Global Sources Ltd. (NASDAQ:GSOL)
Q4 2012 Earnings Call
March 13, 2013, 08:00 am ET
Cathy Mattison - Lippert / Heilshorn & Associates
Merle Hinrichs - Executive Chairman
Connie Lai - CFO
Good day ladies and gentlemen and thank you for standing by. Welcome to the Global Sources Fourth Quarter and Year-End 2012 results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions)
I would now like to turn the conference over to our host, Ms. Cathy Mattison, please go ahead.
Thank you operator and I would like to thank everyone for joining us today for the Global Sources fourth quarter and year-end 2012 earning conference call. Speaking on the call today are, Merle Hinrichs, Executive Chairman and Connie Lai, Chief Financial Officer.
If anyone has not yet received the earnings press release, it is now available at the company’s website at globalsources.com. If you would like to be added to our distribution list or if you would like additional information about Global Sources, you may call LHA at 415-433-3777.
A telephone replay of this call is scheduled to be available until March 21, 2013 and the dialing instructions are included in the press release. The replay is also scheduled to be available on the Investor Relations page of the company’s website for at least 30 days.
Before I turn the call over to management, let me remind you that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today.
These risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission. Global Sources does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Management has provided certain measures that are not in accordance with International Financial Reporting Standards or IFRS. Management believes non-IFRS metrics are useful measures of operations and provides IFRS to non-IFRS reconciliation table at the end of the earnings press release. Global Sources defines non-IFRS net income as net income excluding non-cash SBC expense or credit, amortization of intangibles as it relates to certain equity compensation plans, gains or losses on acquisitions and investments net of transaction costs and related tax expenses and/or impairment charges, for all historical and future references to non-IFRS metrics.
Non-IFRS EPS is defined as non-IFRS net income divided by the weighted average of diluted common shares outstanding. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation and impairment of goodwill and intangible assets. Management would like to remind you that the non-cash stock based compensation charge is a charge to the income statement and a corresponding credit to additional paid in capital, hence there is no impact on shareholders’ equity.
I would also like to remind you about Regulation FD restrictions, the company’s official spokespeople to the investment community are, Merle Hinrichs and Connie Lai.
And now I would like to turn the call over to Mr. Hinrichs. Please go ahead sir.
Thank you and thank you for joining our call tonight. In the fourth quarter, our performance reflected the challenging market environment. We reported revenue of $66.9 million and achieved IFRS and non-IFRS earnings per share of $0.31 and $0.37 respectively. We also maintained a strong balance sheet with no debt.
For our exhibitions held in Hong Kong in the fourth quarter, we had more than 7,100 booths, a total of 14 shows were held at the AsiaWorld-Expo. Especially, given the market conditions, we were quite satisfied with the overall attendance and the level of buying activity. Our electronic show was the most notable performer, fully occupying the venue with more than 4,000 booths. At our shows, buyers come from around the world to meet quality suppliers and manufacturers from Mainland China and throughout the region.
In total, more than 61,000 buyers attended our shows from a 153 countries and territories. Many of these buyers represented very large importers including and I will name just a few, Best Buy Dollar General, Levi’s, Logitech, Office Depot, Philips, Proctor & Gamble, Samsung, Toys"R"Us and Woolworths.
In the emerging markets, we held our third show in Johannesburg with more than 800 exhibitor booths. Our private sourcing events continued to distinguish us in the market and demonstrated the tremendous buying power to which we introduced our clients. In 2012, private sourcing events were held for some 320 sourcing teams. These events created more than 1,500 high quality one-on-one selling opportunities for our customers.
Now I will turn the call over to Connie, and after which I will conclude with a market overview and our vision for 2013. Connie?
Thank you, Mr. Hinrichs. I will now review our financial results for the fourth quarter of 2012 as compared to the fourth quarter of 2011. Total revenue was $66.9 million as compared to $74 million. Online revenue was $28.1 million as compared to $30.5 million.
Exhibitions revenue was $32.7 million as compared to $35.5 million. Print service revenue was $4.2 million as compared to $6.4 million. Impacting our fourth quarter result was our Mumbai show, which moved to the third quarter of this year from the fourth quarter of last year.
