Trunkbow Announces Third Quarter 2011 Financial Results

BEIJING, Nov. 14, 2011 /PRNewswire-Asia-FirstCall/ -- Trunkbow International Holdings Limited (NASDAQ: TBOW) ("Trunkbow" or the "Company"), a leading provider of Mobile Payment Solutions ("MPS") and Mobile Value Added Services ("MVAS") in the PRC, today announced financial results for its third quarter ended September 30, 2011.

Third Quarter and Recent Financial and Business Highlights

• Gross revenue increased 98.1% year-over-year to $5.8 million, from $2.9 million in the third quarter of 2010.
  • MPS gross revenue totaled $2.1 million, compared with $2.6 million in the third quarter of 2010.
  • MVAS gross revenue increased to $3.7 million, compared with $0.3 million a year ago.
• Gross profit increased 103.8% year-over-year to $4.3 million, from $2.1 million in the third quarter of 2010; gross margin was 77.2%, compared with 72.9% in the third quarter of 2010.
• Net income increased 57.6% year-over-year to $0.83 million, or $0.02 per diluted share, compared with $0.53 million, or $0.02 per diluted share in the third quarter of 2010.
• As of September 30, 2011, cash and cash equivalents totaled $9.5 million, compared with $10.3 million as of December 31, 2010.
• Launched first MPS platform with China Mobile in Hebei Province.
• Expanded presence with China Unicom through installation of an MPS platform in Hubei Province.
• Entered strategic partnership with China Telecom for nationwide rollout of Bestpay MPS application to the carrier's 28 million 3G subscribers.
• Signed agreement with group of online retailers to enable the purchase of movie tickets at over 270 theaters using the Bestpay application.
• Reiterated full-year 2011 guidance of approximately $32.3 million in revenue and $17.6 million in net income, representing 30% growth compared with 2010.

"We achieved a great deal in the third quarter strategically, operationally and financially, generating significant year-over-year improvements in our key operating metrics and taking important steps to position the Company for long-term growth and success. During the third quarter, we reached a number of milestones in our MPS business, adding new platforms in strategic markets and increasing our POS installed base to 24 provinces, including our first platform installation with China Mobile, the nation's largest carrier, with more than 50% of the market. Due to our conservative accounting policies, we have not yet recognized revenue for five of these installations, giving us great confidence in our next two quarters outlook," said Mr. Qiang Li, Chief Executive Officer of Trunkbow. "Through our partnership with China Telecom for the nationwide rollout of the Bestpay application to its 28 million 3G subscribers, we have significantly strengthened our merchant acquisition capabilities and brand awareness throughout the country. In addition to utility and telephone bill payments, as well as online gaming currency and lottery tickets, Bestpay users can safely and easily purchase movie tickets at over 270 theaters directly from their mobile phones, and we are currently negotiating with a number of other potential retail partners to further broaden Bestpay's footprint and drive the continued growth of our best-in-class MPS solutions.

"Creating an end-to-end mobile payment ecosystem for consumers is a key element of our growth strategy and we are making steady progress in this regard. By building out a comprehensive merchant network, we believe we can engage consumers on a broad scale and establish a lasting presence in the mobile payment arena. We are negotiating with a number of brick and mortar merchants, including retailers and quick-service restaurant chains, about adopting Bestpay. Ultimately, our goal is to make MPS more than another payment option or a convenient novelty, but a tool that changes the way consumers shop and a meaningful way for retailers to build brand loyalty. This market holds tremendous potential, and we are poised to be a leader in the space thanks to our early-mover advantage, partnerships with global market leaders and strong IP portfolio and technical capabilities."

Third quarter 2011 Results

Gross revenue in the third quarter of 2011 was $5.8 million, an increase of 98.1% year-over-year, compared with gross revenue of $2.9 million in the same period a year-ago. Revenue from MVAS increased to $3.7 million in the third quarter of 2011, compared with $0.3 million in the year-ago period. The increase in MVAS revenue was primarily related to the continued adoption of the Company's mobile business card product. Revenue from the Company's MPS offering totaled $2.1 million, compared with $2.6 million in the third quarter of 2010. The year-over-year decline in revenue was primarily attributable to our shift of revenue model from one time sales to revenue sharing, and also delays in the completion of certain platform installations and the recognition of revenue related to these projects.

Cost of revenue in the third quarter of 2011 was $1.3 million, compared with $0.8 million in the same period of 2010. The increase in cost of revenue was primarily driven by increased system integration work, which carries a higher cost of sales due to increased hardware costs.

Gross profit in the third quarter of 2011 increased 103.8% year-over-year to $4.3 million, from $2.1 million in the third quarter of 2010. As a percentage of gross revenue, gross margin was 77.2% in the third quarter of 2011, compared with 72.9% in the year-ago period. The increase in gross margin was primarily attributable to increased profitability from the Company's MVAS business.

