Amber International Holding Ltd (AMBR) 2018 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by for iClick Interactive Asia Group Limited Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded.

I'll now turn the call over to your host Ms. Lisa Li, Senior Manager of Investor Relations. Lisa, please go ahead.

Hello, everyone, and welcome to iClick's third quarter 2018 earnings conference call. The company's results were issued earlier today and are posted online. You can download the earnings press release and find our distribution list by visiting the IR section of our website at ir.i-click.com.

Sammy Hsieh, our Chief Executive Officer and Co-Founder; and Jie Jiao, our Chief Financial Officer, will provide an overview of the quarter and then we will turn the call over to Q&A.

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's results may be materially different from the views expressed today. Further information regarding the inherent risks and uncertainties is included in the company's prospectus as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements expect as required under applicable law.

Please also know that iClick's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. iClick's press release contains a reconciliation of the unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures.

I will now turn the call over to our CEO and Co-Founder, Sammy Hsieh. Please go ahead.

Thank you, Lisa. Hello, everyone, and thank you for joining us today. Before we discuss our third quarter results, we announced today that our Board of Directors has approved a share repurchase program, in which the company may purchase its own ADS with an aggregate value of up to USD 10 million over the next 12-month period, ending on November 27, 2019. We believe this repurchase program provides an excellent opportunity to invest in the company's future.

Next I'll get to our results. I am pleased to report that we had a strong 2018 third quarter, including record adjusted EBITDA and historically low adjusted net loss. In addition, our mobile audience solutions, which provides 89% of our overall revenue, saw gross billing more than double and net revenue rise 51% compared with the third quarter of last year. I am pleased to report that by the end of this year's third quarter, we extended our consumer data set to 780 million active user profiles, and we also continued to gain market share, commanding 6.3% of the China mobile audience solution market by the end of the third quarter compared with 4.3% for 2017.

Each of these results further established iClick's #1 position in China's independent marketing technology sector, a position confirmed by the leading business research firm, Frost & Sullivan. And due in large part to this process, we have recently taken steps to expand our business to some highly promising non-media related innovations. For example, during the third quarter, we raised $30 million by issuing convertible notes to LIM Advisors, a Hong Kong fund exploring with us on many exciting investment opportunities. These funds will support the investment of many propriety apps and media assets and help support our M&A pipeline including several potentially lucrative partnerships throughout Southeast Asia. We're also continuing to expand our business application in new areas.

Specifically, we are transforming our business intelligence solution, offering into a standardized customer relationship management or CRM system that provides market insights and business strategy recommendations to major retailers and resellers throughout China. As you may know, many of these companies struggle with integrating the information and scattered data required to track potential customers and generate more sales. However, as a result of our collaboration with Tencent mini-programs and Tencent Cloud, we are now offering a real-time CRM solution comprising our data management platform and marketing cloud systems. This product, we believe, will satisfy the needs of major retail brands and resellers to allocate the resources effectively and efficiently with a one-stop shopping solution. Our CRM solution has already been deployed in China for a number of international brands, including a major fashion retailer as well as a major oil and gas company.

Looking ahead, we believe this solution will be received favorably by many other new and existing clients, that it will provide a significant margin contribution to our business in 2019. Of course, generating more exposure for our solution is key to reaching more marketers and converting them into iClick clients helping us achieve this goal. We recently won the Best Brand and Performance Marketing Award at the Performance Marketing Ecosystem Summit 2018 hosted by the Advertising and Marketing Services, a division of Tencent Holdings Limited. We are honored to receive this prestigious award, one which further validates the value proposition of our platform.

In addition to our initiatives in China, we are now positioning iClick to capture more international opportunities in the Southeast Asia region. Among these initiatives was our recently announced collaborations with China's top online travel agency, Ctrip International, to create an e-commerce platform that allows retailers to easily identify and directly target the more than 130 million annual outbound Chinese travelers. This platform, which is expected to launch in China in the first quarter of 2019, utilizing iClick's proprietary technology, is capable of gathering precise data from hundreds of millions of profiled Chinese consumers, including which websites these individuals typically visit to shop for certain products and services. We are seeing strong interest from many duty-free shops and luxury brands to participate on this platform, and expect it to be a key contributor of incremental revenue to our company going forward.

