Acorn International, Inc. :ATV-US: Earnings Analysis: Q2, 2017 By the Numbers : October 10, 2017

Acorn International, Inc. reports financial results for the quarter ended June 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 4.63 million, Net Earnings of USD -3.41 million.
  • Gross margins widened from 57.21% to 57.32% compared to the same period last year, operating (EBITDA) margins now -80.80% from -106.78%.
  • Earnings declined although operating margins improved from -106.78% to -80.80%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 4.63 5.89 5.78 7.39 3.78
Revenue Growth (%YOY) 22.52 -14.27 -33.94 -46.76 -81.62
Earnings (mil) -3.41 5.9 -7.68 -1.74 5.61
Earnings Growth (%YOY) -160.76 -18.14 -15.14 82.1 140.76
Net Margin (%) -73.59 100.12 -132.85 -23.51 148.41
EPS -0.87 1.49 -2.13 -0.44 1.42
Return on Equity (%) -3.84 5.92 -7.32 -1.56 4.97
Return on Assets (%) -11.78 17.68 -22.29 -4.83 15.45

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, ATV-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if ATV-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -21.38% and earnings by -157.79% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 57.21% to 57.32%, while operating margins improved from -106.78% to -80.80% over this period. For comparison, gross margins were 58.27% and EBITDA margins -23.10% in the immediate last period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ATV-US’s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days are now 427.69 days compared to 672.39 days for the same period last year.

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from -106.78% to -80.80%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 225.57% to -77.44%.

EBIT Margin History
PreTax Margin History

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Company Profile

Acorn International, Inc. operates as a marketing and branding company. It engages in developing, promoting, and selling a portfolio of proprietary-branded products, as well as new products from established third parties. The company operates through Direct-Sales Platforms as well as a Nationwide Distribution Network. The Direct-Sales Platform segment involves marketing and selling products directly to consumers in China through outbound marketing platform and Internet sales platform. The Nationwide Distribution Network segment covers distributors and retail outlets in all Chinese provinces. Acorn International was founded by Robert Walter Roche and Dong Jie Yang in 1998 and is headquartered in Shanghai, China.

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