Operating expenses in the third quarter of 2011 were $3.2 million, an increase of 106.7% year-over-year, driven primarily by increased selling expenses to support the Company's direct sales and merchant acquisition efforts, increased general and administrative expenses related to being a US public company, and increased research and development costs associated with new product development efforts.

Operating income in the third quarter of 2011 was $1.1 million, an improvement of 95.9% over the $0.6 million reported in the same period last year. The increase in operating profit for the quarter was primarily related to the increase in revenue and gross margin, partially offset by the increase in operating expenses, as compared with the third quarter of 2010.

Net income attributable to Trunkbow was $0.8 million in the third quarter of 2011, an increase of 57.6% from the comparable period in 2010. Net margin was 14.9% in the third quarter of 2011, compared with 18.1% in the third quarter of 2010. Earnings per basic and diluted share in the third quarter of 2011 were $0.02, based on basic and diluted shares outstanding of 36.6 million and 37.7 million, respectively. This compares with $0.02 per basic and diluted share, based on basic and diluted shares outstanding of 32.5 million, in the year-ago period.

Balance Sheet and Cash Flow

As of September 30, 2011, the Company had $9.5 million in cash and cash equivalents, compared with $10.3 million as of December 31, 2010. The decrease in cash and cash equivalents was primarily due to an increase in inventories, accounts receivable, advances to suppliers, property and equipment, and land use right, partially offset by the proceeds from the Company's Initial Public Offering completed on February 8, 2011. As of September 30, 2011, the Company had working capital of $56.7 million and total shareholders' equity of $76.7 million.  Accounts receivable on September 30, 2011 totaled approximately $36.6 million. As of November 14, 2011, the Company had collected approximately $5.17 million of these outstanding receivables.

Business Outlook

Trunkbow reiterated its 2011 financial guidance of approximately $32.3 million in revenue and $17.6 million in net income, representing 30% top- and bottom-line growth over 2010. The Company expects that this growth will be largely the result of the continued expansion of the MPS and MVAS markets, as it broadens its presence in new provinces, increases its presence within China's leading mobile carriers and launches its technology in strategically targeted international markets.

Mr. Li concluded, "Based on the projects we have completed to date and our discussions with carriers, we expect to achieve significant top- and bottom-line improvements in the fourth quarter as we collect outstanding receivables and continue to add new business. In addition, we are beginning to see an increase in recurring revenue in our MPS business, primarily from growth in function fees paid by subscribers for use of the services. In order to drive adoption of the technology, carriers have offered the services for free or at deeply discounted rates on a trial basis. These trials are beginning to wind down for many of the early adopters, and subscriber churn has been low thus far, which suggests consumer willingness to pay for the convenience, security and flexibility that MPS offers. With Bestpay now available nationwide and a growing installed base of physical POS terminals, we expect this recurring revenue to continue growing through a combination of increased function fees as new users subscribe and through transaction-based revenue as consumers increasingly embrace their smartphones as a viable payment tool for both physical and virtual goods and services. Our markets are sizeable and our strategy is sound, and we believe that Trunkbow remains in the early stages of realizing its potential as a leader in the nascent MPS market."

Conference Call

The Company will host a conference call to discuss financial results for the third quarter 2011 on November 14, 2011 at 8:00 a.m. EST. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1 (718) 354-1231. International callers should dial +65 6723-9381. The pass code required is 22600413.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on November 14, 2011. To access the replay, please dial +1 (718) 354-1232, international callers dial +61 (2) 8235-5000, and enter the pass code 22600413.

About Trunkbow

Trunkbow International Holdings (NASDAQ: TBOW) is a leading provider of Mobile Payment Solutions ("MPS") and Mobile Value Added Solutions ("MVAS") in PRC. Trunkbow's solutions enable the telecom operators to offer their subscribers access to unique mobile applications, innovative tools, value-added services that create a superior mobile experience, and as a result generate higher average revenue per user and reduce subscriber churn. Since its inception in 2001, Trunkbow has established a proven track record of innovation, and has developed a significant market presence in both the Mobile Value Added and Mobile Payment solutions markets. Trunkbow supplies to all three Chinese mobile telecom operators, as well as re-sellers, in several provinces of China. For additional information please visit http://www.trunkbow.com

Safe Harbor Statement

This press release contains forward-looking statements that reflect the Company's current expectations and views of future events that involve known and unknown risks, uncertainties and other factors that may cause its actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.  Such forward looking statements involve known and unknown risks and uncertainties, including but not limited to uncertainties relating to the Company's relationship with China's major telecom carriers and its resellers, competition from domestic and international companies, changes in technology, contributions from revenue sharing plans and general economic conditions. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs.  You should understand that the Company's actual future results may be materially different from and worse than what the Company expects. Information regarding these risks, uncertainties and other factors is included in the Company's annual report on Form 10-K and other filings with the SEC.

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SOURCE Trunkbow International Holdings Limited