Amber International Holding Ltd (AMBR) 2021 Q4 法說會逐字稿

Hello, ladies and gentlemen, thank you for standing by for iClick Interactive Asia Group Limited Fourth Quarter and the Full Year 2021 Financial Results Conference Call. (Operator Instructions) Today's conference call is being recorded.

I'd now like to turn the call over to your host, Ms. Lisa Li, Investor Relations Director. Lisa, please go ahead.

Hello, everyone, and welcome to iClick's Fourth Quarter and Full Year 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 the third-party translator will provide consecutive translation. All translators -- all translations are for convenience purposes only. In case of any translation discrepancy, management's statement in the original language shall prevail.

Jian Tang, T.J., Chairman, Chief Executive Officer and Co-Founder of iClick, will first provide a high-level review of the fourth quarter and full year 2021 results and share his thoughts on our execution strategy going forward. Chief Financial Officer, David Zhang, will follow and give us additional insights on the financial results for the 2021 fourth quarter and full year and provide guidance for the first quarter and full year of 2022. He will then turn the call back over to T.J. 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 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 Chairman, Chief Executive Officer and Co-Founder, Jian Tang. T.J., please go ahead.

Thank you, Lisa, and welcome to the call, everyone.

2021 was another year of exceptional growth for iClick marked by record in gross billings, total revenues, revenues in Enterprise Solutions and Marketing Solutions, respectively, and gross profit.

[And currently], our Enterprise Solutions business grew by 125% year-over-year to $65 million, the second consecutive year of triple-digit growth since we launched our digital transformation strategy in 2019. While our Marketing Solutions business managed to grow by 7% year-over-year to $243 million in 2021 despite multiple headwinds.

Overall, our total revenues increased by 21% year-over-year to $308 million, while gross profit grew by 22% to $89 million. Our strong 2021 performance demonstrates the company's clear vision and solid execution capability.

A shifting regulatory landscape, coupled with heightened macroeconomic uncertainties and geopolitical tensions translated into a slowdown in China's economic growth which started in the second half of 2021. These events have led to a contraction in China's overall advertising sector and continue to impact our Marketing Solutions segment in the fourth quarter of 2021 and may extend several quarters ahead.

Having said this, we remain confident in the long-term growth potential of China's digital advertising industry and aim to maintain our core advertising client base which enjoys great synergies with our Enterprise Solutions business.

We are also excited about the enormous potential brought by the digital transformation mega trend seen in China which we believe will be a trillion dollar market. As mentioned earlier, our Enterprise Solutions business has already reached $65 million in 2021 compared with almost 0 revenues contribution in 2018, which proves the company is on the right track.

As we have repeatedly mentioned in our vision in our previous conference calls, pure SaaS may not be the most appropriate business model in China. With our successful client collaborations over the past few years, we also learned a great deal that shaped the vision behind our SaaS+X business model. Our robust growth in Enterprise Solutions reflects the strength of our approach and gives us confidence we will continue to generate impressive momentum throughout 2022 and beyond.

Currently, we are extremely well positioned with our SaaS+X approach to provide solutions that meet the needs of our clients, both today and for the coming years. To frame our solutions' approach in defined terms, our philosophy of combining technology with services and methodology is highly valuable in the -- in delivering digitization solutions which a pure SaaS model lacks.

As reflected in our SaaS+X 2022 white paper on digital operation by iClick, iClick not only provides customers with basic online training and QA services but also offers more value-added services around the scenarios covered by these tools, such as project execution and agency operation hosting effectively solving the shortage of digital operations, manpower and the capacity of some enterprises.

iClick offers diagnosis, technology and training for brands and collects abstracts and refines the personalized needs of brands based on our standardized digital operation product metrics, then customizes the most suitable system solutions for brands. Within the scope of X, iClick coordinates internal and external resources for brands, provides execution teams and continuously reviews and optimizes the execution and assists brands at every step of the marketing and operation process. And iClick can even provide hosting services, fully covering brands' digital operations.

Only when [cognition and method] go hand-in-hand can we find a path to sustainable development of the business. The results are clear and extremely compelling and we are incredibly proud of what we have accomplished thus far on this journey.

