Amber International Holding Ltd (AMBR) 2020 Q1 法說會逐字稿

Good evening, and good day, and welcome to the iClick Interactive Asia Group Limited's First Quarter 2020 Financial Results Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Lisa Li, Senior Manager, IR. Please go ahead.

Hello, everyone, and welcome to iClick's First Quarter 2020 Financial Results Conference Call. The company's results were issued earlier today and are posted online. You can download the earnings press release and sign up for our distribution list by visiting the IR section of our website at ir.i-click.com.

Sammy Hsieh, our Chairman of the Board and Co-Founder, will provide a high-level overview of the first quarter of 2020 for us; then Jian Tang, TJ, Chief Executive Officer and Co-Founder of iClick, will review first quarter results, share insights on our focus and execution strategy; followed by our Chief Financial Officer, Terence Li, who will give us more highlights on the financial results and guidance for the rest of 2020. Then we will turn the call back over to TJ for closing remarks and open the call for Q&A.

Before we continue, please know 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 risk and uncertainty. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risk and uncertainties is included in the company's 20-F as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Please also know that iClick's earnings press release and this conference call includes 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 Chairman of the Board and Co-Founder, Sammy Hsieh. Sammy, please go ahead.

Thank you, Lisa. I am extremely excited to share our first quarter financial results, which were robust despite the continuing impact of the COVID-19 pandemic. We delivered the strongest first quarter results compared to any other first quarter in our company's history as we reported record high revenues, gross profit, adjusted EBITDA, adjusted net income and gross billings. I'm also proud to report that we have realized a second consecutive quarter of adjusted net income, which demonstrates the profit capabilities of our business model as we reach higher economies of scale. TJ and Terence will provide more details on the results later in the call.

These numbers reflect solid growth as we are still operating in a very challenging environment. Little by little, life is beginning to return to normal in China. We see restrictions being lifted and the economy start -- the economy slowly restarting with measures in place to prevent a second wave of coronavirus infections.

Against this backdrop, we believe this impact brought by the COVID-19 pandemic will be profound in terms of permanently altering the way consumers behave going forward. For example, we expect that consumers will maintain their increased online presence as they enjoy the personalization of buying experiences, convenience and other advantage it affords.

The COVID-19 pandemic has also created a pivotal moment in our industry as brands are faced with greater sense of urgency than ever before to understand rapidly changing customer behavior. Brands now understand the necessity for data-driven analytics to develop smart marketing campaigns and establish comprehensive online to off-line data integration to enhance customer loyalty and generate more sales opportunities. These factors will continue to drive demand for our marketing and enterprise solutions, and we are confident in our ability to execute and deliver superior results for our customers and shareholders.

Now I would like to turn the call over to Dr. Jian Tang, our CEO and Co-Founder, to further discuss the first quarter results, our company's strategy and our focus on execution in 2020. TJ?

Thank you, Sammy, and welcome to the call, everyone. In the uncharted territory presented by COVID-19, we are happy to report significant improvement in our execution and financial performance. As Sammy mentioned in his remarks, in the first quarter, we achieved historically high levels of revenue, gross profit, adjusted EBITDA, adjusted net income and gross billings despite market turmoil. Our results echo what we talked about in our last call as China's information consumption level received a huge boost in the first quarter as millions of residents confined to their homes during the coronavirus pandemic, turned to digital methods to work and satisfy their everyday needs.

Our grand plans recognized the potential upside of these circumstances. And most of the homebound activities, heavy industry sectors, spend a great portion of the marketing budget to capitalize on it, resulting in a 64% increase in our gross billing in the first quarter. We expect to experience additional increases as our business continues to benefit from the healthy organic growth of the digital advertising market and the programmatic advertising in particular.

iClick is well positioned as we continue to build and support our Enterprise Software Solutions capabilities, which provide

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support profitability for the rest of 2020 and beyond.

I'm also very happy to report that we continue to successfully ramp up our Enterprise Solution business. We reported $4.4 million in revenues for the first quarter of 2020, a triple-digit increase of 202% from the same period of last year. As a reminder, we started reporting these revenues separately in the first quarter of 2019 and this marks the first time we can make year-over-year comparisons.

