PacificNet (ticker: PACT), a provider of outsourcing and value-added services
in China, reported Q4 2004 earnings results on April 18th. Here are management's prepared remarks in their entirety from PACT's earnings results conference call:
- Chairman and CEO Tony Tong
- President Victor Tong
- IR Director Jacob Lakhany
Q4 and FY 2004 Results:
Tony: Good day. My name is Tony Tong, and I am PacificNet’s Chairman and CEO. I am joined by Victor Tong, our President, and Jacob Lakhany, our Director of Investor Relations. I would like to welcome you to our fourth quarter and year-end earnings call for the period ended December 31, 2004. Before we begin, I have asked Jacob to read the following statement.
Jacob: Statements included in this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks and uncertainties such as competitive factors, technological development, market demand and the company's ability to accurately estimate revenues due to market factors beyond its control. The actual results may differ materially from any financial outlooks stated herein. Further information on potential factors that could affect the company's financial results can be found in the company's Reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission. PacificNet shall have no obligation to update the information provided on this call to reflect subsequent events. Now, I would like to turn the call over to Victor to go over the financial results.
Victor: I am very pleased to announce fourth quarter and year-end financial results, for what was a record year for the company. Fourth quarter revenue was approximately $10.1 million, representing an increase of more than 10-fold compared to the same period in fiscal 2003. Our quarterly revenue also increased by 25% on a sequential basis. In particular, we saw increased revenue growth as a result of the acquisition of our Smartime subsidiary.
This led to our highest quarterly net income ever, as we had Q4 net income of $446,000, or $0.05 per share, compared to net income of $136,000, or $0.02 per in third quarter of 2004. Each of our subsidiaries was profitable. The company was able to improve operating results on a year-over-year basis from a loss of $846,000 in the fourth quarter of 2003, representing nearly a $1.3 million improvement.
For the full year ended December 31, 2004, we had revenue of $29.7 million, an increase of more than 23-fold compared to 2003. Gross profit increased to $5.6 million, an increase of 986% as compared to 2003. Operating profit improved by nearly $4.5 million. Our net income of $774,000, or $0.11 per share was more than $2.6 million better than the year-earlier period.
Our Communications Distribution Group was again our largest, generating approximately $11.8 million in revenue, while Outsourcing Services Group contributed $9.4 million. Our Value Added Services (VAS) Group had $5.7 million in revenue. Despite its smaller revenue base, our VAS business generated $1.9 million in operating profits, reflecting higher margins. Due to continued investments in infrastructure, our Communications Distribution Group generated the smallest amount of profitability at $85,000. Outsourcing Services Group contributed $1 million to operating profitability.
As a result of our strong operating results, and the completion of a private placement in December, we ended the year with our strongest cash position ever, as we had nearly $6.8 million as of December 31, 2004, compared to $3.8 million at the end of fiscal 2003. Our working capital of $14.8 million as of December 31, 2004, was significantly above the $4.5 million at the end of the third quarter.
Now, I would like to turn the call over to Tony to further discuss operations.
Tony: Thank you, Victor. Let me express my appreciation to all of the 1,000 employees we have for a terrific year.
"2004 was a milestone year for PacificNet highlighted by rapid revenue growth, accretive acquisitions, a strengthened balance sheet and business expansion in China. We were very pleased by our strong fourth quarter results, which was our fourth consecutive profitable quarter with improving margins. We continued to build scale through the acquisition and integration of various companies in our value chain. Most importantly, we are now profitable in all acquired subsidiaries in China and Hong Kong. We have grown the company into a 1,000-employee organization with a presence in Hong Kong, Beijing, Shenzhen, Guangzhou, Shandong, and the US. We continue to execute on our strategy of capturing market share and revenue increases through organic growth, accretive acquisitions, and synergistic value creation. We believe that our fundamentals are stronger than ever and that market opportunities for sustainable growth and profitability in China's CRM and VAS sector are vast."
As many of you know, our plans are to grow organically and through acquisition.
To summarize, currently we have three (3) business units. These include our (1) Outsourced Services through PacificNet Epro, which is an ISO 9001 certified outsourcing contact center hosting over 1,000 workstations staffed by 600 agents and providing around-the-clock multi-lingual inbound and outbound services. Our training and consulting services business operates through The Epro Call Center Training Institute, which is a leading provider of contact center management consulting and training services that help clients maximize the return on investment in their CRM operations. Finally, its Call Center Management Software Products and Solutions WISE-xb, which offers Call Center agent performance, management, and reporting software, and Automatic Call Distribution System.
Last year, we acquired a controlling interest in Smartime Holdings Limited, a leading provider of outsourcing services including software development, R&D, and project management services in China. Smartime, through its operating subsidiary in Shenzhen, China, employs over 280 staff and provides outsourcing services to the leading telecom, banking and financial services companies including Huawei, IBM, Bank of East Asia and others. This acquisition will help our outsourcing business, and is already contributing meaningfully to our results.
Our Valuee-Added Telecom Services (VAS) Group includes Interactive Voice Response (NYSE:IVR), SMS and related VAS. Finally, Communication Products Distribution Services Group: including calling cards, GSM/ CDMA/ XiaoLingTong products and multimedia self-service Kiosks.
Last month, we announced that we had entered into a definitive agreement to acquire a 51% controlling interest in Guangzhou 3G Information Technology Co., Ltd.), a leading value-added services internet company in China serving China's four leading telecom operators which includes China Mobile, China Unicom, China Telecom, and China Netcom. Guangzhou 3G will become a majority-owned subsidiary of PacificNet. Guangzhou 3G is one of the largest value-added telecom and information services providers in China with both voice (IVR and call center) and data (SMS, MMS, WAP, JAVA, GPRS) connection to the four major telecom operators. With a strong balance sheet we have the ability to make even larger and more attractive acquisitions in the future.
We have recently signed many new customers, including Sony, TCL, American Express HK, Bank of China, China Telecom and China Unicom.
We plan on continuing to invest in our business and to source accretive acquisitions in the VAS and IVR markets in China to enhance our growth.
Now, I would like to turn the call over to Victor to discuss our 2005 outlook.
Victor: Thank you, Tony. I would like to discuss financial expectations for 2005.
* For fiscal year 2005, the Company expects that total revenues will be between $45 and $50 million.
* For fiscal year 2005, the Company expects that net income will be between $2.8 and $4.2 million, or about $0.25 to $0.38 per share.
* For Q1 2005, which is seasonally our slowest quarter as a result of the Chinese New Year, we expect the Company expects that total revenues will be between $8.5 and $9 million.
* For Q1 2005, the Company expects that net income will be between $300,000 and $400,000, or about $0.03 to $0.04 per share.
* The results variance between Q4 2004 and Q1 2005 is due to seasonal fluctuations in quarterly performance. Traditionally, the first quarter from January to March is a low season due to the long Lunar New Year holidays in China. Revenue and income from operations tend to be higher in the fourth quarter due to year-end holiday promotions.
* For Q2 2005, the Company expects that total revenues will be between $10.5 and $12 million.
* For Q2 2005, the Company expects that net income will be between $550,000 and $700,000, or about $0.05 to $0.06 per share.
* PacificNet's strategy in 2005 is to capture market share and top-line growth in the VAS and IVR market in China while enhancing profit margins.
* The Company expects continued revenue and profit growth in 2005 through organic growth and accretive acquisitions in the VAS and IVR market in China.
* The above forecast excludes any future acquisitions. Currently, we are pursuing several attractive candidates that would be immediately accretive to earnings.
Now, I would like to open the call up for questions.
Tony: I would like to thank everybody for their support and interest in the company. We look forward to speaking with you in May when we announce our first quarter results. Have a good morning.