We are also excited about the traction our iAudience platform as gaining into the travel sector. For example, utilizing this platform, the Palazzo Versace Dubai, a leading five-star fashion hotel generated almost 90x more website traffic from Chinese travelers, especially the high-spending Chinese travelers, helping the Palazzo achieve a 300% year-over-year increase in business growth. Our iAudience platform has also been utilized by the Armani Hotel Dubai to raise its brand awareness, expand audience reach and boost booking rates by China's more affluent travelers.

So summing up, on the international front, we are excited and encouraged by how much global brands can benefit from leveraging the power of our advanced data coupled with the power of our CRM solution. And we fully expect this trend to continue in 2019 and beyond.

With that, I would now turn -- I would like to turn the call over to our CFO, Jie Jiao, to review the third quarter financials.

Thank you, Sammy, and hello, everyone. I'll start with a few financial highlights from the quarter. As Sammy discussed, once again this quarter, we achieved strong gross billing and revenue growth as well as record setting adjusted EBITDA and historically low adjusted net loss. Our mobile segment is performing very well with more than 50% topline growth and more than doubling of gross billings. Our third quarter achievements demonstrate the successful execution of our business strategy, combined with our ongoing focus on effectively managing costs even during a period of high growth.

Now for our detailed financial results for the third quarter of 2018, gross billing grew to $104.4 million for the 2018 third quarter, up 79% from the 2017 third quarter, primarily resulting from ongoing significant growth in our mobile audience solutions business. I would note here that on a sequential quarter-over-quarter basis, total gross billing was unfavorably impacted by depreciation of the Renminbi against the U.S. dollar, a trend which could continue into the fourth quarter.

Gross profit and gross billing were similarly impacted on a sequential comparison basis. Gross billing from mobile audience solutions increased to $87.1 million during the third quarter of 2018, up 110% from the same period last year due to larger mobile marketing spend by our clients. Gross billing from other solutions totaled $17.3 million for the third quarter of 2018, a 2% increase from the third quarter of 2017.

Net revenues for the third quarter of 2018 grew by 43% to $42.6 million from $29.8 million for the third quarter of 2017, primarily resulting from an increase in net revenues from mobile audience solutions. Net revenues from mobile audience solutions rose 51% to $37.8 million for the third quarter of 2018, up from $25 million for the same quarter last year, primarily related to a continued shift toward placing greater emphasis on capturing increased marketing demand in mobile audience solutions. Net revenues from other solutions was $4.8 million for the third quarter of 2018, flat with the third quarter 2017 related to the shift in focus I just discussed.

Gross profit increased by 44% to $9.3 million, up from $6.5 million for the third quarter of 2017, mainly resulting from improved mobile audience solutions gross profit. Total operating expenses were $23.4 million for the third quarter of 2018 compared with $9.2 million for the third quarter of last year. The increase was primarily due to $11.6 million in share-based compensation related to incentive awards and a $2.2 million related to the $30 million of convertible notes that were issued in September. This brings operating loss to $14 million for the 2018 third quarter compared with an operating loss of $2.7 million for the same period last year.

Net loss totaled $21.8 million for the third quarter of 2018 compared with net profit of $6.4 million for the third quarter of 2017, mainly attributed to a fair value gain on derivative liabilities of $7.7 million and an exchange gain of $1.3 million for third quarter of 2017, while there was an exchange loss of $1.9 million and a fair value loss on convertible notes of $5.4 million for the third quarter of 2018. Net loss attributable to the company's shareholders per diluted ADS was $0.41, compared with a net profit per diluted ADS of $0.12 for the third quarter of 2017.