Entering into the second year of operation, the customer base we've developed in this segment has created a solid foundation of recurring revenues while newer clients are ramping up projects that will provide further increases. I want to reiterate that we are confident in our ability to achieve our guidance of $20 million in revenue alone for this operating segment this year and planned for healthy increases in the future with the goal of fully transitioning into our integrated marketing and enterprise cloud platform.

Progressing through the global pandemic and the subsequent recovery phase, we are seeing a macro trend of China's digitalization continuing to thrive in the stay-at-home economy. Many companies are either increasing their online marketing efforts or ramping up the technological element of the products and the services to boost their business during the pandemic.

In addition, China is now preparing to accelerate public investments in 5G and other technology initiatives to kickstart the economy following the coronavirus. China's leadership has been trying to supercharge indigenous innovation, and some analysts have suggested the coronavirus outbreak might act as additional stimulus. In the long term, these are positive developments as they will continue to encourage the development of the digital economy.

Given these macro trends, we believe iClick is well petitioned with our data-driven marketing and enterprise solutions offerings as we are experiencing solid demand in both operating divisions.

The 64% year-over-year gross billings increase in the first quarter is proof that our innovative products and services are giving our brand clients data-driven customer analytics to empower them to make the right decisions on marketing dollar spend, completely eliminating any guesswork and risk. This is especially important now while the economy is at a low point and needs to be quickly rebuilt. While we did see strengths from certain areas, such as online gaming, e-commerce and online education, we continue to see short-term challenges ahead as life in China slowly normalizes. For example, we expect that it may take additional time for some sectors, such as travel and hospitality, to fully recover.

Operating in this environment, we will focus on not only fueling top line growth, but also optimizing internal processes squarely centered on the day-to-day operations of our company to ensure that we are running the business as efficiently and effectively as possible. This will help to mitigate further potential negative impact brought by the COVID-19.

As many of you know, we came into 2020 with a much-improved balance sheet and financial profile. In addition to the financing we completed with the majority shareholder of Forbes Media, we also obtained more than $30 million credit facility with HSBC GBA+ Technology Fund for working capital and to supercharge the growth of our core business. We want to make sure we use the money prudently by controlling costs, especially given the uncertain environment and to continue to search for M&A candidates that will be complementary to our business. I also want to optimize our performance by deepening our talent pool coming up with innovative ideas, fostering stronger outside relationships and strategic thinking. These intangibles are just as important to our company's long-term success as we continue to move forward with our ultimate goals of higher revenues and increased profitability.

As I conclude my opening remarks, I would like to take this opportunity to share some recent updates, services awards and industry accolades we have garnered year-to-date. It's very gratifying to be recognized for the way we have executed, particularly by Tencent, our partner and the company that has defined the Internet landscape in China.

First, iClick was awarded the first Overseas Platinum Partner of Tencent's International Business Group. This was given in recognition of iClick being one of Tencent's largest partners covering the regions of APAC and EMEA. This is another milestone in our long-term relationship with Tencent IBG.

Second, we recently launched a new recommendation management platform for culture and tourism content with Tencent Culture and Tourism. The new platform leverage Tencent's strong data capabilities and iClick's rich content resources and data-tracking expertise to provide operators of tourist attractions in China with a rich array of features, including customer preferences analysis and ranked selections of recommended travel content.

Third, iClick has also recently won major awards from Tencent Ads for the second half of 2019, including Best Creative Advertising Idea Award, Excellent Award, Commitment Award and Innovation Award.

In addition to this, our company was also recently ranked by CIO Advisers APAC as a Top 10 Ad Management Company for 2020. iClick has increased the range of its digital offerings and partnerships in the APAC region throughout the past year. We were also listed by the publication as Top 10 APAC Digital Marketing Solution Providers in 2019.

We are very proud for being recognized for our capabilities and efforts. They serve to validate the hard work and efforts everyone at iClick put in to be the best, even in these challenging times, and we are happy to acknowledge and celebrate them.

With that, I would now like to turn the call over to our CFO, Terence Li, to discuss the first quarter 2020 financials.

Thank you, TJ. We conclude 2019 with record results in an environment with a unique set of macro challenges created by the trade conflicts between U.S. and China. In 2020, we are facing another set of challenges related to the coronavirus. Despite the pandemic, our financial results were significantly higher in first quarter, which is generally softer on seasonally adjusted basis. Our gross billings, revenues, gross profit, adjusted EBITDA and adjusted net income all increased year-over-year and were all first quarter records for our company. Our Enterprise Software Solutions business continues to scale as revenue tripled over the first quarter of 2019 while we reported a second quarter in a row of adjusted net income.