In furthering our depth and capabilities in bringing the highest value SaaS+X offering to clients, I'm very pleased to share with you that we earlier announced the acquisition of the remaining equity interest in Changyi, a leading independent software vendor in China which provides intelligent retail and CRM solutions. After the completion of the acquisition, Changyi will become a wholly owned subsidiary of iClick. This will allow iClick to accelerate the expansion of our Enterprise Solutions business. Spearheaded by our growing SaaS+X business model, we aim to provide branded clients with a consumer full cycle solution that addresses every aspect of the difficulties in facing the rapidly changing market dynamics in China, including effective key opinion leader recommendations, efficient targeted marketing and e-commerce partnerships, integrating data assets and solidifying brand profiles. We believe our solution will help brand clients strengthen their productivity and enhance their private domain to embrace success amidst the digital transformation.

As excited as we are about our future potential, we are also mindful of the challenges that we and the whole Chinese ADR sector are facing, such as tightened regulatory scrutiny over VIE structure and the delisting potential risks resulting from Holding Foreign Companies Accountable Act. These all have driven negative sentiment for all Chinese ADR companies, iClick included, and placed iClick in a challenging position in the capital market. This has likewise diminished our ability to raise capital and caused us to rely solely on cash on hand and access to our credit facility in operating our business.

Given this development, starting in the fourth quarter of 2021, we have strategically reduced the lower-margin, higher-risk clients and business of our more capital-intensive Marketing Solutions business in order to devote more investment to the higher-margin and higher-growth potential of Enterprise Solutions. That said, we remain convinced that iClick's business fundamentals remain sound with demand for our SaaS+X solutions growing and we are capitalizing on our strengths as we weather the impacts of these economic and policy shifts.

As we look to 2022 and beyond, we recognize our needs to remain adaptive to shifting conditions through strategic allocation of resources. We believe that leveraging cross-selling opportunities across our 3,000-plus clients will leverage synergies between our Marketing Solutions and Enterprise Solutions and further drive extensive value for iClick.

We have undertaken concerted adaptive strategic measures designed to provide sustainable long-term growth and ensure stability and sufficient investment for long-term growth. We also look to enhance our key differentiators from our peers when contemplating strategies to buffer iClick from the forces of economic headwinds.

Our strong base of key account clients are a significant differentiator for iClick and our integrated partnerships with these clients will provide a relatively solid and stable financial foundation to steady iClick against the ongoing uncertainty macro environment and provide opportunities to support our growth this year and beyond.

This concludes my opening remarks, and I would now like to turn the call over to our new CFO, David Zhang, to discuss the fourth quarter and the 2021 full year financial results. David was appointed CFO and Director in late January this year. He brings over 25 years of experience in financial management, investment and business operations. We are delighted to welcome him to our management team. David, please go ahead.

Thank you, T.J. Hello, everyone. I'm pleased to share with you our financial performance for full year of 2021.

Despite our challenging macro environment, we still reached record highs in a number of key metrics, including revenue and gross profit. I would like to begin my comments with a few key highlights from the full year and fourth quarter of 2021 compared to the same period of 2020.

We reported revenues of $307.7 million for 2021, increased by 21% year-over-year, driven by the significant increase of Enterprise Solutions. Revenue for the fourth quarter of 2021 was USD 66.3 million (sic) [USD 76.3 million,] increased by 3% year-over-year due to our strategic scale down of Marketing Solutions.

Looking at each business separately, revenue from Marketing Solutions grew to $242.6 million for 2021, up 7% year-over-year, primarily as a result of growing market demand from specified action marketing campaigns. For the fourth quarter of 2021, revenue from Marketing Solutions was USD 56.6 million, decreased by 17% year-over-year, primarily as we have started to strategically reduce lower-margin and higher-risk business within Marketing Solutions in order to focus on the higher growth potential of the Enterprise Solutions.

I'm very excited to share the results of the Enterprise Solutions business, which achieved record levels for 2 consecutive years to USD 65.1 million for 2021, up 125% year-over-year, primarily due to the increasing needs for online and off-line consumer behavior data integration and digital transformation. For the fourth quarter of 2021, revenue from Enterprise Solutions was USD 19.7 million, up 87% year-over-year.

