Xiao-I Corp (AIXI) 2022 Q4 法說會逐字稿

Good day ladies and gentlemen, thank you for standing by, and we warmly welcome you all to Xiao-I Full Year 2022 Earnings Conference Call. Currently, all participants are in listen only mode. Later we conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I'll turn the call over to Dean Chu, Legal Director of Xiao-I. Dean, please proceed.

Thank you, operator and hello, everyone. Welcome to Xiao-I Full Year 2022 Earnings Conference Call. Joining us today are Mr. Max Yuan, Chief Executive Officer and Mrs. Kelly Weng, Chief Financial Officer. We released results earlier today. The press release is available on the Company's IR website at ir.xiaoi.com, as well as from newswire services. A replay of this call will also be available in a few hours on our IR website.

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the Company's public filings with the SEC. The Company does not assume any obligation to update any forward-looking statement, except as required under applicable law.

Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Max Yuan. Please go ahead, Max.

Thank you, Dean. Hello everyone and welcome to Xiao-I's inaugural earnings conference call as a U.S. listed company. Despite recent capital market volatility, we successfully completed our IPO in March, a key milestone for our organization. On behalf of the entire team, I would like to express our gratitude to both our existing and new shareholders for your confidence in our business model and the growth prospects. With total proceeds of almost $39 million from the IPO, we are well positioned to implement our operational and growth strategies for our mission to leverage Shanghai Xiao-I's advanced core AI technology to make the world a better place.

2022 presented both challenges and opportunities for our company. During the year, we experienced strict quarantine lockdowns in China and the subsequent lifting of nearly all COVID restrictions in December. Despite these macroeconomic disruptions, our commitment to executing our growth strategy never wavered. Throughout 2022, we increased our investment in AI technology R&D to a record high, enhanced our product and service capabilities, and further expanded our partnership ecosystems. Consequently, we achieved record revenue performance for the full year of 2022.

Our strong momentum continued into 2023 as we continue to broaden our partnership network as we pursue our strategic growth initiatives. As recently announced, we have formed a strategic partnership with Guizhou Chinadatapay Network Technology Company to drive Xiao-I's growth as a global leader in cognitive intelligence by combining Xiao-I's cognitive intelligence capabilities and Chinadatapay's big data expertise. This partnership will demonstrate the power of integrating massive data sets with state-of-the-art algorithms and accelerate the advancement of industry-specific, big data-based large-scale models through intelligent data analysis, model training, and application development.

Separately, we are also in discussions with a Chinese prestigious gaming company for strategic cooperation. We plan to provide our ChatGPT-style technology for this company to generate more creative and inclusive gaming scenarios and empower non-player characters. This will eventually lead to game player growth and stickiness for our partner while broadening our user scenario and client base.

Looking ahead, we remain dedicated to our fourth long term growth strategies. First, we are broadening our client base by shifting our focus to a wider range of small and medium organizations from large firms. With an extensive customer base of over 1,000 clients across diverse industries, we have accumulated invaluable knowledge and expertise. This enables us to effectively integrate with the varied internal systems of our small and medium-sized customers and optimize our service delivery process. We are also turning some offline software or customized products into SaaS-based cloud products, which could better address needs of small and medium companies. This move will lead to products with greater standardization, allowing us to carry out our services in a more convenient and efficient way and deliver more sustainable revenue.

Second, we are extending our global footprint by pursuing more opportunities in the international market. Our recent successful U.S. IPO has significantly boosted our visibility abroad. We will actively seek to establish offices as well as R&D and service centers outside China to effectively acquire and serve our overseas customers while making progress in Hong Kong, Macao and Taiwan. Our strategy involves starting with Southeast Asia and Middle East, before eventually exploring European countries through partnerships with local firms in those regions. Currently, the algorithm of our products is set to meet demands for over 50 languages across 200 countries.

Third, we are evolving from a software-only provider to one that also empowers hardware with AI. We are partnering with OEMs and potentially developing hardware in-house for specific product verticals. Specifically, we launched and commercialized outbound all-in-one call machines for community services since 2022.

Lastly, we are focusing on exploring possibilities through AI in the Metaverse to connect reality with virtual use cases. Gartner predicts that by 2027, over 40% of large organizations worldwide will be using a combination of Web3, spatial computing and digital twins in metaverse-based projects to grow their business. AI, particularly cognitive intelligence, is the core of the Metaverse and our key advantages in developing metaverse-based projects. Our self-developed and digital human has started generating revenue by meeting diverse needs such as greeting guests, providing civil services and doing livestreaming. Meanwhile, we will continue our R&D in the virtual and Metaverse economy. Although our Metaverse initiatives are still in the early stages, we are confident in their future prospects and look forward to updating everyone on our progress in the coming years.

As we enter 2023, we are seeing tailwinds from the increased demand for our products and services due to recovery following the end of China's zero-Covid policy and stronger recognition and interests in robotics and AI technology. We will continue investing in AI technology to reinforce our technology model and platform capabilities while strengthening our robust partner ecosystem and industry-leading position. We are optimistic that we have the right team and the strategies and the capital in place to invest in and capture vast growth opportunities in the AI market while creating long-term value for our customers and shareholders alike.

Now, let me turn the call over to our CFO, Kelly, to go over our financials.

Thank you, Max. And welcome to everyone on the call. Before I go into details, please note that all numbers presented are in U.S. dollars and all comparisons are on a year-over-year basis, unless otherwise stated. Detailed analyses are contained in our earnings press release, which is available on our IR website. I will now highlight some of the key points here.

Our record high revenue demonstrated the value of our ongoing investment into advanced AI technology and our efforts to enhance our product and service offerings to address demands from diverse industries. In addition to our strong 48% year over year revenue growth, we made record R&D investments in 2022 for technological innovations that align with our growth strategies. Additionally, we successfully completed our IPO in March, giving us added flexibility to continue technology investments and expand our partnership network, which will support higher revenue levels and profitability.

In 2022, net revenue grew to 48.2 million from 32.5 million in 2021. The increase was mainly due to the increased sales of SaaS model-based cloud platform products and technology development service. Driven by stronger demands, revenue from sales of cloud platform products surged 364% to 25.7 million and revenue from technology development service grew 78% to 16.4 million in 2022, offsetting decreases in other businesses. We had a one-time purchase of AI-empowered drawing review software worth about 10 million from a construction company in 2021, which accounted for a majority of the software revenue that year. Excluding this purchase, the decrease in software products were because of the change in subscription models. We saw more acceptance from non-financial customers for technology service, such as SaaS model, which is on quarterly subscriptions, shifting from one-time purchases of software products. This transition is benefiting us as it brings more stable revenue and capital flow with customer growth.

Gross profit was 30.8 million in 2022, up 42% from 21.6 million in 2021. Gross margin was 63.9% compared to 66.5% in 2021. The decrease in gross margin was mainly due to our expansion of product applications into certain new industries that initially had a relatively lower margin. Still, we accept margin expansions from these industry applications when products become more mature.

Turning now to operating expenses. In 2022, total operating expenses were 33.9 million, an increase of 104% from 16.6 million in 2021. The increase was primarily due to a 347% surge in research and development expenses, offsetting the reductions in sales and marketing, as well as general and administrative expenses led by our cost management and efficiency enhancement. R&D expenses were 24 million in 2022, accounting for almost a half of our revenue as we focus on investment in digital human, robotic process automation and large language models related to ChatGTP-style technologies. We believe such technological investment will be necessary and beneficial for our long-term growth.

Operating loss in 2022 was 3.1 million, compared to an operating income of 5 million in 2021. Net loss in 2022 was 6.0 million, compared to a net income of 3.4 million in 2021. If excluding our incremental R&D expenses, we would be profitable and even achieve significant growth.

Moving to our balance sheet, accounts receivable at the end of 2022 totaled 41.4 million, an increase of 33% from 2021. Our business reflects seasonality in which we often realize revenue in the fourth quarter while receiving payments within the following quarters. The important takeaway is we've seen faster payments from customers during the first quarter of 2023. Our cash balance at the end of 2022 was 1.0 million, as compared to 1.3 million as of December 31, 2021. On top of this, we strengthened our balance sheet with 39 million in proceeds from our IPO.