I'm excited to share a few highlights from the first quarter of 2020. Our revenue for the first quarter of 2020 grew to $49 million, which was an increase of 25% from $39.2 million for the same period of the prior year. The overall results were attributable to the increase in contributions from existing Marketing Solutions and Enterprise Software Solutions. I would like to comment that we are experiencing strong demand as marketer recognized the value of data-driven marketing campaigns as well as digital tools to optimize online customer engagement.

The revenue from Marketing Solution grew to 44% -- $44.6 million for the first quarter of 2020, up 18% from $37.8 million for the first quarter of 2019. This is our bread-and-butter business, and the continuous strong demand from marketers highlights the value we provide in the age of digital optimization.

The revenue from Enterprise Software Solutions grew to $4.4 million for the first quarter of 2020, an increase of 202% from $1.5 million for the first quarter of 2019, which was driven by the increasing need for online and off-line consumers' behavior data integration. We are very proud of what we have achieved in only the first full year of operation in this segment, and we are confident in our ability to continue to grow this business.

Our gross profit for the first quarter of 2020 was $13.3 million, which is a 7% increase compared with $12.4 million for the first quarter of 2019. Our Enterprise Software Solutions business is a high-margin business. As the business grows, our gross profits should increase accordingly. We are also experiencing a healthy contribution from our Marketing Solution as volume increased in this segment as well.

At the end of 2019, the financing and subsequent convertible bonds conversion and recently secured additional credit facility from HSBC and other banks have given us abundant resources to fund our growth and achieve our long-term objectives. Also, our company is firmly committed to better cash flow management, streamlining our operations and achieving cost optimization. And we will continue to execute in order to achieve these objectives. As of March 31, 2020, our company had cash and cash equivalents, time deposit and restricted cash of $54 million compared with $61.1 million as of December 31, 2019.

For the rest of my discussion, I will focus on our non-GAAP results. You can find reconciliations of these non-GAAP results in the press release we posted earlier today and which can be accessed at our Investor Relations website.

Our adjusted EBITDA for the first quarter of 2020 was an income of $2.4 million compared with $0.8 million for the first quarter of 2019, mainly resulting from the increase in gross profit as well as better cash management and OpEx control.

Our adjusted net income for the first quarter of 2020 was an adjusted net income of $0.6 million compared with an adjusted net loss of $1 million in the first quarter of 2019. This is our second consecutive quarter of positive adjusted net income.

Our gross billings grew to $158 million for the first quarter of 2020, an increase of 64% from $96.3 million in the first quarter of 2019. The increase was primarily a result of increasing marketers' demands, especially from the weak -- verticals of e-commerce, online gaming and online education.

Reaching high economies of scale is a key element for us in achieving increased profitability. We are experiencing strong demand and expect this to continue as we operate in the middle of a pandemic environment where online commerce and activity is essential. For further information, please see the detailed recap of other financial metrics in the press release we issued today.

To give some highlights on the share repurchase program, on January 15, 2020, we announced a share repurchase program in which we may purchase our own ADS with an aggregate value of up to $10 million over the 12-month period ending on December 29, 2020. As of March 31, 2020, we have not effected the proposed share repurchases.

I would like to conclude my remarks with our outlook for the balance of 2020. Please note that our outlook for revenue is based on current market conditions and reflects our preliminary estimates of market and operating conditions, taking into account the coronavirus pandemic. These are subject to change. Our outlook is based on information available as of the date of the press release distributed earlier today.

We estimate our second quarter of 2020 revenue to be between $56 million and $60 million. And our second quarter gross profit is estimated to be between $15.5 million and $17.5 million. Our 2020 revenue and gross profit guidance is unchanged in the range of $240 million and $260 million and in the range of $70 million $75 billion, respectively. Our adjusted EBITDA is now raised to be in the range of $7 million and $10 million from prior guidance of between $5 million and $8 million, which reflects our effective cost-management efforts.

Our outlook remain cautiously optimistic for 2020. We continue to operate in an environment where we have not only seen a seismic shift in ordinary people's online habits, like shopping and otherwise, but we have also seen it in how corporations set policy and operate and even in how governments strategize and execute. We're happy with our results this quarter, yet we continue to monitor the outbreak's impact on our operations as life in China stabilize and returns to normal following the COVID-19-induced lockdown.