Gross profit increased by 2022 year-over-year to USD 89.2 million in 2021 mainly as a result of contribution from higher-margin Enterprise Solutions. Gross profit for fourth quarter of 2021 was $23.6 million, up 1% year-over-year.

As of December 31, 2021, the company had cash and cash equivalents, time deposit and restricted cash of USD 88.7 million compared with USD 94.5 million as of December 31, 2020.

For the rest of my discussion, I will focus on our non-GAAP results. You may 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.

Adjusted EBITDA for 2021 was USD 13.4 million compared with USD 17.3 million for 2020. Adjusted EBITDA for the fourth quarter for 2021 was USD 65,000 (sic) [USD 100,000] compared with an income of USD 5.1 million for the fourth quarter of 2020. The decrease of adjusted EBITDA resulted primarily from additional operating expenses for new business developments and R&D.

Adjusted net income for 2021 was USD 1.4 million compared with adjusted net income of USD 7.6 million for 2020. Adjusted net loss for the fourth quarter of 2021 was USD 2.7 million compared with adjusted net income of $2.1 million in the fourth quarter of 2020.

Gross billings grew by 18% year-over-year to USD 796.9 million in 2021 and reached USD 207.3 million for the fourth quarter of 2021. For further information, please see the detailed recap of other financial metrics in the press release we issued today.

On December 10, 2020, the company announced a share repurchase program in which it may purchase its own ADS with aggregate value of up to USD 15 million from December 30, 2020 to December 31, 2021. In addition, our Board of Directors authorized the company to upsize the share repurchase program from USD 15 million to USD 25 million on August 25, 2021. As of December 31, 2021 the aggregate value of purchase shares were approximately USD 10.9 million. In December 2021, our Board of Directors has approved a new share repurchase program in which the company may purchase its own ADS with aggregate value of up to USD 20 million from January 1, 2022 to December 31, 2022.

Now I would like to conclude my remarks with our outlook of Enterprise Solutions for the first quarter and the full year of 2022. Because we are in the process of strategically adjusting our Marketing Solutions business in the face of current uncertainties of the macro environment, we don't provide outlook for Marketing Solutions revenue at this stage. Please note that outlook is based on current market conditions and reflect our current gauge of the COVID-19 pandemic impact. These assumptions are subject to change.

Based on information available as of the date of this press release, iClick provides the following outlook: for the first quarter 2022, we expect revenue from Enterprise Solutions between USD 16 million and USD 17 million. For the full year 2022, we expect revenue from Enterprise Solutions between USD 90 million and USD 106 million.

Our SaaS+X service model empowers our clients in digital transformation. Looking out to 2022, we are very optimistic about further expansion of our Enterprise Solutions business.

With that, I'll now turn the call back over to T.J. for closing remarks. Thank you.

Thank you, David. We are more convinced than ever that the megatrend driving digitalization across China is a long-term transformation that iClick is at the forefront of helping clients to evolve and capitalize on new capabilities. We envision a $1 trillion opportunity that is deeply entrenched in the evolving need to open markets. Service customers need better and transform the way companies interact with and retain loyal consumers of the offerings. That is what iClick is focused on delivering in its services and it is a responsibility we, as all iClickers do, take extraordinarily seriously.

We recognize that our success is contingent on our continued ability to adapt appropriately to changing market dynamics and economic forces. We meet that challenge through a duty to remain vigilant and modify our costs as developments dictate. We have succeeded broadly in that capacity as evidenced by our continued strong growth even in the face of adversity and uncertainty, which are 2 forces that markets revolve. We foresee continued growth and are optimistic that our valuation will recover to levels that are more reflective to our true value as we continue to execute on our strategy. We are devoted to innovating and to delivering on the promise of everything we have built, all with an eye towards continuing to improve the overall profitability of the company.

I wish to acknowledge and thank you, clients -- thank our clients, partners and key stakeholders for their continued support. We faced some material challenges in both the macro environment and the capital markets where everyone has suffered, including our dedicated iClickers, shareholders and clients, but we have a deep belief in our business and the strategy we are implementing now. Beyond the factors outside of our control, we will continue to do our best to deliver on the promise iClick represents in bringing the optimal solutions mix that enables clients to capitalize on the digitalization overtaking China.

