Acorn International Reports First Quarter 2020 Financial Results
SHANGHAI, April 30, 2020 /PRNewswire/ -- Acorn International, Inc. (NYSE: ATV) ("Acorn" or the "Company"), a leading marketing and branding company in China, today announced its preliminary unaudited financial results for the quarter ended March 31, 2020.
First Quarter Estimated Results Highlights
-- Net revenues decreased 7.2% year-over-year in Q1 2020 to US$8.0 million. -- Gross profit decreased 12.3% year-over-year in Q1 2020 to US$5.5 million. -- Gross margin was 68.8% in Q1 2020, compared to 72.8% in Q1 2019. -- Loss from continuing operations was US$0.3 million in Q1 2020, compared to income from continuing operations of US$0.6 million in Q1 2019. -- Net income was US$2.7 million in Q1 2020 as compared to net income of US$4.8 million in Q1 2019. In Q1 2020, the Company recorded a $3.0 million gain from the sale of shares of E-Money Holding Co., Ltd. ("E-Money") (formerly known as Shanghai Yimeng Software Technology Co., Ltd.). The year-ago period includes a US$3.8 million gain on the sale of the Company's former principal office in Shanghai to a third party.
"Our results for the first quarter of 2020 reflect the impact of the COVID-19 crisis on our business. As previously disclosed, although we have seen some increased demand for certain products as more Chinese consumers are shopping from home, we have also experienced some demand reduction, supply-side disruption and delivery challenges caused by COVID-19," said Mr. Jacob A. Fisch, CEO and President of Acorn International.
Preliminary Financial Results for the First Quarter of 2020:
Total net revenues were US$8.0 million in the first quarter of 2020, down 7.2% from US$8.7 million in the first quarter of 2019, primarily due to the impact of COVID-19 as well as lower revenues of oxygen-generating products related primarily to the sale of the Company's subsidiary Zhuhai Acorn Electronic Technology Co., Ltd.
Cost of sales in the first quarter of 2020 was US$2.5 million, up 6.5% from US$2.4 million in the first quarter of 2019. The increase was primarily attributable to the inclusion of Acorn Digital Services in revenues and cost of sales in the first quarter of 2020 (in the year ago period, this business segment was included in other operating income), and a higher proportion of Acorn Fresh products, which have a slightly lower margin than Babaka branded products, in the product mix.
Gross profit in the first quarter of 2020 was US$5.5 million, down 12.3% from US$6.3 million in the first quarter of 2019. Gross margin was 68.8% in the first quarter of 2020, compared with 72.8% in the first quarter of 2019.
Total operating expenses in the first quarter of 2020 were US$5.8 million, up 0.9% from US$5.7 million in the first quarter of 2019.
Loss from continuing operations was US$0.3 million in the first quarter of 2020, as compared to income from continuing operations of US$0.6 million in the first quarter of 2019.
Other income was US$3.0 million in the first quarter of 2020, primarily due to a US$3.0 million gain from the sale of shares of E-Money. The year-ago period includes a US$3.8 million gain on the sale of the Company's former principal office in Shanghai to a third party.
Net income from continuing operations was US$2.8 million in the first quarter of 2020. This compares to net income from continuing operations of US$4.9 million in the first quarter of 2019. Net loss from discontinued operations, which reflects the sale of a majority stake in the Company's HJX electronic learning products business to a third-party investor and operator in 2017 as well as the Company's call center operations which were discontinued in the third quarter of 2019 (refer to "Discontinued Operations" discussion below), was US$28 thousand in the first quarter of 2020, compared to net loss from discontinued operations of US$0.1 million in the first quarter of 2019.
Net income attributable to Acorn was US$2.7 million in the first quarter of 2020. This compares to net income attributable to Acorn of US$4.8 million in the first quarter of 2019.
As of March 31, 2020, Acorn's estimated cash and cash equivalents, with restricted cash, totaled US$13.9 million. This compares to cash and equivalents, with restricted cash, of US$13.5 million as of December 31, 2019.
Discontinued Operations
In 2017, Acorn reached an agreement to sell a majority stake in its HJX electronic learning products business ("HJX Business") to a third-party investor and operator, allowing the Company to focus on its core business. Acorn maintains a 37.5% stake in a joint venture established with this third party. As a result of this transaction, the Company is required by applicable accounting rules to treat the historical operations of the wholly-owned HJX Business as discontinued operations and the minority stake in the HJX Business as equity in losses of affiliates in the consolidated statements of operations for all periods presented, subject to the consolidation of the HJX Business into the joint venture entity.
In the third quarter of 2019, the Company completed closing of its call center in Wuxi, China. As a result, the Company is required by applicable accounting rules to treat the historical operations of the call center as discontinued operations for all periods presented.
About Acorn International, Inc.
