Amber International Holding Ltd (AMBR) 2021 Q3 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for iClick Interactive Asia Group Limited's Third Quarter 2021 Financial Results Conference Call. (Operator Instructions) After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Lisa Li, Investor Relations Director. Lisa, please go ahead.

Hello, everyone, and welcome to iClick's Third Quarter 2021 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.

In addition, during the call, management will give their prepared remarks in English. During the Q&A session, we will take questions in both English and in Mandarin and a third-party translator will provide consecutive translation. All translations are for convenience purpose only. In case of any translation discrepancy, management's statement in the original language shall prevail. Jian Tang, TJ, Chairman of the Board, Chief Executive Officer and Co-Founder of iClick, will first provide a high-level review of the third quarter 2021 results and share his thoughts on our execution strategy ahead. Chief Financial Officer, Terence Li, will follow and give us additional insights on the financial results for the third quarter and provide guidance for full year of 2021. He will then turn the call back over to TJ for closing remarks before the call is opened for 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 these and other risks 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 note 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, Chief Executive Officer and Co-Founder, Jian Tang. TJ, please go ahead.

Thank you, Lisa, and welcome to the call, everyone. Our third quarter performance was marked by continued exceptional Enterprise Solutions growth and a modest growth in our Marketing Solutions business.

iClick's Enterprise Solutions business has achieved an impressive 8th consecutive quarter of record revenues, growing 131% year-over-year to $20 million. We are encouraged by this performance, which continues to demonstrate the consistently growing demand for private domain traffic and online and off-line integrations.

Our Marketing Solutions revenues for the quarter grew 11% year-over-year to $67 million, which was a declaration from prior quarters. I want to first emphasize that the challenges we faced in the third quarter in our Marketing Solutions business were not unique as we have observed this as an industry-wide phenomenon with our key partners and peers having likewise reported similar performance and outlook due to impact from shifting regulations and the uncertain macroeconomic environment.

Having said this, we remain confident in the long-term growth of China's digital advertising industry and are evolving to adjust to the changing market conditions. During the quarter, we adopted a strategy to balance sales growth and profitability in order to maximize long-term client retention. With this, we believe that our robust and diverse client portfolio puts us in a strong position to benefit from the eventual market recovery.

By contrast, the demand for private domain traffic remains solid, and we continue to capitalize on this trend through investment in our Enterprise Solutions business and the robust execution strategies. Our leading industry solutions, coupled with a growing loyal client base, are driving healthy revenue growth while offsetting volatility in the advertising environment among our brand clients.

The uncertain macro environment may result in a wider impact across business sectors in China, and we expect our enterprise solutions will not be an exception. That said, we have continued to invest in sales and marketing and R&D to support our relentless devotion to developing innovative products and further expanding our market share within key account clients.

In light of the demand from brand clients for fully integrated domain traffic solutions that go beyond SaaS, we will also devote more resources to developing our enhanced SaaS plus model which we believe will prevail over pure SaaS solutions in China. The technology and the market dynamics have been changing rapidly in China and thus, we believe our SaaS plus model, which also covers intelligent industry methodology and the full channel operation services is more suitable for helping brand clients to unlock the market potential in the region.

We believe that these investments will yield high returns as the macro environment recovers. While we cannot forecast the timing of the recovery, we are committed to our long-term strategy, and we'll continue to work closely with our clients and our partners to leverage our leading industry solutions within enterprise solutions.

I would now like to share with you 2 exciting client case studies that demonstrates the growth engines filling our ongoing success in Enterprise Solutions. Our recent partnership with the renowned French beauty brand, L'OCCITANE, exemplify iClick's ability to tailor cross-border smart retail solutions. We utilized our iSmartGo solution to launch our O2O-focused WeChat mini program called L'OCCITANE Travel Buddy that enables travelers to connect with brick-and-mortar duty-free stores, thus providing the access to a wide range of products they otherwise would miss and driving sales growth for cosmetics within China's growing domestic travel retail market.