Thank you all for participating in today's conference call and 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) Our first question comes from the line of Nelson Cheung from Citi.

(foreign language) My question is for advertising. It's about management's expectation on the sector outlook this year. And when would you expect the path for recovery going forward?

And my question for Enterprise Solutions will be about your number of new customer addition and the retention situation.

[Interpreted] Well, thank you for your question. This is T.J. I will take your question about the ad business outlook this year and I will invite David Zhang to answer your second question about the customer addition and existing customer retention of Enterprise Solutions.

First about the ad business outlook, we think that this year the ad business in China suffered short-term shocks and the reasons are very well known because there are a lot of uncertainties in the macro economy, including the shifting policy environment and regulatory landscape as well as the resurgence of COVID-19 cases, which have constituted severe challenges to the market. And since the second half of last year, the [activities] in China has been experiencing very weak demand. And I think that this will continue in the following quarters. And I believe a lot of companies in this industry share similar views.

As to our company, while this year, for ad business, we will focus on some core businesses, we will take initiatives to scale back on those lower margin, higher risk businesses where retaining the core businesses that may generate synergies with other businesses. Thank you.

[Interpreted] This is David. Let me take your second question. In Q4 2021, there were 500 customers contributing to the revenue of our Enterprise Solutions business. And as to the customer retention between Q4 last year and Q1 this year, I don't have a specific number yet, but I can tell you from past experience that the retention rate will be around 90%. Thank you.

Our next question comes from Colin Liu from China Renaissance.

(foreign language) I have two questions. The first one is about the medium- and long-term impacts on advertising industry from the regulatory changes over the last several months. I wonder, in 2, 3 years' time, how will this round of regulatory changes will shape the industry? And what's the industry landscape going to be like?

The second question is actually about our SaaS business and our Enterprise Solutions. We have some very obvious macro weaknesses since second half last year. And over the last several months or several quarters, is our SaaS solution actually helping our customers improve their operating efficiency and generating new revenue opportunities in this kind of macro weakness? Any colors that can be shared with us, that will be really helpful.

[Interpreted] Thank you, Colin, for your question. This is T.J., let me take your 2 questions.

First question is about the implication of regulatory policies on the advertising industry in the next 2 to 3 years. Well, in the previous conference calls, we have mentioned that all these regulations regarding like data security and personal privacy will have an impact in the mid to long term because in the past, all the policies about data security or personal privacy were quite relaxed, but it seems that the regulators have started to tighten them.

And short term speaking, for example, from the second half of last year to the first half of this year, we've seen some panic in the industry and the people are worried about its negative impact on them. However, we think that to -- in the mid to long term, we will wait for the mid to long term to see any real implications to kick in because we think that the current regulatory policies about the digital security and personal privacy were targeted as those businesses that operated in a noncompliant manner. As long as you comply with the regulations in data usage as well as your products and businesses help customers to improve efficiency, I believe that you will enjoy long-term benefits in spite of some short-term shocks.

Second, I think the second source of regulatory measures that may have a long-term impact on advertising industry are targeting the industries where brands are located. For example, last year, education, insurance and gaming industries were subject to a series of rounds of regulation and control. And short term speaking, these measures have produced very profound impact on advertising industry.

We've seen this with our own eyes. For example, the demand from some industries just disappear all of a sudden. But long-term speaking, I don't think there will be a very substantial impact on the advertising industry because of those industry verticals that need the advertising business will be reshuffled. And after the reshuffling, the brands from these industries will still need to place advertisements. And the number of advertisements they place actually are formulated to economic sentiment instead of the industry where they belong. This is my answer to your first question.

Well, as to the second question, I believe it's about how our SaaS products and services will help customers cope with these macroeconomic happenings. Well, I do think that our products and services are very helpful. In particular, during the COVID-19 pandemic, a lot of off-line businesses were hard hit. And many of our Enterprise Solutions products and services can help enterprises. For example, we provide them with digital outlet solutions which can include the off-line inventories in the online [mini] programs and then we help them to operate their online businesses in the WeChat ecosystem. And in this way, we can help merchants to maintain online operation by absorbing the off-line inventories. I think these are very helpful for both brand owners as well as sales channels.

