Global Sources Ltd. (Bermuda) (NASDAQ:GSOL)
Q4 2013 Earnings Conference Call
March 13, 2014 08:00 AM ET
Cathy Mattison - LHA
Merle Hinrich - Executive Chairman
Connie Lai - CFO
Welcome to the Global Sources’ Fourth Quarter 2013 Results Conference Call on March 13, 2014. Throughout today’s presentation, all participants will be in a listen-only mode. After the presentation, there will be the opportunity to ask questions. (Operator Instructions).
I will now hand the call over to Cathy Mattison of LHA. Please go ahead.
Thank you, operator and I’d like to thank everyone for joining us today for the Global Sources’ fourth quarter and year end 2013 conference call. Speaking on the call today are Merle Hinrich, 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 20, 2014 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 tables 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, profits or losses on acquisitions and investments, net of transaction costs and related expenses; and/or impairment charges net of related taxes 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, impairment of goodwill and intangible assets, and profits or losses on acquisitions and investments net of transaction cost and related tax expenses. 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 Hinrich and Connie Lai.
And now, I would like to turn the call over to Mr. Hinrich. Please go ahead, sir.
Thank you for joining our call today. In the fourth quarter we reported revenue of $60.1 million and achieved an IFRS and non-IFRS earnings per share of $0.14 and $0.30 respectively. We closed out the year with a strong balance sheet and no debt. In 2013 we weathered several challenges that substantially affected our core export focused businesses. The primary destinations for our customers’ exports are Europe and the United States. The demand situation in Europe remained weak and while demand for consumer products improved somewhat in the United States, pricing was very aggressive.
On the supply side exporters faced various challenges, including the government’s increased focus on the domestic market consumption, credit constraints, cost increases in many areas of their businesses and hike in the competition. The effect of all of these adverse factors caused our suppliers, customers, to be conservative with their marketing budgets. As a result our online performance negatively impacted our 2013 financial results. Our online business began improving later in the fourth quarter and we are encouraged so far in 2014.
Our tradeshow businesses had a solid year and we were pleased with the overall attendance, especially given the challenging consumer product retail situation in many markets. In the fourth quarter we had our fall China Sourcing Fairs in Hong Kong. We had more than 6800 booths at the Asia World Expo and the buyer attendance exceeded 63,000 from more than 150 countries and territories. Many of these buyers represented very large importers including, and to name only a few, American Gifts, Best Buy, Dot 4, Lenovo, Li & Fung, Phillips, Samsung, Sears, Sime Darby, Stables [ph] and More More [ph].
Our electronic show was the most notable performer fully occupying the venue with more than 4,100 groups and drawing record attendance. In the emerging markets China Sourcing Fairs were held in Johannesburg and New Delhi. Our private sourcing events continued to distinguish us in the market and demonstrate the tremendous buying power through which we introduced our clients. In 2013, private resourcing events were held from more than 250 sourcing teams from over 115 buying organizations. These events created more than 1,700 high quality one on one selling opportunities for our customers.
Now I will turn the call over to Connie, after which I will conclude with a market overview and our vision for 2014. Connie?
Thank you Mr. Hinrich. I will now review our financial results for the fourth quarter of 2013, as compared to fourth quarter of 2012. Total revenue was $60.1 million, as compared to $66.9 million. Online revenue was $21.7 million, as compared to $28.1 million. Exhibitions revenue was $33.2 million, as compared to $32.7 million. Print service revenue was $3.3 million as compared to $4.2 million.
Total operating expenses were $56.2 million as compared to $56.7 million. Interest income was $384,000 as compared to $312,000. IFRS net income was $5 million or $0.14 per diluted share, as compared to $11.2 million or $0.31 per diluted share in the fourth quarter of 2012.
IFRS net income for the fourth quarter of 2013 increased a write down, net of related taxes of approximately $5.1 million goodwill impairment charge related to the FashionSZshow. Non-IFRS net income was $10.9 million or $0.30 per diluted share, as compared to $13.3 million or $0.37 per diluted share. Adjusted EBITDA for the quarter was $13.1 million, as compared to $14.4 million.
Now for the full year ended December 31, 2013 as compared to the full year December 31, 2012, revenue was $197.5 million as compared to $231.7 million. IFRS net income was $32.7 million or $0.91 per diluted share, as compared to $32.2 million, or $0.90 per diluted share. Non-IFRS net income was $30.2 million, or $0.84 per diluted share, as compared to $37.1 million or $1.04 per diluted shares. Adjusted EBITDA was $40.4 million, as compared to $47.9 million.
Now, on to our balance sheet as of December 31, 2013 as compared to December 31, 2012. Cash and securities as of December 31, 2013 totaled $143.8 million as compared to $116.3 million. Our short-term deferred income and customer prepayments were $84.7 million as compared to $84.5 million.
Total assets as of December 31, 2013 were $339.1 million, as compared to $311.2 million. Also we continue to have no short-term or long-term bank debt. Day sales outstanding were seven days, the same as a year ago. We continue to give shareholder value by growing our retail earnings. Retail earnings as of December 31, 2013 were $191.6 million, as compared to $158.9 million. Total shareholders' equity was $204 million as compared to $165.9 million.
Now, on to our guidance for the first half of 2014. It is important to look at our first half 2014 guidance, take into consideration to purchase of our Singapore office properties, and the acquisition of an interest in the Shenzhen International Machinery manufacturing industry exhibition and its related shows, which is known SIMM. Under IFRS, for the first half of 2014 and being curious [ph] for the year 2014, our revenue is expected to be between $88 million and $90 million as compared to $92.7 million for the first half of 2013.
IFRS EPS is expected to be between $0.14 and $0.18 as compared to $0.52 per diluted share in the first half of 2013. Stock based compensation and amortization of intangibles, as this related to certain equity compensation trend, our estimated in expenses of $0.04 per diluted share in the first half of 2014.
Non-IFRS EPS is expected to be between $0.18 and $0.22 per diluted share, as compared to $0.37 per diluted share in the first half of 2013. The shares used in the diluted net income per share calculation for the first half of 2014 were approximately $36.4 million, as compared to approximately $36 million for the first half of 2013.
Adjusted EBITDA is expected to be between $12.6 million and $15.8 million, as compared to $16.3 million in the first half of 2013. Finally as announced in a separate press release today, the Board of Directors has approved this, a tender offer for up to 50 million of our outstanding common shares at a purchase price of $10 per share in cash.
These represent approximately 14.4% of Global Sources’ outstanding common shares as of February 28, 2014. We intend to commence the tender offer before the end of April 2014, with expected completion to be before the end of May 2014. We believe this [ph] majority of all shareholders the opportunities to participate equally in the result of investment. After completing the tender offer, we will continue to maintain a very healthy cash balance.
And now I’ll turn the call back to Mr. Hinrich.
Thank you, Connie. While the core business is of connecting global buyers and suppliers in mainland China and elsewhere in Asia, we are well positioned to improve our competitive position. We have a unique offering that has integrated the best of online with the best of tradeshows and a strong customer base that includes many of the larger buyers and suppliers that account for a majority of the trade.
We have made significant enhancements to our globalsources.com website and online services and we have initiated various changes and new programs within the sales organization. We celebrated the 10th anniversary of our China Sourcing Fairs and continue to look for opportunities to build on their success.
Our electronic shows in Hong Kong continue to deliver very strong performance. We are expanding in this vertical with a launch of a new mobile and wireless category, which is scheduled to become its own separate show in 2014. We continue to provide more valuable content to buyers at our shows and offer various services to help buyers connect with the most suitable potential supplier.
Regarding our domestic mainland China business, we have a community of more than four million users and we have positions in the semi-conductor, opto electronic, fashion, management and the scenery sectors. The newest part of this footprint is the Sime machinery shows that are scheduled to be held in late March in Shenzhen.
In the tradeshow business, we continue to look for organic and M&A expansion opportunities both for the mainland China domestic market and for export markets. We hope to have some developments to share with you in the very near future. Overall we remain intensely focused on helping our respective customers buy or sell more effectively and profitably. Our objective is to help connect the right buyers with the right suppliers in the media of their preference.
In summary, with a strong balance sheet and solid cash position and no debt, we have a strong foundation for the future. Our online business is improving and our tradeshow business continues to build on its strong performance. Both of these business units have a valuable market position serving the larger professional buyers and suppliers that account for the majority of trade. In addition we continue to develop our domestic mainland China business.
And with that, I would now like to open the call for questions. Operator?
Thank you, (Operator Instructions) Our first question comes from Jared Schramm. Please go ahead.
This is Will Prior on for Jared Schramm. Given the relatively large tender offer you announced today, what do you view to be your minimum annual cash balance, you have on hand and after allocating funding for acquisitions and returns to the shareholders?
First of all, as of December 31, 2013, actually we’re looking to having a cash balance of about $143 million on hand. So as we always share with our investors that we will looking for using the cash for various purpose including returning to the shareholders. So at this time we’re allocating about $15 million to this upcoming tender offer, which will about one third of our existing cash flow.
Okay and given it sounds like there may be some M&A activity in the near future, does that include any outlay for acquisitions you see?
Yes. As I mentioned currently we have about, almost about $143 million on hand. So even you taking out $15 million out of this pool, we are still having a very healthy cash position which is nearly about $100 million but we believe that it does allow us enough flexibility in moving forward if we allocate it, if we identify any right targets for M&A.
Okay. And in the fourth quarter, it looked like there was something of an uptick in G&A expenses. Can you provide some color on the cause of that spending and your outlook on that line item going forward?
As I mentioned just now in my script, actually we have an impairment charge that we – looking in consideration with our Shenzhen fashion show. So that actually is accounting to about $5.1 million. So I believe this is the main reason on why you should see an uptick in our G&A for this quarter.
And finally would you be able to provide some color on changes to the sales organizations that you mentioned during prepared remarks? This is a question for Merle.
We have a quite a large sales organization as you would appreciate and given the interest of the tradeshows, given the focus on the online, we are really concentrating on putting it back into balance and making sure that we are getting the best return possible on the cost associated with our sales operations, both from an exhibition point of view and from an online point of view. You can appreciate the economics are different for both and so we look at this quite carefully because it does represent a substantial cost that’s been fully added through the P&L.
And finally you mentioned that saw some positive uptick in demand at the end of Q4 and later on through 2014. Can you provide some more detail on what that was driven by?
It was addressed or driven by really two things. One is a repackaging of services and re-pricing of services, which I would not wish to get into detail with and the second was as I previously commented, was the sales organization, focus and training and retraining on these two critical sectors. So tradeshows and the online services.
Thank you. There are no further questions.
Okay, well thank you all for joining the call and we appreciate your time and effort and the investment that you make in Global Sources. Thank you.
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