In conclusion, if the recovery trend continues and the market can fully reopen in the second half of the year without any subsequent pandemic outbreaks, we should be on track to remain profitable on an adjusted net income basis for the full year 2020.

I will now turn the call back over to TJ for closing remarks.

Thank you, Terence. As we finish our prepared remarks, we would like to reiterate that we are off to a great start this year, yet we are facing a period of continued volatility as China is in the midst of recovering from COVID-19. Despite the negative social and economic impact, the outbreak quickly led to adjustments in people's behavior, from fear to action, to effectively deal with the situation. We will continue to see its impact on consumers' online behavior for the [foreseeable] future as daily activities may continue to shift and become permanent from off-line. This is a positive development here as it brings relief for the economy and sets the course for a faster recovery.

Also, this activity creates a unique situation for us as our company is singularly positioned to supply customer analytics that can track and respond to rapidly changing consumer behavior. It plays to our strengths, especially in the enterprise solutions area, and we are optimistic that it will continue to impact our entire business in a positive way.

In closing, as our company manages through our -- unprecedented business environment near term, we remain committed to long-term value creation for our -- all shareholders and stakeholders. We stand committed to protecting the health of our workforce as well as fostering the competitive advantage of our business. We are encouraged by the progress being made facing and fighting the effects of this pandemic. People's initial panic and anxiety have rapidly shifted toward eagerness to respond with helpful measures. These actions in response to crisis reflect the powerful resilience of the government, the population and the economy.

This concludes our prepared remarks. Thank you for joining us on today's call. We will now open the call to questions. Operator, please go ahead.

(Operator Instructions) The first question comes from Darren Aftahi of Roth Capital.

Hello, everybody. Hope you guys are well. Congratulations on the nice results and the profitability. It's good to see.

A couple of things, if I may. First, could you just give us maybe a sense of the trend line of what you're seeing in your advertising business from maybe the month of March to April and then maybe through the part of May?

Second question, on your enterprise business. Could you perhaps talk about some of the trends you're seeing in pipeline over the last few months, perhaps what your current customer count is, and then how retention is going given the economic environment?

[Interpreted] Hi, everyone. I am TJ. First, I would like to give a brief introduction of the trend of the advertising market in the first quarter and also in March and April. So as we mentioned in the earnings call of the last quarter, due to the pandemic in China, so some industries were severely affected, like the tourism industry, but we did see the slow recovery of this industry starting in April and -- starting in March. And in April and May, we further saw their speeding up in the recovery of their advertising budget.

So last, my understanding of the question is about the Enterprise Solution, I would like to also talk about it. So as -- due to the impact of the pandemic in the first quarter, a lot of consumers had to stay home, which actually increased the time they spend on the online activities. And this also urged our clients to quickly restructure their online layout. And thus, they have a stronger demand for the Enterprise Solution.

I'm not sure if my answer has satisfied your question.

Yes. Just maybe if I could follow up on that, just on the number of enterprise customers you have and what pipeline looks like as well as customer retention.

Okay. Darren, this is Terence. So maybe I could help answer these questions. I think as we communicate to the market early on, our achievement or our target for 2019 will still get 50 core accounts or key accounts, major customers. So we have achieved that in 2019 in terms of the pipeline, and we are going into 2020 in the first quarter. We add on around like 15 core accounts and another like 20, 30, as you know, middle and small accounts. So our pipeline is still building up, and our outlook for the Enterprise Solution is still quite bright at the moment and we got a lot of inquiry. As like what just TJ mentioned, under this pandemic environments, the off-line and online integrations are actually becoming a very important part for a lot of brands and enterprise. So I hope this could get a bit more color on how this business is growing.

(Operator Instructions) The next question comes from Brian Kinstlinger of Alliance Global Partners.

Solid results in a difficult period. For customers that have already installed the primary mini apps, are you seeing demand for additional mini apps functionality from those customers? I guess the first question really is, is growth coming from new customers? Or is it more so from the existing customers taking more technology?