It also paves the way for L'OCCITANE to boost revenues from duty-free stores throughout the entire APAC region to serve Chinese outbound travelers as international travel restrictions are lifted. We also look forward to leveraging the modules we have developed for the travel retail industry to provide customized solutions for additional clients in the region. In addition, iClick helped CN Logistics, a Hong Kong listed company, to launch its first mini program providing quality wine products and successfully helped them tap into the enormous market potential of cross-border e-commerce.

In the future, we expect to generate further advantages with CN Logistics beyond the current collaboration, utilizing CN Logistics' expertise in the global logistics solutions to add more value to our current integrated Enterprising and Marketing Solutions.

As you know, iClick has formed a number of partnerships that allow us to deliver valuable, full-stack customer solutions for clients and also generate strong cross-selling opportunities with high-profile multinational brands. We will continue to leverage these valuable partnerships to capitalize on the digital revolution sweeping China. These impressive successes demonstrates our replicability, scalability and flexibility in utilizing iClick's off-the-shelf products and our experience in tailoring solutions to meet the individual needs of multinational clients to expand both online and off-line market share in China across new and growing sectors.

In addition, we are proud to report several awards received during the quarter that recognize iClick's outstanding accomplishments and strong efforts. Among the awards received are 2, I believe, very special mention, including an award for e-commerce retail in the 2021 Hong Kong Business Technology Excellence Awards, which honors outstanding companies that made exceptional contributions in pursuit of technological innovation.

We also received the Best Buy Side Team Award - Highly Commended by The Drum Awards for Digital Advertising APAC, which highlights the very best of digital media and technology that sit behind the world's most effective campaigns, just to name a few.

We are very proud of this outstanding industry recognition and we'll work hard to continue driving excellence in all we do. Before I end my opening remarks, I want to reiterate that we are encouraged by the continued outstanding growth in our Enterprise Solutions and remain vigilant in preserving our market share in Marketing Solutions. We also continue to be encouraged by our iClickers' deep commitment, and we appreciate the continued support of our loyal shareholders.

This concludes my opening remarks, and I would now like to turn the call over to our CFO, Terence Li, to discuss the third quarter financials. Terence?

Thank you, TJ. Hello, everyone. I'm pleased to share with you our financial performance in the third quarter of 2021.

Our third quarter financials include record results for Enterprise Solutions for the eighth consecutive quarter. Let me briefly walk you through the key financial figures.

Revenue for the third quarter of 2021 grew to $86.8 million, up 26% from $68.9 million for the same period of the prior year, attributable to the increase in contributions from Marketing Solutions and Enterprise Solutions. Revenue for Marketing Solutions grew to $66.6 million for the third quarter of 2021, up 11% from $60.1 million for the third quarter of 2020, primarily as a result of growing market demand from specific action marketing campaigns.

Revenue from Enterprise Solutions was $20.3 million for the third quarter of 2021, up approximately 131% from $8.8 million for the third quarter of 2020, primarily due to the increasing need for online and off-line consumer behavior data integration and digital transformation.

Gross profit for the third quarter of 2021 was $21.7 million, representing 8% increase compared with $20.1 million for the third quarter of 2020, mainly due to contribution from higher-margin Enterprise Solutions.

As of September 30, 2021, the company had cash and cash equivalents, time deposits and restricted cash of $96.7 million compared with $94.5 million as of September 31, 2020. 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 past release we posted earlier today, which can be accessed at our Investor Relations website.

Adjusted EBITDA for the third quarter of 2021 was $3.6 million compared with $4.7 million for the third quarter of 2020. Adjusted net income for the third quarter of 2021 was $0.8 million compared with an adjusted net income of $2.4 million in the third quarter of 2020.

For the reconciliation of the company's adjusted EBITDA and adjusted net income from net loss, its most comparable GAAP measure, please refer to unaudited reconciliations of GAAP and non-GAAP results. Gross billing was $195.4 million for the third quarter of 2021, representing a 17% increase compared with $167.1 million for the third quarter of 2020.

The increase was the result of increasing marketers' demand that's actually from the fashion, food and beverages, premium and luxury sectors. Overall, the financial performance in the third quarter continues to be positive despite the slower growth in our Marketing Solutions sector, which as TJ has indicated, is largely due to macro conditions in China and appears to be (inaudible).