Acorn International is a leading marketing and branding company in China, leveraging a twenty-year direct marketing history to monetize brand IP, content creation and distribution, and product sales, through digital media in China. For more information visit www.acorninternationalgroup.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "anticipates," "believes," "estimates," "strives," "expects," "future," "going forward," "intends," "outlook," "plans," "target," "will," and similar statements. Such statements are based on management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the Company's control, including the extent and duration of the COVID-19 crisis, which may cause the Company's actual results, performance, or achievements to differ materially from those in these preliminary financial results and the forward-looking statements. Further information regarding these and other risks, uncertainties, or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
Other factors that could cause forward-looking statements to differ materially from actual future events or results include risks and uncertainties related to: the Company's ability to successfully improve or introduce new products and services, including to offset declines in sales of existing products and services; the Company's ability to stay abreast of consumer market trends and maintain the Company's reputation and consumer confidence; the Company's ability to execute and maintain a successful market strategy; potential unauthorized use of the Company's intellectual property; potential disruption of the Company's manufacturing processes; increasing competition in China's consumer market; the Company's U.S. tax status as a passive foreign investment company; and general economic and business conditions in China, as well as potential friction between the U.S. and China associated with their current trade dispute and related factors, which could potentially impact Acorn. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2018 annual report on Form 20-F filed with SEC on April 30, 2019. For a discussion of other important factors that could adversely affect the Company's business, financial condition, results of operations and prospects, see "Risk Factors" beginning on page 9 of the Company's 2018 annual report on Form 20-F filed with the SEC on April 30, 2019. The Company's actual results of operations for the first quarter of 2020 are not necessarily indicative of its operating results for any future periods. Any projections in this release are based on limited information currently available to the Company, which is subject to change. Although such projections and the factors influencing them will likely change, the Company will not necessarily update the information. Such information speaks only as of the date of this release.
Statement Regarding Unaudited Financial Information
The unaudited financial information set forth above is preliminary and subject to potential adjustments. Adjustments to the consolidated financial statements may be identified when audit work has been performed for the Company's year-end audit, which could result in significant differences from this preliminary unaudited condensed financial information.
Contact: Acorn International, Inc. Compass Investor Relations Mr. Martin Key Ms. Elaine Ketchmere, CFA Phone +86-21-5151-8888 Phone: +1-310-528-3031 Email: ir@chinadrtv.com Email: Eketchmere@compass-ir.com --- www.chinadrtv.com www.compassinvestorrelations.com ---
- Financial Tables Follow -
ACORN INTERNATIONAL, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In US dollars) For the three months ended 2019/03/31 2020/03/31 (Unaudited) (Unaudited) --- Net revenues Direct sales 7,204,182 $6,894,582 Distribution sales 1,449,322 1,138,259 Total net revenues 8,653,504 8,032,841 Cost of revenues Direct sales -1,836,452 -2,097,431 Distribution sales -519,897 -411,327 Total cost of revenues -2,356,349 -2,508,758 Gross profit Direct sales 5,367,729 4,797,151 Distribution sales 929,425 726,932 Total gross profit 6,297,154 5,524,083 72.8% 68.8% Operating (expenses) income Other selling and marketing expenses -3,868,281 -4,089,335 General and administrative expenses -2,452,609 -2,138,118 Other operating income, net 580,576 434,297 Total operating (expenses) income -5,740,314 -5,793,156 Income (loss) from continuing operations 556,841 -269,073 Interest expense - -21,378 Interest income 82,361 46,017 Other income (expenses), net 4,573,849 3,048,180 Income (loss) from continuing operations before income taxes 5,213,051 2,803,746 and equity in losses of affiliates Income tax - current -307,585 - Income tax - deferred 0 -36,812 Income (loss) from continuing operations before equity in 4,905,466 2,766,934 losses of affiliates Discontinued operations : Income (loss) from discontinued operations -110,673 -27,887 Income (loss) from discontinued operations before equity in -110,673 -27,887 losses of affiliates Equity in losses of affiliates Net income (loss) 4,794,793 2,739,047 Net income (loss) attributable to non-controlling interests 1,738 -211 Net income (loss) attributable to Acorn International, Inc. $4,796,531 $2,739,258
ACORN INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In US dollars) 2019/12/31 2020/03/31 --- Cash and cash equivalents $13,461,368 $13,825,003 Restricted cash 75,543 74,918 Accounts receivable, net 3,611,177 4,731,741 Inventory, net 3,042,762 2,528,777 Other prepaid expenses and current assets 7,112,042 9,837,301 Loan receivable 3,754,735 3,776,552 Held-for- sale assets 468,191 466,431 Assets to be abandoned 116,559 Current assets 31,642,377 35,240,722 Property and equipment, net 559,964 544,058 Investments in affiliates - 91,309 Available- for-sale securities 25,681,848 20,705,511 Loan to related party 14,804,052 14,698,550 Right of use assets 1,785,194 1,533,427 Deferred tax assets, net 4,997,111 4,963,568 Other long- term assets 693,518 732,396 Total assets $80,164,064 $78,509,540 Accounts payable 3,172,263 2,141,762 Dividend payable 133,405 131,206 Accrued expenses and other current liabilities 6,564,390 8,773,664 Lease Liability 881,349 858,089 Income taxes payable 1,648,520 1,615,086 Deferred revenue 68,798 42,338 Liabilities to be abandoned 222,578 - Current liabilities 12,691,303 13,562,145 Lease Liability 1,032,645 814,786 Deferred tax liability, net Total liabilities 13,723,948 14,376,932 Ordinary shares 918,844 918,844 Additional paid-in capital 117,445,969 117,445,969 Statutory reserve 8,350,141 8,350,141 Retained earnings (77,913,299) (75,174,041) Beginning balance (87,749,530) (77,913,299) Net income (loss) attributable to Acorn 9,836,231 2,739,258 Appropriation of statutory reserve fund Accumulated other comprehensive income 45,635,771 40,594,179 Treasury stock, at cost (28,320,324) (28,320,324) Total Acorn International, Inc. shareholders' 66,117,102 63,814,768 equity Noncontrolling interests 323,014 317,841 Total equity 66,440,116 64,132,609 Total liabilities and equity $80,164,064 $78,509,540
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SOURCE Acorn International, Inc.