And also during the weak macroeconomic situation, many brands actually have proactively pursued online -- pursued their online businesses. And in addition, China's technology digitalization as well as the enterprise digitalization and brand digitalization are long-term trends for China, which is a part of the 14th 5-year plan proposed by the Chinese government. And I think that our Enterprise Solutions business actually will respond to this trend quite well. And we help our -- we help those brands to adapt to the increasingly complicated new media ecosystem.

For example, in the retail ecosystem, we help brands to increase interaction with customers, therefore, enhancing their loyalty. And in the KOL ecosystem, we help brands to use short video and other new media to interact with the consumers and attract consumers to their media campaigns or marketing campaigns. Actually, we have already put in place a complete fleet of products and services to serve our brands. And all in all, we think that our products and services actually will help customers to cope with these weak macroeconomic situation.

Our next question comes from Thomas Chong from Jefferies.

[Interpreted] So I have 2 questions. The first question is about M&A. So are there any future M&A plans? And what are the M&A considerations?

And then my second question is, are there any goals for paid clients and mid-tier clients in 2022?

[Interpreted] Okay. Thank you for your question. I will take 2 questions from you.

First question is about the M&A plan. Not long ago, we've fully acquired Changyi. And we have -- if you have been following us for some time, you know about this company quite well. And the purpose for this acquisition is to consolidate our Enterprise Solutions capabilities because Changyi is a very integrated part of our Enterprise Solutions, including products, teams and service capabilities. So as to the other M&A opportunities, while we have been looking out for other opportunities all along, but since the market condition is not very good right now, so we will be more cautious.

Well, your second question is about our customer strategy. Well, as to [KA] clients, our strategy is very clear, that is we will provide SaaS tools and value-added services to medium- to large-sized KA clients to help these clients grow and develop in a complicated media ecosystem in China. And we believe that this strategy has great long-term potential.

In the past, we focused mainly on WeChat's ecosystem. But now we've been gradually penetrating into the KOL ecosystem. And our aim, as I've mentioned, is to help KA clients to carry out online sales and operations.

Well, as to mid-tier customers or SMB customers -- well, by the way, another thing about the KA clients, that is we still use the standard SaaS product to serve our KA clients. Of course, for different KA clients, they may have a different customization needs. And as to the SMB client base, well, since the first half of 2021, we started to promote standard products to them and -- but due to the weak economic performance global-wise, including China since the second half of last year to early this year, we haven't seen very much progress. We can say that progress actually is much slower than we expected. But we still will keep an eye on the SMB business and we will continue to make some efforts to develop this business.

Our next question comes from Brian Kinstlinger from Alliance Global.

With the uncertainty in Marketing Solutions, coupled with the challenging capital markets for ADRs, how do you plan on managing the expense side of the business to limit your losses? And can you quantify the bad debt that was recognized during the fourth quarter?

And then my second question is, how much of your Marketing Solutions revenue is low margin and nonstrategic to the enterprise segment?

[Interpreted] Well, this is David, Brian. Thank you for your question.

As to the bad debt provisions, well, last year, we provided for the bad debt of 2 companies totaling USD 5 million. Last year, the central government has come up with a lot of -- a series of regulatory measures which has hit some industries hard. So these 2 companies, 1 is an e-commerce company and the other is a gaming company.

And as to cost control, I think that we have done a pretty good job in cost control for this year. And now it's a difficult time, so actually we will try our best to do better in terms of cost control. And currently, we have a sufficient cash and -- you can regard receivables of [cash flow too]. And currently, we have USD 80 million of cash.

I'd also like to clarify that this USD 5 million is a special provision for bad debt, it's not the overall bad debt provisions.

Your second question is about those low-margin business of Marketing Solutions. Well, currently, they accounted for 1/3 of our Marketing Solution revenues, but we will take into account the market response in dynamically adjusting the scale, downscale.

All right. As there are no further questions, I'd like to turn the call back to the company 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. Thank you, and see you next time. Bye-bye.

Thank you. 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.]