Total operating expenses were $56.7 million as compared to $61.8 million. Interest income was $312,000 as compared to $161,000. IFRS net income was $11.2 million or $0.31 per diluted share as compared to $11.9 million or $0.33 per diluted share. Non-IFRS net income was $13.3 million or $0.37 per diluted share as compared to $13.6 million or $0.38 per diluted share.
Adjusted EBITDA for the quarter was $14.4 million as compared to $15.2 million. Now for the full year ended of December 31, 2012 as compared to the full year ended December 31, 2011. Revenue was $231.7 million as compared to $225.1 million. IFRS net income was $32.2 million or $0.90 per diluted share as compared to $29.5 million or $0.83 per diluted share.
Non-IFRS net income was $37.1 million or $1.04 per diluted share as compared to $33.7 million or $0.95 per diluted share. Adjusted EBITDA was $47.9 million as compared to $42 million.
Now onto our balance sheet as of December 31, 2012 as compared to December 31, 2011. Cash and securities as of December 31, 2012, totaled $116.3 million as compared to $97.9 million.
Our short term deferred income and customer prepayments were $84.5 million as compared to $101.8 million. Total assets as of December 31, 2012 were $311.1 million as compared to $276.3 million. Also, we continue to have no short-term or long-term bank debt. Day sales outstanding were seven day as compared to eight days a year ago.
We continue to gain shareholder value by going out with retained earnings. Retained earnings at December 31, 2012 were $158.9 million as compared to $126.7 million. Total shareholder equity was $165.9 million as compared to $129.7 million.
Now onto our guidance for the first half of 2013, under IFRS for the first half of 2013, ending June 30, 2013 our revenue is expected to be between $87 million and $89 million as compared to $105.7 million for the first half of 2012. IFRS EPS is expected to be between $0.49 and $0.53 per diluted share as compared to $0.46 per diluted share in the first half of 2012.
Stock-based compensation and amortization of intangible assets as it related to certain equity compensation plans and gain on sales of investment properties, net of transaction costs and related tax expenses are estimated to be a credit of $0.31 per diluted share for the first half of 2013.
Now IFRS EPS is expected to be between $0.18 and $0.22 per diluted shares as compared to $0.41 per diluted shares in the first half of 2012. The shares used in the diluted net income per share calculation for the first half of 2013 were approximately $36.1 million as compared to approximately $35.7 million for the first half of 2012.
Adjusted EBITDA is expected to be between $10.7 million and $12.9 million as compared to $18.2 million in the first half of 2012. We recently concluded a few real estate transactions that improved our balance sheet of our real estate holdings.
We are selling underutilized property that has appreciated substantially which is expected to provide the company with significant capital gains. We are also purchasing properties that we currently list for our operation of use which reduced our exposure to rental increase.
Looking ahead, we are committed to maintain profitability even while we expect margins to decline in the short-term; our objective remains to maintain margins over the long-term evaluating opportunities to improve efficiency across various functions while balancing cost control with our investment in future growth. These strategies are particularly important as the market conditions are expected to impact our business well into 2013.
And now, I will turn the call back to Mr. Hinrichs.
Thank you, Connie. I would like to update you on our direction and outlook. I'll begin by addressing our core business of connecting buyers worldwide with suppliers in Asia. Everything in our business begins with the buyers.
We are committed to helping buyers identify the right suppliers and over the past year, we've conducted over 9000 face-to-face interviews with buyers to keep ahead of the evolving needs. The clear common desire was how can Global Sources help me filter through the overwhelming quantity of export suppliers online? Finding lots of potential suppliers is not the problem.
The problem is finding the right suppliers. For buyers, here are the kinds of concerns about potential suppliers that keep them up at night. Are the suppliers who they claim to be? Have they made an export of the products they are offering or do they have a picture of someone else’ product? Or do they have suitable manufacturing facilities? Or will their quality meet my expectations? And will they follow through on their commitments?
We have numerous initiatives underway to address these needs and to help buyers find reliable partners. Over the coming year, we are planning to introduce new types of content, additional filters, modifications to our search functionality and user interface changes that will present our content contextually and distinctively.
We are also planning to introduce new services at our shows to help buyers connect with the most suitable potential suppliers. However, today I want to focus on our initiatives to further integrate our trade shows and our online media.