For further information, please see the detailed recap of other financial measures in the past release we issued today. I would now like to conclude my remarks with our outlook for full year of 2021.

We have maintained our 2021 guidance unchanged with total revenue ranging from $318 million to $338 million, and revenue from Enterprise Solutions falling in the range of $62 million and $68 million. Please note that our outlook for revenue is based on current market conditions and reflects our current gauge of the COVID-19 pandemic impact. These assumptions are subject to change. With that, I'll now turn the call back over to TJ for closing remarks.

Thank you, Terence. Our data-driven solutions are clearly driving scalability under sustainable growth, and the cross-selling opportunities we are seeing from our existing Marketing Solutions and through multiple partnerships continue to fuel strong growth opportunities despite the challenges of the macro environment. We remain proud of our performance throughout 2021 and believe this growth will continue even if at a slower rate than experienced in the first half of the year.

We are confident that our core value proposition for brands and our innovative SaaS plus approach will be among the cornerstones for our ongoing growth. We also remain optimistic for continued strong growth in our higher-margin Enterprise Solutions segment. We will continue to pursue a balanced approach to retaining clients and fuel advertising demand rebounds in our Marketing Solutions segment, always an eye towards continuing to improve the overall profitability of the company.

I wish to thank all of our key stakeholders, partners, clients and the shareholders who see what we see in iClick. That is the promise for a very bright future, the promise of delivering true innovation against the backdrop of the digital transformation overtaking China. We remain focused on executing our clear strategies to weather these changing dynamics and are confident that we are pursuing the correct path. To all our devoted iClickers who help us to deliver excellence every day, I say thank you to each of you for it is with you that our success truly rests. Thank you for your continued support.

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 is from Nelson Cheung of Citi.

(foreign language) So let me translate myself. My question is on Marketing Solutions is about your outlook into fourth quarter. And in the 2022, whether you believe the worst situation is already behind us or we are going to face -- or we are going to face greater uncertainty in the future? And which verticals will be impacted more severely?

And then my second question is about the Enterprise Solutions. I just wonder, given the rise of other big players like Tencent and Baidu, on the SaaS development, what do you think about the latest competitive landscape in the market?

[Interpreted] This is TJ. Thank you, Nelson, for asking questions. I'd like to take your first question about Marketing Solutions for the outlook of the entire advertising industry. Short-term speaking, that is in Q4 this year and the first 2 quarters of next year, I believe the advertising industry will still be affected by macro economy. We are tightening regulations in some industries as well as the resurgence of the pandemic. Short-term speaking, the advertising industry will be put under some macro pressure. And therefore, in the next following quarters, the entire advertising industry will remain weak. And actually, our view is in line with the market players in this industry as well as some of our media partners.

And as to our advertising business, our advertising business mainly target key account clients who have very solid financial position. And in addition, our Marketing Solutions has clients diversified in different industries. Therefore, in the face of the challenging market environment, we will be resilient enough to adjust our client mix and strike a balance between growth and profitability. We can choose to increase profitability short term or we can choose to sacrifice profitability to gain market share so that when the market rebounds, we will be able to actually make better returns. Then we will also continue to pay attention to new forms of advertising in the Marketing Solutions business such as KOL and short-form videos, which I believe will help our Marketing Solutions business in the future.

As to the long-term outlook of the advertising industry, that is in the next 1 or 2 years or even longer, we are still optimistic about the digital advertising industry in China. We still believe that the digital advertising has a great potential here.

Okay. As to your second question about the competitive dynamics in the Enterprise Solutions business, our view is that the SaaS industry in China is still at its early stage of development, and this market is still very decentralized. Different suppliers have been exploring different business models. And the Enterprise Solutions business actually is a huge market.

Since we've launched the Enterprise Solutions in 2019, we have been targeting key account clients. We have been helping them by providing them with the SaaS solutions as well as operation services, that is the SaaS plus model. And so as to help our clients adapt to the new media ecosystem in China, new media here refers to WeChat and other social media or the KOL and any other online celebrity ecosystems.

And for key accounts, clients or the big brands, by providing them with the SaaS solutions, operation services and help them to identify new opportunities in the new media environment. So I think that we have a clear target customers, and we have well-established our Enterprise Solutions strategies. And based on our years of development, we've found out that there are quite a lot of opportunities in the Enterprise Solutions market.