Adjusted EBITDA for the third quarter of 2018 was a record high $1.2 million compared with an adjusted EBITDA loss of $0.4 million for the third quarter of 2017, primarily resulting from the substantial increase in gross profit. Adjusted net loss attributable to iClick's shareholders, which excludes share-based compensation expenses, fair value gains or loss on derivative liabilities, fair value loss on convertible notes, other gains and losses, and convertible notes issuance costs was $0.8 million for the third quarter of 2018 compared with an adjusted net loss of $1.8 million last year.

As a reminder, you can find a reconciliation for these non-GAAP results in the press release we posted earlier today, and which can be accessed at our Investor Relations website.

As of September 30, 2018, cash and cash equivalents grew to $49.8 million from $19.4 million at December 31, 2017. Time deposits amounted to $7 million compared with $25 million at the end of last year.

I'm not going to spend time today on the recap of our year-to-date results, but you can find them in our press release. I'll finish with our guidance, which is updated from our prior estimates due to the impact of foreign currency exchange.

For the full year 2018, net revenues are now estimated to be between $160 million and $170 million, representing 28% to 36 growth -- 36% growth from last year. This compares with prior guidance of $175 million to $180 million, with the revision principally due to depreciation of the Renminbi against the U.S. dollar. We are leaving our gross billing guidance unchanged at between $380 million and $420 million, which represents growth of 53% to 69% from 2017.

In addition to foreign currency, our outlook is based on current market conditions and reflects our preliminary estimates of markets and operating conditions and customer demand, which are all subject to change.

Now I'll turn the call back over to Sammy for closing remarks.

Thank you, Jie. In conclusion, we are proud of our accomplishments in our first 9 months operating as publicly traded company. Our technology and focus on innovation remain stronger than ever, and I'm confident that iClick will continue to build upon our strong momentum in the year ahead as we further leverage our platform, grow our customer base, execute our non-media strategy and explore acquisition candidates.

I would like to thank our employees, clients and investors for their continued loyalty and support, and look forward to sharing more exciting achievements in the near future.

This concludes my prepared remarks. We will now open the call to questions. Operator, please go ahead.

(Operator Instructions) First question comes from the line of Darren Aftahi of Roth Capital Partners.

I've got a number if I can get through them. First on your revised guidance, and I called that Renminbi devaluation. I'm just kind of -- and Jie you made some comments about current customer -- current business demand, I'm curious if you've seen any change either from tariffs or the broader kind of macro from your advertising clients in terms of spending habits on your 4Q guidance.

Okay, so in terms of macro environment, we do not see that there's much change in terms of the regular advertising budget from our clients for the rest of 2018. However, given the uncertainties of the macro environment, it is possible that some clients may push back new campaigns in 2019. But I believe that Jie's comments on our 2019 outlook indicated that we have a very healthy growth of -- and also mix of our business. Within our own verticals, we believe that the gaming vertical may be affected by the regulatory changes but our travel industry vertical outperformed other verticals in the third quarter, further strengthened by the new initiative we are building up with set of luxury hotel brands and other travel sectors and clients.

Great. And then I'm curious on the CRM initiative. So -- I heard you said you got the relationship with Tencent, but can you kind of indulge us just in terms of how the platform theoretically will or is differentiated sales -- versus the sales force. And then, in terms of marketing spend with clients will we see an uptick on your advertising or just as simply an up-sell to your existing client base?

Okay. So why don't I give you some macro insight of the demand. And then our product officer, Yan, can give you some function and features comparison where some of the U.S. comps. So we are seeing very strong demand from our clients for our CRM offerings with the collaboration with Tencent Cloud and also the Tencent mini-programs as international brands continue to struggle with data integration. We expect that our CRM offerings will contribute to double-digits of our gross profits in 2019 based on the strong pipelines ahead. And also Baidu, it's very keen on further developing its own mini apps programs. And we have had discussions with them on leveraging these programs. For example, we may design the CRM solution work like we do with Tencent, this alliance with our strategic focus on the significant opportunities in mobile and also enterprise solutions. We have worked closely with Baidu for a long time, and we look forward to helping them to find new monetization models based on their many programs.