First a little background on the importance of trade shows to our industry. Online marketplaces have received much of the spotlight and most of the headlines over the last decade or so. However, export, marketing spending on booth space at sourcing shows in Asia exceeds spending on online market places. The importance of shows is not a surprise to most professional buyers because they consider online services to be absolutely essential, but absolutely not sufficient.
With marketing and spending on shows being far greater than online it follows we believe that business activity related to shows maybe similarly large than what happens purely in the online environment. Accordingly, it is also follows that the buyers who travel to sourcing shows in Asia have more buying power than their online only peers. All of this has led us to the conclusion that an ideal service would be a blending of online and trade shows. As a result, we have an initiative called find them and meet them with three objectives. Those objectives are to integrate the best of online media with the best of trade shows.
Second is to overcome the limitations of the online only environment and two to develop content, user interfaces and other innovations to simplify and enhance sourcing and marketing. Here are few examples of what our initiatives mean to buyers. Buyers who come to the shows want to maximize the productivity of their visits. Accordingly, before the shows, we have online services that enable them to see products that are going to exhibited and to see the profiles of the exhibitors.
Buyers who can’t come to the show can go online after the show to search for exhibitors and see the new products that were shown at their booths and to view their actual booths. And in sharp contrast with online only service, we enable buyers to find suppliers and then meet them, either at our large shows in Hong Kong each spring and fall or at our regional shows in Miami, Dubai, Mumbai, Johannesburg and Sao Paolo.
Now let me address what our trade show assets mean to suppliers. To a supplier the foundation of any marketing campaign is a value of the buying community reached, the trade show attendees, which include many trade show fans who rarely never use online services are primary segment of our buyer community that accounts for a major portion of the buying power.
In addition to their buying power these verified buyers are even more attractive to marketers because they are end market buyers, which means they are actively sourcing. Our registration systems and our personal face-to-face access to trade show attendees enable us to engage these buyers with our full range of media, and there by connect our advertisers and exhibitors with a highly qualified, influential and exclusive buyer community.
In summary, trade shows are extremely significant and account for a large portion of trade. We have a clear and important advantage in this regard relative to online only service, and we have a unique and distinctively valuable service that is integrating and combining the best of shows with the best of online, and we intend to continue expanding this advantage to the benefit of our buyer and supplier communities.
In addition to our export focus business, we have been steadily building our presence in the domestic B2B market in Mainland China, and plan to continue in this direction. Examples of meaningful progress are our China International Optoelectronic Exhibition and our Fashion [SZ] [ph] Show in [San Juan] which enables Chinese and international fashion brands to develop their business in Mainland China.
Both shows have been financially successful and they give us a platform for further development into attractive sectors. Another related element of our strategy is to look for opportunities to acquire complimentary businesses and product lines. In 2013, we see a challenging environment with limited visibility.
On the supply side there has been quite an upheaval and shake out during the year. There is a large group of exporters who are doing quite well, and there is a large group who are doing very poorly. This latter group has had a very hard time adapting to higher cost structures and according to our estimates, the total number of advertisers in the market is declined by more than 10% compared to year ago.
In addition overseas demand for many suppliers is soft and uncertain; this in particularly through of company and selling to the EU and Japan for example. There are also some important industry sectors for us that are weak, including the LED industry which is a big part of our solar and energy savings products vertical. The third factor is that we had some important sales initiatives that did not achieve our objectives. We have modified these programs and expect to continue seeing a negative impact in the coming quarters.
As most of you know with our 43 year history the challenging economic and market situations are not new to global sources. We have a strong set of products and services and there are very large number of buyers and suppliers who need our services. Although many suppliers are conservative now as the market recalibrates we expect our business to rebound.
Our strategy is to continue investing for the long term, while maintaining the flexibility of our model and being prudent about the level of fixed costs required for expansion. In summary, we have a highly experienced management team that is focused on enhancing productivity, maintaining our strong balance sheet, and building our competitive position.
And with that I would now like to open the call for questions. Operator?
(Operator Instructions) I would now like to turn the call back to management for any closing remarks.
Okay, thank you Richard. And I wish to thank everyone that has joined the call today. We are available for your questions, so please do and should you have questions later do let us know. Thank you very much for your attendance and we look forward to our next webcast and next quarter. Thank you and good evening.
Ladies and gentlemen that does conclude the Global Sources fourth quarter and year end 2012 results conference call. We'd like to thank you for your participation and you may now disconnect.
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