[Interpreted] Brian, I am TJ. Thanks for your question. So we actually starting in the year of 2019, we started to release the earnings of Enterprise Solutions. And a lot of the clients we are working with have actually worked with us for less than 1 year. So right now, our cooperation mainly focused on the existing function, but there were some clients who actually came to us and discussed the potential of extending our functionality modules to more opportunities in the future because -- especially after they saw our added-value service of providing -- of helping them make more efficient and smarter business decisions.

Please go ahead, TJ. Sorry.

[Interpreted] So the clients especially saw our importance of the Enterprise Solutions after they realized our great capability of analyzing the data, and they have also applied what they learned in the Enterprise Solutions into other areas. So our clients and us have threw a very good cooperation cycle together, and this can also help us further improve our ARPU value in the future.

Yes. And Brian, just let me add a bit in terms of how the first quarter's Enterprise Solutions business revenue is coming from. I think as I answered like Darren's questions, we did have like around like 15 new accounts. And these 15 are basically forming around like 70%, 80% of the pipe. And the rest, like 20%, 30%, actually coming from existing clients that -- who are still building on new features and also recurring -- or having some recurring contributions. So that's how the formations of the $4.4 million in the quarter's being built up in terms of the Enterprise Software Solution business.

Great. That's helpful. If I can ask a follow-up to Terence. You commented that as enterprise revenue increases, your gross margin should also increase, which makes sense. Can you comment? By my calculation, you're at 27% gross margin in the first quarter compared to 30% in the first quarter of last year and over 30% in the fourth quarter of '19. Were there onetime benefits that either aided or hurt any of these periods to help explain the trend?

I guess, first, we ought to understand the normal kind of like gross profit margin on our Marketing Solution is always at the range of 22% to 24%. And we have experiencing that basically in 2018. And 2019, in some of the quarters or in the full year, we see the uplift because of the contribution from the Enterprise Solutions, basically, a relatively high-margin business with over 60% gross profit margins. And that's particularly true for 2019, how we uplift the gross profit margins.

And comparing to last year's, I mean, like 2019's first quarter with this year's first quarter's, we could see the gross profit margin. Actually, I think you're pointing to that, is there's some chop on that. So it's basically coming from 2 reasons.

The first is that because we actually changed a bit in terms of the contribution of the different verticals during this particular pandemic environment. We got a lot of e-commerce, online gaming and online education clients. They do have a lot of contributions and they do provide bigger budgets, but on the other hand, their margin profile is a little bit lower than some of the high-margin, like branding and travel and hospitality clients. So we kind of fill up the gap by having more coming from the Enterprise Solutions.

But going like into the second quarter and the third quarter, actually, we're expecting that the higher-margin clients actually would coming back. And we're still pretty confident to remain a certain high-margin business on hand, and that going into the second quarters, and I think the margins profile would be improving as well.

I hope this could give you more color on what's going on in the first quarter in terms of the margin profile.

(Operator Instructions) And we have a follow-up from Brian Kinstlinger from Alliance Global Partners.

So if no one else is in the queue, I'll ask a few more.

I'm wondering, in many industries, there's lots of smaller players who are struggling. I take it your business is not that different and there's some small companies struggling. Are you seeing any of your peers that are smaller financially struggle that could enable bargain-price acquisitions? Or is that not a focus right now? And it's the core business that you got to keep your eyes on?

Thank you, Brian. This is Terence. I think we are constantly looking for different targets for acquisitions. And I think inorganic strategy is definitely one path to grow a company. But in terms of some of the targets that probably you are mentioning, like some of the smaller peers coming or running into certain financial difficulties, I think for us, it may not be an ideal approach because we do -- having the best, or one of the best, [fan] base in our industry. And also, we build a very good foundations in [chat] and platform.

So if looking at how we grow and in this Marketing Solution business, I think, instead of capturing some peers in the situations that you just mentioned, it may be making more sense for us to work on other Marketing Solutions that provide us more higher like ARPU, like revenue per client basis. For example, we actually were active expanding our KOL networks and MCN solutions. So if there's some interesting companies in that particular booming sectors in China, then I think we'll be more interested.

And also in terms of the Enterprise Solutions, we're also looking at different possibilities to grow that both organically and inorganically. So we may, from time to time, look at company with [appropriate] data and technologies that would enrich and enlarge our Enterprise Solutions offerings. So I think these probably would be making more sense for the company's inorganic strategy.

I hope this could give you some color on that.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Lisa Li for any closing remarks.

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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]