Okay. And this is Yan, Chief Product Officer at iClick. With regards to the mini-programs and the CRM shift, we're seeing that one, as Sammy already mentioned before, we're seeing that marketers in China and internationally are alike. They are having trouble integrating with the ecosystem itself while they see this huge opportunity for new forms of engagements and CRM with their Chinese users. So in terms of the design and functionality, we design a new form of engagement opportunity, either by the mini-program itself, but also through internal enterprise WeChat. It creates a new form of customer service as well as user engagement and retention models. So with that integration with Tencent as well, it also creates new properties whereby we're able to engage throughout Tencent or other properties to try acquisition for user and then going forward retention and greater customer lifetime value throughout the life cycle.

Just couple more. You talked about the use of cash and you mentioned M&A, just kind of curious if there's more horizontal acquisition or something the back will hire. And then I've got 2 more.

I think for our M&A strategy, we are focusing on 2 areas. One, will be on our product type. For example, right now, we are looking for some target that can help us to enhance our product because we believe that the data is sitting at the core of our marketer's side. For example, we are now offering our clients customer acquisition programs through advertising. But in the future, what if our marketers -- if they have already some existing client from some of the off-line channel, how can they manage? Now we are looking for some software company. They can help the client to be the in-house data management program as well as the CRM. So the second area, we are looking for is the regional expansion because right now, given the current macro concerns on the U.S. and also the China trade war. So I could sit in a very beneficial position because we are 30% of our business, coming from overseas advertisers. It gives us the advantage. So that we can drive more regional strategy. Remember that we have 780 million unique users profiled, which gives us their door opening unit where we talk with the regional travelers and also the regional brands who want to target the Chinese audiences. I think the second part of our M&A strategy is trying to expand our solutions and also our technology into Asia.

Got it. And then 2 more quick ones. What was the cash from operations in the quarter? And then, if you looked at your gross margin on a currency-neutral basis for the third quarter. I'm curious if that would have been more similar to the 23% level you saw in 2Q.

Darren, this is Terrence. I'm the Senior Vice President of Finance. In terms of cash conditions, right now, we have $50 million in our bank account. And we are also increasing certain banking facilities in the quarter. So probably, we would have more cash to -- for the team to execute a strategy. And in terms of the gross profit margin, on the currency adjusted basis, I think we are pretty much sitting in a 22% to 24% internal operational guidance. And overall for the first 3 quarters, we are still sitting at over 23% gross profit margin percentage. So we are still pretty healthy. And of course, there's certain GAAP adjustments in the quarter but whenever we're spending or building some new products, we would be able to spend a little bit more cost in terms of R&D. And these costs will be allocated to the gross profit, of the cost as well. So it fell a bit on that but overall, we are still good on that.

Our next question is from the line of Fawne Jiang of Benchmark.

Sammy, I just want to get a bit more color on your initiative into the non-media business, particularly the CRM business intelligence solution part. Just it seems like according to your comment earlier, demand is not a problem. So if that's the case, how do the competitive dynamics look in the industry, and how is iClick differentiating from the other potential suppliers out there? And innovation, what specific verticals are you guys are looking at and where is the margin profile potentially for this business?

So to answer your question, I will say that in addition to our existing technology, focusing on advertising. So we are expanding into the non-advertising technology business as well, leveraging our strong data capabilities. I think as we have discussed we are transforming our business intelligence solution, leveraging the collaboration with the Tencent Cloud and Tencent mini-programs into a more standardized enterprise CRM solution that can seamlessly work with our marketing programs. This is the new CRM and marketing cloud model. We are seeing strong demand from our client for this solution. As many retailers in China have been struggling with the data integration for a long time, we are already working with a number of international brands and foresee a strong pipeline ahead. Right now, we expect our CRM offerings will contribute 10% of our gross profit in 2019. In addition, our iAudience solution has also gaining traction with our international business, such as Palazzo Versace Hotel, Armani Hotel, which also validates the value proposition of our data and will help us to drive new data services income in the future. Our finance and IR team are working on a new presentation for 2019, which could disclose more information about our progress of this new solutions.

