SGOCO Group (NASDAQ:SGOC)
F4Q2013 Results Conference Call
April 23, 2014, 8:00 AM ET
Kathy Ko – Investor Relations Officer
David Xu – Director, President and CEO
Johnson Lau – CFO
Ladies and gentlemen, thank you for standing by. Welcome to the SGOCO Group’s Fiscal Year 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time.
At this time, I would now like to turn the conference over to Kathy Ko, Investor Relations officer. Please go ahead.
Thank you, Operator. Good morning, everyone, and thank you for joining us on SGOCO's fiscal year 2013 earnings conference call. My name is Kathy Ko and I'm the Investor Relations Officer of the company.
Also, joining me on today's call are Mr. David Xu, Director, President, and CEO; and Mr. Johnson Lau, CFO of SGOCO Group.
Before we get started, I would like to remind everyone that this conference call may contain forward-looking statements, which are subject to risks and uncertainties. Our earnings release issued on April 22nd and our SEC filings, including our most recent Annual Report contain additional information about factors that could cause additional results to differ from management expectations. All amounts noted in this conference call are in U.S. dollars unless otherwise noted. The company does not assume any obligation to update information discussed in this conference call or in its filing.
Now, I would like to turn the call over to Mr. David Xu, Director, President and CEO of the company. David, please?
Thank you, Kathy, and hello everyone. To start with, we can look back on 2013 as a groundbreaking year for SCOGO. We have taken a number of steps to move towards a smart solution based application specific product portfolio that serves the display markets in China.
The full-year results demonstrate our progress with this transformation. We see solid increases in sales and margins, especially encouraging early signs from higher margin products.
In 2013, our strategies were executed on several areas.
Number one, we shifted our product mix towards higher margin products. Number two, we aligned our offerings for a variety of new distribution channels. Number three, we strengthen our SCOGO brand pipeline , and number four we have bolstered our R&D capabilities by hiring top new talents in the end of the year, expanded our regional presence to keep us abreast of market trends, increasing the speed of product launches , and strengthening our capability and ability to respond to the changing constant needs by accelerating the rate of optimization and upgrades.
Also, as announced in the early press release, our newly launched display products helped to create a strong pipeline in 2014 that will consist of a smart, solution-based and application-specific products.
To continuously improve our improve our costs competitiveness, we have streamlined our management and operational structure to focus on expanding our product portfolio and vertical distribution channels.
In light of this, we are also excited to announce upcoming launch of our e-commerce business. This is a critical move to expand our distribution channels and capture the rapid growth of online sales in China.
The online channel is intended to expand our business (inaudible) in tier one and two series that complement our existing channels that are focused on tier three and four series. We have spent a significant amount of time over the past 12 months preparing this business, including developing a product line specifically for e-commerce and adding a sales and operational office in Shenzhen, China.
In addition, we are close to announcing our strategic partnership with a leading e-commerce player in China. Looking ahead, SCOGO will use 2014 to continue our investments in building blocks to quickly adapt to (inaudible) with new display solutions, to develop an e-commerce business line, to enhance SCOGO Brand , to reach our product online, and to carefully evaluate industry verticals with a high growth opportunity, and to expand our offerings to commercial markets and corporate clients.
Again, the company reiterates that our fourth quarter 2012 versus 2013 exceptional results were due to the ramping up and deferring of revenues from the previous three slow quarters in the 2012 year.
As the company is in the process of transforming its business in both 2012 and the 2013, we believe a full year advancement of its financial performance is a more meaningful way to measure SCOGO's ongoing progress and business performances.
Now, I will hand over the call to Johnson, who will walk you through financial results on behalf of the management.
Thank you, David. Hi, everyone. First of all, I wish to reiterate what we have mentioned in the earnings release that the results we achieved in the fourth quarter of 2012 were unusually strong as we coincide with the ramping up of after three slow quarters. If any comparisons that are made on a yearly basis with the fourth quarter 2013, then it cannot be entirely comparable.
As our growth slowed, the past years has been much more (inaudible). Since SGOCO is currently undergoing a period of transformation, we believe that it is prudent to use the full year assessment of the company's financial performance as an overall measurement of this ongoing progress.
To let our audience to have more meaningful picture of our performance, we will only discuss the company's 2013 annual results in this earnings conference.
Full year of 2013, our total revenue was $201 million, up 20.6% from $166.7 million in fiscal year of 2012. The year-over-year revenue increase was driven mainly by the increase in sales volumes for display products and additional revenue contribution from new products launched.
Of the total revenues in the year, $139.1 million or 69.2% of total revenues were from SGOCO’s Brand and its Licensed Brands; $49.5 million or 24.6% of total revenues were from Key Accounts sales; and the remaining $12.4 million or 6.2% of total revenues were from sales of Other Application Products.
Cost of goods sold for the year 2013 increased 20.0% to $185.0 million from $154.2 million in fiscal year 2012. The increase was in line with the increase in sales.
Gross profit for the fiscal year of 2013 increased 27.6% year-over-year to $15.9 million from $12.5 million .
The overall gross margin was 7.9% as compared with 7.5% for the fiscal year of 2012. The increases in gross margin were mainly due to the Company's effort in securing businesses with higher gross margins and better cost efficiency gained through sourcing from suppliers offering lower product costs.
During the fiscal year of 2013, SGOCO Brand and its Licensed Brands' sales had a gross margin of 8.1%, which increased from 8.0% in 2012. During 2013 and 2012, Key accounts sales had a gross margin of 7.5% and 6.2%, respectively. Sales of other application products in 2013 recorded a gross margin of 8.0% as compared to nil in 2012.
Selling, general, and administrative expenses for the fiscal year of 2013 decreased 18.6% year over year to $4.9 million from $6.0 million. Selling expenses increased 60.1% year over year to $1.1 million as compared to $0.7 million in the 2012. The increase in selling expenses was primarily due to the increase in sales volume and the establishment of the new operations office in Shenzhen during the year.
General and administrative expenses for the fiscal year of 2013 decreased 28.6% year over year to $3.8 million from $5.3 million. The decrease in general and administrative expenses was mainly due to the reduction in professional fees by $1.7 million related to the Company's NASDAQ trading halt and changing auditors in 2012.
Operating income for the fiscal year of 2013 increased 70.4% year-over-year to $11.1 million from $6.5 million in 2012. Operating margin was 5.5%, which increased from 3.9% in 2012.
Net income for fiscal year of 2013 increased 100.4% year-over-year to $8.4 million from $4.2 million in 2012. Net margin was 4.2% for the fiscal year of 2013 compared with 2.5% for the fiscal year of 2012. The higher margin in 2013 was primarily attributable to the improvement on gross margins of our products sold and reduction in professional fees.
Basic and diluted EPS were $0.49 for the fiscal year of 2013 compared to $0.25 in the fiscal year of 2012.
Moving to the balance sheet, as of December 31, 2013, cash and cash equivalents were $13.5 million, an increase of $2.0 million from $11.5 million as of December 31, 2012. The increase in the cash position was primarily attributable to the increase of cash generated from operations.
Accounts receivable as of December 31, 2013, was $48.1 million compared to $59.4 million as of December 31, 2012. As of December 31, 2013, accounts receivable turnover days were 98 days compared to 87 days as of December 31, 2012. The increase in accounts receivable turnover days was mainly because longer payment terms granted to customers, which were part of the Company's effort in retaining quality distributors in the face of increased competition in China's general display market.
The inventories as of December 31, 2013, increased 22.6% to $7.0 million from $5.7 million as of December 31, 2012. As of December 31, 2013, inventory turnover days was 13 days compared to 9 days as of December 31, 2012. The increase in inventory level and turnover days was primarily due to a stocking up of inventory to prepare for the purchase order and demand before Chinese New Year holidays in January 2014.
Working capital increased to $87.6 million from $78.1 million as of December 31, 2013. The current ratio was 6.2 on December 31, 2013, compared to 3.9 on December 31, 2012.
With that, I would like to conclude our management presentation and open the floor for questions and answers. Operator, please?
Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator Instructions).
And we do have a question from Savoy (ph) from FH (ph).
Okay. This question is for Mr. David Xu.
Firstly, I would like to congratulate you for the promotion to CEO. And then secondly, I'm hoping that...
...you can share with me about your vision for the company's road going forward. What's your short-term and long-term strategic plan to riding the company to the next level?
I've – thank you first of all for your question. I would think at least in 2014, we shall be focusing in developing our new products, and especially related to [ASP] (ph) products, which is the solution-based, application specific product.
This product definitely has higher margins, which will equal our bottom line and profit margin in general. Hopefully, that will increase our business results, especially bottom line, and the new products also will increase our sales to some degree, because we are also (inaudible) through our sales into new channels, including the e-commerce, as we just mentioned. We are ready to launch the ecommerce business initiative, which will drive our business through a more [sideways] (ph) that people – many people will see our products online.
But also our –the knowledge channel, we are trying to – we have already tried, and if we are successful, this is channel is corporate client with Internet cafe and budget hotels with our new products, AIO products. We are also focused on strengthen our SCOGO Brand.
In the past, we had the (inaudible) were also through OEM. Two years ago, we were phasing out OEM while focusing our SCOGO Brand. Our SCOGO Brands, including SCOGO (inaudible), and we may develop new brands for our own brands – SCOGO own brands.
Our focus for our -- kind of vision for 2014, and also our focus. Hopefully, all this initiative will bring good results for the new year 2014.
Does that answer your question, Savoy (ph)?
Yes, thank you, David.
(Operator's Instructions). And as there are no further questions, I will turn the call back to Kathy Ko.
Thank you all for joining us on the conference call today. If you have any follow-up questions, please feel free to contact us by email or by the phone number provided through our website at www.scogogroup.com. We look forward to speaking with you again soon. Thank you and goodbye.
And thank you. Ladies and gentlemen, this does conclude the conference call for today. Again, we thank you for your participation and you may now disconnect your line.
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