And for the big brands, actually, it is very difficult for them to grow further on the e-commerce platform. But on the WeChat, on the KOL or other live streaming platforms, they still have more opportunities to grow. And so by using the Enterprise Solutions as well as the operation services, big brands will have a greater opportunity to grow in the future. And I think that our company has a great competitive edge in this sector because we have years of experience serving key account clients, and we have great data analytics and consumer insights.

We offer both SaaS products and operation services, and we also can customize solutions for key account clients. And we also have thousands of Marketing Solutions clients who we can cross-sell or upsell products to them. And so I think that you also mentioned that some tech giants, such as Tencent and Baidu, are also launching their SaaS solutions. Our view towards that is that the enterprise solution market is big enough, and we actually target different customers, and we use different service models. And many of our SaaS products already -- are already included in the (inaudible) plan of Tencent and have been deployed on Tencent Cloud to serve the clients of Tencent.

So for key account clients, what they need is not only SaaS products, but also operational services. So in this regard, I think there are more opportunities for us to cooperate with Tencent and other tech giant than competing with them. So this is our position.

The next question is from Thomas Chong of Jefferies.

(foreign language) So I will translate myself. My first question is how do regulations on data processes and the rules of PIPL will impact our advertising business? And my second question is about the update on cooperation with Baozun.

[Interpreted] Okay. Thank you for your question. And the first question is about the PIPL and the data security. I think compared with the last quarter, there are no big changes. And China now is tightening the data regulation. And long-term speaking, I think it's good for the healthy development of the entire industry.

And I also -- and I think that the purpose for tightening regulation is to eliminate those gray or some illegal practices in data transactions, which actually has hurt the entire industry. And our company has always been compliant in collecting and using data. We have been -- we have already received Level 3 certification in information security, which is the highest certification that can be given to nonbank institutions.

And to its impact on advertising industry, yes, the PIPL will have some impact on the advertising industry. It means that the media needed to provide options to consumers and let consumers to decide whether they agree to authorize the advertisers to use this information in their advertisements. And short-term speaking, it may affect the advertising position. But long-term speaking, I don't think that it will actually affect the brand demand for online advertising. And I think that it actually will lead to a new balance and as long as people have figured out how to better use data.

And in addition, sometimes when customers opt out this option, they found out that they still receive advertisements. So probably they will opt in later. So we need to wait and see.

And as to the data security, both our Marketing Solutions and Enterprise Solutions targeting 2B (sic) [B2B] customers, not 2C. So we don't directly collect data from customers. Instead, we collect masked data from advertisers and the media and the data partners. And for Marketing Solutions, the data we've collected is non-PII data, that is data cannot identify the identity of consumers. We use some of virtual symbols and use our algorithm to place advertisements. And we track the current laws and regulations, and these are not actually forbidden or regulated according to the latest law.

So second question is about the cooperation with Baozun. As I have mentioned previously, Baozun is an important partner of iClick, and our cooperation mainly lies with the WeChat ecosystem. That is to help brands to increase their private domain e-commerce. And both companies have leveraged our advantages in providing the omnichannel private domain solutions to clients.

Currently, our cooperation is underway, and we have dedicated teams on our -- on both sides to jointly serve customers. Previously, we released a case that is a chart here. We've actually (technical difficulty) as well as Baozun's warehousing and logistics capabilities in serving the entire life cycle of our customers, including the WeChat ecosystem to the delivery of e-commerce.

And we are also jointly serving some other customers. These customers are big, and they have very stringent authorization policies. So we cannot disclose now. And -- but we think that there is -- there are great opportunities to cooperate with Baozun in serving key account clients. And also it takes some time for both companies to integrate technologies and services. And now we are working with other partners to, for example, through (inaudible) and acquired products of [ours]. We have been working with HubSpot to providing overseas customers with WeChat solutions. And we have been also building a cross-border e-commerce for CN Logistics.

We are, at the same time, using the cross-border logistic capabilities of CN Logistics in serving our customers. And also, there are some cross-selling between our Marketing Solutions and Enterprise Solutions customer base. And this kind of cross-selling has helped us to actually convert more customers into the Enterprise Solutions customers. So this is my answer to your question.

