail investor market. We also formed the Xinhua Media Entertainment subsidiary and partnered with China Film Group to focus on Sino-US film development, production, and pre-production. Capitalizing on these opportunities, we continue to solidify our market position as a leading media group in China,” Ms Bush added.

(1) In this quarter, the definitions of adjusted EBITDA and adjusted net
income have been revised to better reflect the Company’s underlying
financial and operational performance. Please refer to Chart 8 for
detailed calculations of adjusted EBITDA and adjusted net income.


First Quarter 2008 Financial Results


The following is a summary of our financial results for the first quarter of 2008:

Chart 1: Summary of financial results

3 months 3 months 3 months
ended ended ended 08Q1 vs 08Q1 vs
Mar 31, Mar 31, Dec 31, 07Q1 07Q4
In US millions 2008 2007 2007 growth % growth %
Net revenue 36.7 16.7 48.5 120% -24%
Adjusted EBITDA(1) 3.1 1.8 9.9 70% -69%
Net income (loss)(2) (8.3) 12.6 4.2 N/A N/A
Net income per ADS
– diluted(4) $(0.13) $0.23 $0.06 N/A N/A
Adjusted net income(1),(3) 1.4 1.9 8.6 -23% -83%
Adjusted net income per
ADS – diluted(4) $0.02 $0.04 $0.12 -50% -83%

(1) In this quarter, the definitions of adjusted EBITDA and adjusted net
income have been revised to better reflect the Company’s underlying
financial and operational performance. Please refer to Chart 8 for
detailed calculation of adjusted EBITDA and adjusted net income.
(2) The year-on-year decrease in net income is primarily due to a one-time
tax gain of $12.3 million in the first quarter of 2007, and for the
first quarter of 2008 increased share-based compensation expense and
costs for Sarbanes-Oxley compliance. The sequential decrease in net
income is primarily due to seasonality, share-based compensation
expense, and costs for Sarbanes-Oxley compliance for the first quarter
of 2008.
(3) The year-on-year decrease in adjusted net income is primarily due to
increased tax provisions and costs for Sarbanes-Oxley compliance for
the first quarter of 2008. The sequential decrease in adjusted net
income is primarily due to seasonality and costs for Sarbanes-Oxley
compliance for the first quarter of 2008.
(4) Please refer to Chart 9 for weighted average number of ADS on a
diluted basis.


Net Revenue


Net revenue for the first quarter of 2008 was $36.7 million, up 120% year- over-year from $16.7 million in the first quarter of 2007 or down 24% sequentially from $48.5 million in the fourth quarter of 2007. The primary reason for quarter-on-quarter sequential decline is the seasonality of the media industry, which historically is impacted in the first quarter by the Chinese New Year holiday. This year’s first quarter slowdown in advertising was further impacted by the National People’s Congress of China held in March.

Net Revenue by type and business group

The following is a summary of net revenue by business group reconciled to types of revenue provided in the accompanying consolidated financial statements for the first quarter of 2008. Please note that as of first quarter 2008, our business groups have been integrated from five (Advertising, Broadcast, Print, Production, and Research) to three, with Production integrated into Broadcast and Research integrated into Advertising.

Chart 2: Revenue breakdown by type and business group

In US millions Advertising(1) Broadcast(2) Print Total
Net revenue:
Advertising services 16.9 3.4 0.8 21.1
Content production — 0.6 — 0.6
Advertising sales 4.6 6.8 3.4 14.8
Publishing services — — 0.2 0.2
Total net revenue: 21.5 10.8 4.4 36.7

(1) In the first quarter of 2008, the former Research Group was integrated
into the Advertising Group.
(2) In the first quarter of 2008, the former Production Group was
integrated into the Broadcast Group.


Advertising Group


Net revenue for the Advertising Group for the first quarter of 2008 was $21.5 million, up 159% year-over-year from $8.3 million in the first quarter of 2007. Net revenue for the first quarter of 2008 was down 29% sequentially from $30.1 million in the fourth quarter of 2007, primarily due to seasonality.

Chart 3: Revenue breakdown of the Advertising Group

3 months 3 months 3 months 3 months
ended ended ended ended
In US Mar 31, Mar 31, Growth Mar 31, Dec 31, Growth
millions 2008 2007 % 2008 2007 %
Advertising(1):
Television — 1.0 -100% — 4.6 -100%
Print/Online 6.4 4.8 35% 6.4 12.8 -50%
Outdoor/Other 6.5 1.5 313% 6.5 6.0 6%
BTL Marketing 7.4 — — 7.4 5.5 35%
Research(2) 1.2 1.0 28% 1.2 1.2 5%
Subtotal: 21.5 8.3 159% 21.5 30.1 -29%

(1) In the first quarter of 2008, the former Television business of the
Advertising Group was migrated into the Broadcast Group.
(2) In the first quarter of 2008, the former Research Group was integrated
into the Advertising Group. The 2007 comparative numbers are adjusted
accordingly.


Broadcast Group


Net revenue for the Broadcast Group for the first quarter of 2008 was $10.8 million, up 116% year-over-year from $5.0 million in the first quarter of 2007 or down 17% sequentially from $12.9 million in the fourth quarter of 2007, primarily due to seasonality.

Chart 4: Revenue breakdown of the Broadcast Group

3 months 3 months 3 months 3 months
ended ended ended ended
In US Mar 31, Mar 31, Growth Mar 31, Dec 31, Growth
millions 2008 2007 % 2008 2007 %
Broadcast:
Television(1) 5.8 3.8 52% 5.8 3.7 55%
Radio 1.6 0.4 283% 1.6 2.1 -24%
Mobile 2.8 — — 2.8 5.3 -47%
Production(2) 0.6 0.8 -26% 0.6 1.8 -68%
Subtotal: 10.8 5.0 116% 10.8 12.9 -17%

(1) In the first quarter of 2008, the former Television business of the
Advertising Group was migrated into the Broadcast Group.
(2) In the first quarter of 2008, the former Production Group was
integrated into the Broadcast Group. The 2007 comparative numbers are
adjusted accordingly.


Print Group


Net revenue for the Print Group for the first quarter of 2008 was $4.4 million, up 31% year-over-year from $3.4 million in the first quarter of 2007 or down 18% sequentially from $5.4 million in the fourth quarter of 2007, primarily due to seasonality.

Chart 5: Revenue breakdown of the Print Group

3 months 3 months 3 months 3 months
ended ended ended ended
In US Mar 31, Mar 31, Growth Mar 31, Dec 31, Growth
millions 2008 2007 % 2008 2007 %
Print:
Newspaper 2.3 1.9 21% 2.3 2.6 -11%
Magazines 2.1 1.5 44% 2.1 2.8 -25%
Subtotal: 4.4 3.4 31% 4.4 5.4 -18%


Gross Profit


Gross profit for the first quarter of 2008 was $13.1 million, up 161% year-over-year from $5.0 million in the first quarter of 2007 or down 29% sequentially from $18.6 million in the fourth quarter of 2007. Adjusted gross profit (non-GAAP), defined as gross profit before amortization of intangible assets from acquisitions, for the first quarter of 2008 was $15.1 million, up 147% year-over-year from $6.1 million in the first quarter of 2007 or down 26% sequentially from $20.5 million in the fourth quarter of 2007. We provide adjusted gross profit to break out the amortization of intangible assets from acquisitions charged within cost of revenue. Chart 6 provides a breakdown of adjusted gross profit by business group.

Chart 6: Reconciliation for adjusted gross profit by business group

In US millions Advertising Broadcast Print Total
Gross Profit 6.1 4.0 3.0 13.1
Amortization of intangible assets
from acquisitions(1) 0.4 1.4 0.2 2.0
Adjusted gross profit 6.5 5.4 3.2 15.1

(1) Amortization of intangible assets from acquisitions includes assets
such as client database, brand names, and production inventory.


Operating Expenses


Operating expenses for the first quarter of 2008 were $19.3 million, up 194% year-over-year from $6.6 million in the first quarter of 2007 or up 54% sequentially from $12.5 million in the fourth quarter of 2007. The year-on-year and sequential increases are mainly due to an increase in selling and marketing expenses in line with increased revenue, increased share based compensation expense, and costs for Sarbanes-Oxley compliance.

Total operating expenses were composed of selling and marketing expenses and general and administrative expenses. Selling and marketing expenses for the first quarter of 2008 were $5.1 million, up 225% year-over-year from $1.6 million in the first quarter of 2007 or down 11% sequentially from $5.8 million in the fourth quarter of 2007.

General and administrative expenses for the first quarter of 2008 were $14.1 million, up 183% year-over-year from $5.0 million in the first quarter of 2007 or up 110% sequentially from $6.7 million in the fourth quarter of 2007. Included in general and administrative expenses was $4.9 million of share based compensation expenses.

Adjusted EBITDA (non-GAAP)

Adjusted EBITDA (non-GAAP), defined as earnings before one time items, other income, interest income and expense, taxes, depreciation, amortization of intangible assets from acquisitions and share-based compensation expenses, for the first quarter of 2008 was $3.1 million, up 70% year-over-year from $1.8 million in the first quarter of 2007 or down 69% sequentially from $9.9 million in the fourth quarter of 2007. The primary reasons for sequential decline in adjusted EBITDA are seasonality and the Sarbanes-Oxley compliance process. For a reconciliation from income from operations to adjusted EBITDA, refer to Chart 8.

Chart 7: Adjusted EBITDA by business group

In US millions Advertising Broadcast Print Total
Adjusted EBITDA by
business group 2.9 3.1 1.7 7.7
Less: net head office expenses (4.6)
Adjusted EBITDA 3.1


Net Income and Adjusted Net Income (non-GAAP)


Net loss for the first quarter of 2008 was $8.3 million, down by $20.9 million year-over-year from net income of $12.6 million in the first quarter of 2007 or down by $12.5 million sequentially from net income of $4.2 million in the fourth quarter of 2007. The net income of $12.6 million for first quarter of 2007 included a one-time tax gain of $12.3 million. The primary reasons for the year-on-year decline are the one-time tax gain, increased share based compensation expense, and higher costs to support Sarbanes-Oxley compliance. The primary reasons for the sequential decline in net income are seasonality, increased share based compensation expense, and costs for Sarbanes-Oxley compliance for the first quarter of 2008.

Adjusted net income (non-GAAP), defined as net income before one-time items, amortization of intangible assets from acquisitions, share-based compensation expenses and imputed interest, for the first quarter of 2008 was $1.4 million, down 23% year-over-year from $1.9 million in the first quarter of 2007 or down 83% sequentially from $8.6 million in the fourth quarter of 2007. The primary reasons for year-over-year decline in adjusted net income are increased tax provisions and costs for Sarbanes-Oxley compliance. The primary reasons for sequential decline in adjusted net income are seasonality and costs for Sarbanes-Oxley compliance. For a reconciliation from net income to adjusted net income, please refer to Chart 8.

Outlook for second quarter and full year of 2008

XFMedia estimates its net revenue for the second quarter of 2008 will range from $48 million to $50 million. Second quarter adjusted net income per ADS is estimated to range from $0.07 to $0.09 per diluted ADS based on 81.8 million total ADS equivalent average shares outstanding.

XFMedia is raising its estimate of net revenue for full year 2008 to range from $195 million to $205 million from previously forecasted range of $190 million to $200 million. Full year adjusted net income per ADS for 2008 is estimated to range from $0.31 to $0.33 per diluted ADS based on 82.7 million total ADS equivalent average shares outstanding.

XFMedia also expects that for the full year 2008, share-based compensation expense will be approximately $10 million, amortization of intangible assets from acquisitions approximately $13 million, and imputed interest approximately $4 million. This forecast reflects XFMedia’s current and preliminary view, which is subject to change.

Other Corporate Developments

Over the first quarter of 2008, the Company continued to implement its share buyback program, buying back $2.9 million for 1,017,118 ADSs. These shares will be canceled in accordance with Cayman company law.

We also issued $30 million in convertible preferred shares to Yucaipa in February, increasing Yucaipa’s total ownership of our shares from around 6% to 12% assuming full conversion. The convertible preferred shares are subject to a one year lock-up period before they can be converted into common shares or ADSs at a conversion price of $6.00 per ADS. The increased investment from a world-class, long-term investor like Yucaipa is a vote of confidence in both the fundamentals and growth prospects of our Company.