Understood, that's helpful. Just a quick follow up there. Sammy, I think you also mentioned that iClick expanding internationally, at least planning in '19. Just wonder, how much does international business contribute currently? And how should we look at your efforts or strategic moves on international come into '19 for both the data side as well as on the media side.

Okay, that's correct. We are expanding our footprint into the regional market. So currently we have around 30% of our business coming from overseas. So we are looking for strong local partners in South Asia countries driven by the One Belt One Road policy. We believe that there may be -- there are more opportunities to expose certain advanced technology business model to these countries from China. Our strategy is to target local partners with the local networks, consumer base and data sets, that can help us to create clear synergies by leveraging our expertise on the internet and digital marketing spaces. We aim to create new and proprietary media networks of this model in these countries. The collaboration with Ctrip on the e-commerce platform will help us to develop our new business model, targeting outbound travelers more efficiently and effectively. We also see interest from duty-free shops in different countries, retail brands as well as luxury brands. With all of this and our existing advertising business for international clients, we are targeting to deliver more than 30% of our revenue contribution from international business in 2019.

Understood. Sammy could you -- you have delivered very intensive market improvement quarter-on-quarter. Just wonder, how should we look at the margin of profile for 4Q? And as it relates to that, how should we look at the overall margin profile for 2019? Is there a timetable you expect the company to break even at some point?

Fawne, this is Jie. We expect to just release the 2019 outlook in the next quarter. So probably we have the large visibility from the advertisers and the marketers in January. Our marketing technology business continues to be a solid growth driver. And we don't expect the substantial slowdown of this business in terms of the gross billing budget, and I believe that 20% to 25% year-on-year growth is our baseline likely next year. While in terms of the margin improvement, the margin shall remain in the 22% to 24% range on GAAP basis, the gross profit margin percentage. The non-marketing technology business and the new business models, I think Sammy and Yan just explained, have higher margin product kind of solutions. And we expect that our overall margin shall be able to be improved upon significantly with minimum 2% to 3% add-on.

Our next question is from the line of Virgina Yu of Citigroup.

I guess 3 questions here. So #1 is a little bit on the guidance part. Since we are changing the guidance on net revenue but not on the gross billing, we attribute that to the change of -- because of the currency, but can you explain a little bit more and why we change the revenue only, but not the gross billing? And #2 is more about on your CRM project. Today, Sammy, you mentioned this year the CRM project is expected to contribute around 10% of the gross profit of 2019. And you also mentioned that it also has some like of effective margin profile. So I would assume probably it will contribute less than 10% of revenue in 2019. So in terms of this split between the advertising business, other media business and non-media business, how should we look at in 2019? Is it like roughly 75%, 25% split or how should we look at it? And the third question is more on a big picture, given management mentioned a lot of initiatives and lots of different plans going forward like the new product or going internationally or M&A -- potential M&A targets. How do you prioritize that and with this type of priority change given any change on uncertainty in terms of macro situation in 2019 or any change in terms of China, U.S. relationship?

This is Terrence. I think for your first questions about why we are changing the guidance only on the net revenue but not on the gross billing. I think the gross billing is an operational benchmark of our business growth and that's as still pretty strong at the moment. And right now, for the first 3 quarters, we already finished USD 300 million gross billing budget. So it's nothing that it is not impacted by the kind of foreign currency like translation but right now, the gap between that $300 million and our kind of like guidance of $380 million to $420 million is basically an achievable target. And with the confidence on that and that's why we don't change gross billing guidance but in terms of net revenues, I think because we're looking at the current first 3 quarters performances, and overall still on track operationally but right now, looking at the GAAP between the guidance, we believe that it will be more prudent because we are not pretty sure about the fluency of fluctuation in a macro environment. So we tend to be a little bit more prudent in terms of that. So that's why we are changing one guidance and not shifting the other. And that's for your first question. And for your second question, basically about how we should look at into our marketing cap business and non-media strategies that we are pushing in 2019. So as Sammy also mentioned, basically, we are working on a new presentation format to have the investor and analyst understand how we look at these 2 business. And right now, our own estimation as Sammy also mentioned, we will have 10% minimum comp gross profit contribution. In terms of revenue basis, yes, you would probably be kind of like in a single-digit percentage because our revenue base is a bit bigger. But the contribution of debt to our overall probability will be huge. As Jie also mentioned, you will be able to contribute at least 2% to 3% in terms of gross profit. So right now, we look at the non-media business and more as a kind of a gross profit contributor to our whole business. And we would present a new way on the true business in the future. So for the third question, I think, I will pass it back to Sammy.