As we move forward, we will persist in our cost reduction and efficiency improvement efforts, which will enable us to allocate resources to key strategic areas such as AI technology R&D.

That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Andy Zhang from Prime Number Capital. Please ask your question, [Andy].

Hi, can you hear me?

Yes, we can.

All right. I'll ask the question in Chinese first and then in English. (Foreign Language). Since your successful listing on NASDAQ in early March, the landscape of artificial intelligence has significantly evolved within the past few months, we had open AI releasing its API, which basically allowed external software to utilize ChatGPTs capabilities.

And since then, we see very powerful software arriving at the scene. And we really start to see AI previously speculated potential now turning to the immediate actualized tangible results. Those are results that create tremendous value for both professional and personal lives.

I think by this point, it's a fair say that it's no longer opaque that we now have the roaring 20s in the 21st century, where data is oil and AI is the internal combustion engine. Given this exciting future, what have you imagined for your upside? Thank you.

ChatGPT is not the future of Singularity, nor the finish line of AI. AI is evolving in generations. And we believe AI will usher in a golden decade in the future. The potential market for AI is enormous and incalculable. Xiao-I is committed to developing the "core brain" of AI, namely cognitive intelligence, led by natural language analysis and NLP. We aim to empower all industries with these technologies to drive the progress of AI and ultimately, the world. We are highly confident in our prospects for development.

Thank you very much. And my second question. (Foreign Language). We saw in your offering letter that show I had the first mover advantage in tons of natural language processing in China. As we are all aware, business environment for tech companies in China is very much different from the West. This implies that there are risks and opportunities unique to this country. Given this first mover advantage, can you tell us about the unique opportunities in China that you could capture? Thank you.

Yes, our products are mainly used for commercial purposes, and the technology and application scenarios are choosen to meet the needs of commercialization. In China, there is a great demand and vast market potential for AI commercialization.

As AI technology continues to advance, Xiao-I will further develop its commercial potential by integrating ChatGPT-style technologies to expand its services into more AI+ industry application scenarios. The goal is to continue empowering the industrial sector, agriculture, gaming and other fields.

Thank you very much.

All right. Thank you. Our next question comes from the line of CC Shen from Prime Number Capital. Please ask your question Cici.

Okay, thank you. I have two questions. (Foreign Language). We have seen a significant increase in revenue this year. Please analyze the main reasons for the growth. We have also noticed that R&D expenses have increased significantly. What is the main reason for this? Thank you.

Increase in revenue in 2022 was mainly due to the increase in sales of SaaS-based cloud platform products and technology development service. This is also one of our company's strategic shifts.

Our R&D investments were mainly on large language models related to ChatGPT-style technologies, digital human and RPA. We believe that these R&D investments will support the company's business development in the future. Thank you.

Thank you. My second question. (Foreign Language). What is current development strategy of the company? We understand that the company has coverage in various industries regarding AI+ industries. Which industry will the company mainly focus this year?

As aforementioned, we have four core strategies for future development including: First, expanding client base by shifting our focus on small and medium organizations from large firms. Second, expanding global footprint by exploring more opportunities in the international market. Third, transforming from software only to also empowering hardware with AI. Last is from reality to virtual, such as a breakthrough in we just mentioned to apply digital virtual technology into reality scenarios.

We have made meaningful progress across the front, and we'll continue to make efforts along with the strategies. This year we will try to empower the manufacturing, agriculture, game and other industries with our advanced AI technology. AI+ industry is the industry empowered by Xiao-I core technology. Our cognitive intelligence could be carried all in. Thank you.

Great, thank you. So, we have reached the end of the question and answer session. Please allow me to turn the call back to Mr. Yuan for closing remarks.

Thank you, operator, and thank you all for participating on today's call and for your support.

Thank you all again. And this concludes the call. You may now disconnect.