eFuture Information Technology's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.18.14 | About: e-Future Information (EFUT)

eFuture Information Technology Inc. (NASDAQ:EFUT)

Q4 2013 Earnings Conference Call

March 18, 2014 08:00 AM ET

Executives

Troe Wen - Secretary

Adam Yan - CEO and Interim CFO

Yang Dehong - President and COO

Samuel Chen - Financial Controller

Analysts

John Banks - BG Capital

Operator

Good evening and thank you for standing by for eFuture’s Fourth Quarter and Full Year 2013 Earnings Conference Call. At this time all participants are in listen-only mode. After management’s prepared remarks there will be a question-and-answer session. Today’s conference is being recorded.

I will now like to turn the meeting over to your host for today’s conference; Troe Wen, Secretary of the Board.

Troe Wen

Hello, everyone. Welcome to eFuture’s fourth quarter and full-year 2013 earnings conference call. We distributed the earnings release earlier today and a copy can be found on our website at www.e-future.com.cn. Joining me on the call today are Adam Yan, Chairman and CEO; Dehong Yang, COO and President; and Samuel Chen, Financial Controller. Following the prepared remarks, Adam, Dehong, and Samuel will be available to answer your questions.

Before we continue, please note the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. eFuture does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Some of these risks are beyond the company’s control and could cause the actual results to differ materially from those mentioned in today’s press release and this discussion. A general discussion of the risk factors that could affect eFuture’s business and financial results will be included in certain filings of this Company with the Securities and Exchange Commission, including its Annual Report on Form 20-F.

As a reminder, this conference call is being recorded. In addition, a webcast will be available on our website. I’d like to point out that all financial metrics, unless otherwise stated, will be in RMB and is compared on a year-over-year basis from 2012.

I would now turn the call over to Adam Yan.

Adam Yan

[Foreign Language] Thank you, Troe. Good morning and good evening everyone. The Chairman would like the interpreter to speak on his behalf the highlights of the quarter and fiscal year before turning over the call to Dehong for sales and operations review and Samuel for financial updates.

We are pleased with eFuture 2013 performance which brought us a more diversified product portfolio, strengthened market leadership and provided a stable revenue stream that allows us to continue to invest for our future. Our goal is to transition from a traditional software solutions provider to a shopping social network service provider, transferring off-line consumers to mobile consumers, O2M, for the retail industry via myStore.

Revenue for the full year increased modestly and we saw an overall segment growth in service fees, an increased number of clients from different industry segments and geographic locations and an improved efficiency and profitability from the sales. 2013 has been a transformative year for eFuture, as we sought to capitalize from the enormous off-line to mobile growth opportunities resulting from the consumer-led revolutionary changes in China’s retail industry.

The overwhelming market reception from the rollout of our first omni-channel store in China has been fortune milestone for us. We are leading the charge through myStore driven omni-channel solutions to help retailers in China level the field with e-commerce players by accelerating the transfer of offline consumers to social mobile consumers. Even though myStore is still at a very early stage of inception, we officially launched in August 2013. The performance has well exceeded our expectations.

The leading retailers such as Rainbow & Yonghui has agreed to rollout our m-commerce and omni-channel solutions while Yansha Youyi Shopping City, Chengde Kuan Guang Supermarket and others have joined myStore's open platform. The reception of our exhibition that showcased our omni-channel myStore experience store at the 15th China Retail Industry Convention further highlights our success in securing the participation of over 20 retailers.

myStore has demonstrated its growing importance as a key growth driver for eFuture through our in-house developed m-commerce and omni-channel solutions. In order to accelerate traffic growth, we have made substantial investments that are designed to set up our efforts in R&D, sales and marketing and branding initiatives. While this has affected our short term profitability, it remains crucial to our long term prospects. I'm excited about our software in 2014 as we continue to lead the revolutionary changes in the retail industry by helping our clients provide a truly personalized shopping experience for each consumer over myStore.

I will now turn to our President, Yang Dehong.

Yang Dehong

Thank you Adam. I would also like my interpreter to talk about our operational highlights. Our customers continued to demonstrate tremendous loyalty to eFuture, which attests to the value of our products and services. Contracts from new clients in 2013 were up 24% from last year and the number of clients also increased from 902 as of December 31, 2012 to 1024 by the end of 2013. 11 of these are newly (at the key) [ph] clients, including multinational, nationwide and regional key clients indicating the significant potential and current spending with us which further enrich our rapidly growing sales pipeline of around RMB15 million as of end of 2013.

The backlog remained solid with a total of RMB176 million by the end of the fourth quarter and service fee income accounted for 76%, while software income comes around 22% of total backlog. We made some meaningful gains with customers' end-markets that was relatively new for us, including shopping malls and small specialty stores in tier 3 and tier 4 cities.

Sales from small specialty stores, up 74% from 2012, while sales from shopping malls also increased 14%. These gains were derived from an expanded addressable market, made possible by our broad product range, technology capabilities such as with our myStore led omni-channel solutions. myStore has become one of the key growth drivers for eFuture, bringing incremental revenue opportunities and synergies to service offering as we look [indiscernible] share of our clients.

Our shopping clients expand from offline to mobile, O2M, via myStore as a shopping social platform. We can generate substantial revenue for our PLM, SPM, ERP and store operation solutions. As clients have to upgrade the systems to support mobile Internet related process [ph], new pricing for online products, mobile specific promotions, as well as store operations to facilitate the sales process between sales reps and the VIP.

With this new impetus to business growth, we have stepped up our marketing efforts by participating in various states conferences and exhibitions, including the renowned 15th China Retail Industry Convention held by the China chain store at Franchise Association, which showcased the omni-channel and myStore experience store.

As Adam mentioned, it was very well received, and the newly average users increased from about 300 to 500 to 12,000 to 15,000 a day till the event, and the growth is continuing, hitting about 140,000 by end of December 2013 to over 500,000 as of March 13th this year. This comes to around 4000 additional users every day.

We closed this year on a high note and raised from the foundation as we enter into 2014 with a set of clear strategic parity on business. Our goal is to leverage on selling myStore in shopping, social network service to substantially generate cross-sell opportunities for products, including CRM, SCM, Youyi and store operation related solutions. We are focused on corporations which generate an annual revenue of about 5 billion including new clients and cross selling to existing clients in tier 2 and tier 3 cities.

On operations, our goal is to align and optimize our human resources to enhance efficiency and increase productivity. Early this year we started to streamline our middle management structure from seven to four reporting lines; namely, in R&D, sales, project implementation and operations. On R&D, we will focus on two areas that resonate with our strategic focus as an opportunity [ph] to transfer from offline consumers to mobile consumer, assuming that upgrades will support O2M and migration to the cloud.

We will expand our [indiscernible] product portfolio to support myStore as a shopping social network service provider. We’ll enhance the sales transaction process and increase sales and promotional activities over mobile Internet platform. We will also integrate all our channels to optimize synergies and create efficiency for business data analytics.

On marketing, we’ll focus on revamping eFuture brand from a traditional software solution provider to a market leader that drives direct relationship in China’s retail industry, myStore. Our shopping social network platform is perfectly positioned to capture the increased adoption of mobile Internet in China as the market shifts from offline to mobile. Our Chairman, Adam has recently published a book, the first retail revolution and is a frequent speaker in conferences and industry events across China, U.S. and Japan. I share the same excitement that Adam on our prospects for years ahead.

Let me now turn the call to Samuel to give you the financial update. Samuel?

Samuel Chen

Thank you, Adam and Dehong. Again all financial numbers reported will be in RMB. Although revenue for fourth quarter 2013 decreased 7% to RMB 91.2 million, for full year 2013 [ph] total revenue increased 0.4% to around [indiscernible] on the impact on online businesses and the micro-economy. In Q4 hardware revenue decreased 50% year over year to RMB8.6 million for full year it decreased to 1% to RMB 28.2 million. The costly decrease was a result of the Company's strategy to focus on higher margin projects.

In Q4 service income increased 22% to RMB47.5 million. For full year, it’s increased 14% to RMB102.9 million. The increase was mainly contributed by a number of new clients and additional revenue from existing clients to increased customization and the enhancement of the IT system. Cost of revenue as a percentage of total revenue in the fourth quarter 2013 was 54% improved from 59% in 3Q13 and 60% to 4Q12. For full year 2013 cost of revenue as a percentage of total revenue was 59% compared to 60% in 2012.

Gross profit for Q4 increased 6% to RMB42 million and the consolidated gross margin was 46%, compared to 40% in Q4 last year. For full year gross profit increased 3% to RMB81 million and the consolidated gross margin was 41% and compared to 40% in 2012. The improvement in gross margin was mainly due to better cost control, improved efficiency in project delivery and the Company’s strategy to focus on higher margin projects. For Q4, our operating income was RMB8.4 million compared to RMB16.1 million last year. For full year 2013, operating loss was RMB6.4 million, compared to operating income of RMB1.5 million in 2012.

Net income for Q4 was RMB6.4 million compared to net income of RMB3 million in the same period last year. This translated into basic and diluted earnings per share of RMB1.5 compared to basic and diluted earnings per share of RMB0.74 in the fourth quarter last year. For full year net loss was RMB6.2 million compared to a net loss of RMB4.5 million in 2012. Basic and diluted loss per share in 2013 was RMB1.47, compared to RMB1.1 in 2012. Adjusted net income for Q4 was RMB7.4 million compared to RMB5 million a year ago.

Adjusted diluted earnings per share was RMB1.74 compared to RMB1.2 in Q4 last year. For full year adjusted net loss was RMB1.1 million, compared to adjusted net income of RMB8.2 million in 2012. Adjusted diluted loss per share was RMB0.26 compared to adjusted diluted earnings per share of RMB2 in 2012. Adjusted EBITDA for Q4 was RMB9.9 million, compared to RMB18.5 million in Q4 last year. For full year adjusted EBITDA was RMB0.6 million compared to RMB16.2 million in 2012.

Turning to the balance sheet, cash and cash equivalents decreased RMB16.8 million during 2013 to reach RMB62.6 million at the end of December 2013. The decrease was primarily due to the increased staff cost in 2013 and other related traveling expense. In terms of our total accounts receivable, the 11% increase to RMB27.8 million on December 31, 2013 was due to slower collection of cash from customers at the end of the year.

Lastly, our outlook on guidance, we expect total revenue for the first quarter 2014 to be in the range of RMB22.5 million to RMB26.5 million. Adjusted EBITDA for the first quarter 2014 is expected to be in the range of minus RMB3.2 million to RMB5 million.

That concludes our prepared remarks. We will now be happy to take your questions. Operator, thank you.

Question-And-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of John Banks from BG Capital. Your line is open. Please go ahead.

John Banks - BG Capital

Just three quick questions. My first question was on backlog, you just answered it. So thank you. My second question was regarding myStore. Are you seeing urgent demand from like brick and mortars for the products since they've basically been getting there clock cleaned [ph] by Alibaba and companies like that. So I guess a macro-environment is are you seeing demand from the bricks and mortars very, very urgent? And my third question is regarding myStore I didn’t know if I heard it right. Are you breaking down how many consumers actually have signed up so far? And, that’s it. Thanks.

Adam Yan

[Foreign Language] I will sort of respond on behalf of Adam with regard to the consumer signup for myStore. We have -- yes, you are absolutely right. We’ve included in our script. At the moment it’s very well received and newly active users actually increased from sort of 300 to 500 to 12,000 and around 15,000, so quite a lot. And the growth is actually continuing. As of end December 2013 we have roughly about 140,000 then as of March 13th this year 2014, we already hit 500,000.

John Banks - BG Capital

All right. Say that again. You had 500,000?

Adam Yan

500,000, yes.

John Banks - BG Capital

All right, wow. No wonder I've got you guys in a good mood.

Adam Yan

Okay I think we missed actually the second questions of yours in terms of the demand from -- you’ve mentioned roughly about Alibaba. The reflection is not bringing. Do you mind repeating your questions again because you’ve got backlog numbers. It's once [indiscernible]

John Banks - BG Capital

Yes exactly. My question was more and kind of answer with that is you’ve seen the bricks and mortars getting the clock cleaned by the ecommerce guys like Alibaba and Sinbad [ph]. So I guess is when you talking to the retailers, there is urgent demand for them to move into myStore.com. So that was my main question. So you've basically gone from what I think 10 retail chain stores to over 20. Are we going to see that keep on increasing this year?

Adam Yan

[Foreign Language] Firstly, we are sort of trying to explain the difference between myStore and what you’ve mentioned, Alibaba and Sinbad. myStore is actually a consumer private shopping special. It’s a C to B platform. Alibaba is more a C to C like [indiscernible] as well as B to C like 10 miles [ph]. As for Sinbad, they’re especially for B to C similar to Amazon. My store is focused on transferring those retailers from offline store to mobile. So it’s slightly different.

We roughly estimate about 60% of those consumers in the offline store. They also surpassed in mobile and sort of out tuck-in [ph] segment to get the transfer over to the mobile consumer. Our first priority is to basically focus on the offline retailers so that myStore can allow consumers to freely to browse whatever retail store they like to do or even to shop on it. And then the second stage will be we can also linkup with Alibaba or Sinbad.

So what we intend and hope to achieve is to build a global consumer shopping social network. What we really intend to also do is eventually or in the future we also want to link up with something like [indiscernible]. What we intend to do is spread like a hawk for both offline and online. So eventually we can also link up with Facebook or WeChat. So at the end of the day our backend actually represents an omni-channel solution. That will be our answer.

Operator

Thank you. (Operator Instructions). Thank you all for you questions. There are no further questions at this time. I will like to hand the call back to management for closing remark.

Troe Wen

Thank you very much for your questions. We look forward to updating you on our progress again soon.

Operator

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect the lines. Thank you.

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e-Future Information Technology Inc. (EFUT): Q4 EPS of $0.29 Revenue of $15.05M.