The next question is from Brian Kinstlinger of Alliance Global Partners.

Can you talk about your surprising gross margin pressure, especially with a much stronger mix of enterprise revenue, just the new baseline and how long do you think it will take to recover back to that 29% range?

And then my second question is you mentioned you are maximizing long-term retention. What are those steps you're taking? And what is the incremental expense? And will that increase, decrease or flatten out going forward, that spend?

Brian, this is Terence. So maybe let me get back to you on the gross margins, the questions about that. So basically, as TJ has mentioned, during the quarters, we do face a lot of unusual issues within the market. And overall, the sentiment and a lot of pressures are coming from different verticals. We've been missing some of the major verticals, like education and some of the clients from some of the gaming sector as well. So we've been trying to capture new demand and also trying to compete for new projects.

And I guess in this process, we're also trying to retain our long-term customers, and we've been providing a little bit more discounts towards these clients. And that's why it pressure much our margins. And at the same time, it's because the media's policy also has some changes, so we're also trying to capture more benefits, but it seems that the tension is there and that we're trying to strike for the balance between the profit and also the growth and the retention of clients, and it leads to a kind of jump in terms of gross margin in the quarter. And it probably would last for until next quarters.

And maybe in the next year, we will have more visibility. As TJ mentioned, I think this is only a short-term phenomenon that we are observing right now. And as you said, the Enterprise Solutions side is still growing pretty much strong and still maintaining decent margins overall. And so we've been forecasting or looking forward so that going into the next year, probably when the enterprise revenues still keep going and that will be growing to, right now, it's already hitting like 20% in the mix and when going to next year, it's probably going to 30%, 40% mix, then I think we'll be able to recover overall the margin.

And also, the Marketing Solutions margin will also be improved. As TJ also mentioned, some businesses only relatively short term and that we've been able to recover when the market come backs and getting some new clients and new business, also some new solutions as well.

So regarding your second question on how do we maximize the long-term retentions and whether there will be incremental expenses going forward, and I think specifically, that would be for the enterprise SaaS model. I think on the Marketing Solutions model, we basically keep it gradually back in terms of how we manage overall the growth with the operating expenses. But in terms of the enterprise SaaS solutions, basically, we still need to sync in relatively some incremental expenses. And not just for retentions, but also for growing the segment and growing more our client base as well. And still pretty much [key accounts driven at this point], and we're still pretty much trying to capture more demand from the market.

So it's more abstract at this moment and hopefully, we'll be able to discuss more next. And here will be my answers. And [Christine], if TJ has anything to add on, but these are from my remarks. Thanks.

Operator, can we open up the question to the next participant?

The next question is from Colin Liu of China Renaissance.

(foreign language) So I'll just translate for myself. I only have one. If we look at gross margin for this quarter, it is actually declining on a Q-on-Q basis. I wonder what's the reason behind? Is it anything to do with the broad macro weakness?

(foreign language) Okay. Let me take your question first and then see whether Terence has anything to add. You've mentioned about the declining gross profit margin. And I think that actually, this is largely due to the entire sentiment in the advertising industry.

In Q3 and even in the second half of this year, the entire marketing -- advertising industry has faced very severe challenges, and you can see that in the financial statements in the mainstream media. And due to the weak market sentiment, the weak demand actually has intensified the competition in this industry. So our strategy right now is to adapt to this changing environment by sacrificing some profit margin so that we can maintain the long-term healthy relationship with our customers. We want to share the woes of customers so that we can recover in a healthy manner when the market rebounds.

And in addition, as I've mentioned previously, our Marketing Solutions actually cover a wide variety of industries. So we are resilient enough to strike a balance between growth and gross profit margin. In addition, we are currently working to connect data of Marketing Solutions and Enterprise Solutions so that we can create more synergies from these 2 businesses. I believe that it will help improve the gross profit margin of our marketing solutions in the future. So this is my answer.

As there are no further questions, I'd like to turn the call back over to Lisa Li for 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. See you next time. Thank you. Bye-bye.

This concludes the conference call. You may now disconnect your lines. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]