So I just want to repeat it, Virginia, your last question the #3 question will be regarding the area of our acquisition and like target, right?

I guess strategic focus because you have made this CRM initiative pretty new to the company and then you also have some international expansion plans. And also on top of that, there will be M&A target. So all these different business directions the company is going towards in 2019. So what will be your priority? And with this type of priority change with the macroeconomic situation changing or China's relationship with the U.S. or with the international world changing, will that change your priority as well?

I think, our priority, our focus is focusing on how we can help our clients, our marketers, with our tech AI and also our technology platform. So currently, we have over 3,000 clients in our existing client tool. So what we are helping them is, on the advertising solution, what we want to do is try to up-sell our current clients with our new offering -- product offering. For example, in a moving shift migrating just like one single touch point the advertising solution to a more a marketing automation solution. For example, like CRM data integration. And then the second part, we are not shifting our focus to other countries because organically, we always -- we already have 30% of our business coming from overseas, which I said, and we have the advertisers' relationship with the agencies and also the direct marketers, which we want to expand into our current relationship and also our product offering, trying to up-sell them with more product. So this is our core key extension focus in 2019.

Our next question is from Bo Pang of Oppenheimer.

My first question is regarding the CRM. Can you just talk about -- talk a little bit about how is the -- what is the business model? How do you get paid? Like, I think you already have some current customers on that front. So can you just give me more color like how do you get paid? It's like an upfront fee or a subscription fee that kind of thing? And then my second question is, you mentioned a lot of new initiatives like CRM, BI and international expansion, so I think the gross profit is pretty high already, so can you talk about what kind of investment on operating lines you have to make like sales and marketing and research that kind of thing?

First of all, thanks for the question. So first of all, as I covered, we have seen there a wishful demand from our clients for the CRM offerings with the collaboration with the Tencent Cloud, the Tencent mini-programs. The international brands continue to struggle with other data integration. So we expect that all this CRM offerings first, we target trying to help our marketers, how to consolidate, all this different data from different channels. So first of all, we are charging this client on the setup fee and then with annual maintenance. We are claiming to charge 20% to 25% of the maintenance fees going forward starting from second year. So that can help us to have a more tighten relationship and also can help us drive recurring revenue relationship with our client.

And in terms of their cost or the investments that we need to put into these new initiative, by the way this is Terrence. Basically, there are 2 fold or 2 ways that we are going to invest on that. First, it's from the organic basis that we will build the team, and also actually over the course of the quarter, we actually employ more people. So we have increased our accounts. So we are investing a bit more on R&D and also some new team's acquisitions. And they are not substantial but we are going to speed up these. Actually, we have another option, which is an inorganic basis, which were pretty quick for us to kind of ramp up this business. But of course, there is some one-off, one-time capital injection on that. So right now, the company is rising different options. And going forward, whether you're concern would be, this would substantially change our cost structures and expenses and the kind of operational leverage that we have. And at this moment, I don't think that we will see that kind of operational leverage being changed as we always have good operational control in terms of expenses. We don't foresee these to be kind of margin erosion. We expect these businesses to be margin contributors. And would bring a lot of leverage to us in terms of bottom line as well.

(Operator Instructions) As there are no further questions now. I'd like to turn the call back to our presenters. Please go ahead.

Thank you once again for joining us today. If you have any further questions, please feel free to contact iClick's Investor Relations Department through the contact information provided on our website. Thank you again.

Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect.