Amber International Holding Ltd (AMBR) 2022 Q2 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for iClick Interactive Asia Group Limited's 2022 Second Quarter Unaudited Financial Results Conference Call. (Operator Instructions) Today's conference call is being recorded. At this time, I'd like to turn your call over to your host, Ms. Lisa Li, Investor Relations Director. Lisa, please go ahead.

Hello, everyone, and welcome to iClick's 2022 Second Quarter Unaudited 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 subsequent translations. Please note that 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 2022 second quarter 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. We will then turn the call back to T.J. for closing remarks before the call is open 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. Welcome to the call, everyone. I will first share our challenges, approach and the strategies over the past quarter and after, how we envision building our business future.

Looking back to the second quarter of 2022, because of the resurgence of COVID-19, many cities in China experienced strict controls or even lockdowns, including Shanghai and Beijing, where our main operations are located. In the meanwhile, the unpredictable macro environment has continued to drive conservatism on advertising spending and promotional activities.

As constantly highlighted in our previous earnings, we have executed our strategy to move away from lower margin and higher risk Marketing Solutions business. As a result, iClick's total revenue for the second quarter 2022 declined by 51% year-over-year, amounting to USD 38.1 million, and the revenue from Marketing Solutions decreased by 62% to $24.3 million year-over-year. Strategically, winding down our Marketing Solutions business has allowed us to redirect the resources to our Enterprise Solutions business, as we remain optimistic about the enormous market potential of the digital transformation in China.

We continue to invest in this segment. Therefore, our Enterprise Solutions delivered 3% year-over-year growth to $13.8 million in the second quarter, regardless of the negative impact of strict COVID-19 control measures. Now we are entering the second half of the year when the pandemic is relatively under control but with occasional surges. We see mild trend of business recovery, yet it highly depends on future pandemic development and control measures.

Here, I would like to introduce our new product, Arohar AI that integrates AI, AR and the avatar for live streaming on the network platforms, as we have kept on upgrading our SaaS+X product metrics.

In the quarter, we have also engaged a global home care brand, HIZERO. Through our marketing automation product, iParllay, we helped HIZERO develop automated solutions to shorten its advertising transaction cycle while driving traffic and the conversion to reach a broader target audience.

In addition to our product upgrades, we were honored to receive a couple of rewards. For example, Digital Marketing Influencer Technology Company of the Year and the Best Digital Marketing Tool of the Year by Golden Mouse and our case study also won gold in Private Domain Marketing and was awarded Classic Case of Socialized Marketing by Phoenix Tree.

Together, these awards highlight our capability as well as strong industry recognition for our solutions. We believe our value proposition on top-tier brand plan remains intact in the long term. Furthermore, we expect better performance once the overall market sentiment and the client operations recover. Our healthy financial position and the cash flow should allow us to further invest in our Enterprise Solutions business.

This concludes my opening remarks. Now I would like to turn the call over to our CFO, to discuss our second quarter financial results. David, please proceed.

Thank you, T.J. Hello, everyone. I will report key financial results for the second quarter of 2022 compared with the same period of last year. Total revenue was USD 38.1 million, decreasing by 51% compared with USD 78 million for the second quarter of 2021. Revenue from Marketing Solutions declined 52% to USD 24.3 million compared with USD 54.6 million for the second quarter of 2021, primarily due to our slowdown of our Marketing Solutions business and the slowdown of the overall advertising market. Revenue from Enterprise Solutions slightly grew by 3% to USD 13.8 million year-over-year and accounted for a historically high 36% of total revenue for the second quarter of 2022.

Gross profit for the second quarter of 2022 was USD 9.3 million compared with $24.3 million for the second quarter of 2021. Gross profit margin decreased to 24.3% from 31.2%. Total operating expenses was $26.8 million for second quarter of 2022 compared with the USD 23.4 million for the second quarter of 2021, primarily due to the additional bad debt provision as a result of unfavorable macro conditions.

Operating loss was USD 15.5 million for second quarter of 2022 compared with operating income of $0.9 million for the second quarter of 2021. Goodwill impairment charge of USD 24.9 million was recorded in the second quarter of 2022 for Marketing Solutions due to the scale down of our Marketing Solutions business, which resulted in a shortfall between the carrying value and estimated sale value of this segment as of June 30, 2022. The change to goodwill in balance sheet does not affect the company's cash position.

Net loss total 40 -- $45.8 million for the second quarter of 2022 compared with net income of $0.6 million for the second quarter of 2021, primarily due to the goodwill impairment and a decrease in gross profit. As of June 30, 2022, the company has cash, cash equivalents and deposit and restricted cash of USD 83.5 million compared with USD 88.7 million as of December 31, 2021.

Now the non-GAAP measures. Adjusted EBITDA for the second quarter of 2022 was a loss of USD 13.2 million compared with the income of $6.1 million for the second quarter of 2021. Adjusted net income, net loss for the second quarter of 2022 was USD 15 million compared with adjusted net income of USD 2.6 million in the second quarter of 2021. For further information, please see details in the press release we issued today.

Now I turn the call back over to T.J. for closing remarks. Thank you.

Thank you, David. We remain optimistic about the prospects for recovery in China's economy over the long term as COVID-19 control measurements recede. The huge utilization market opportunity remains intact, and iClick will remain at the forefront. We will continue to implement important innovations and strive for enhancements to our offerings that drive additional value for our customers.

As always, I wish to acknowledge and thank our clients, partners, shareholders and all our other stakeholders for your continued support, and to all our iClickers who have been essential in our success. Our management's clear strategies, keen focus on the market opportunities and the prudent investments will guide us through this challenging period and establish a promising future for iClick.

Thank you all for participating in today's conference call and for your continued support. This concludes our remarks, and we will now open for questions. Operator, please go ahead.

For the benefit of all participants on today's call, if you are a Mandarin speaker, please raise your questions in Mandarin. And then immediately, our translator will repeat your questions in English. (Operator Instructions)

And our first question today comes from Colin Liu from China Renaissance.

(foreign language) So I'll quickly translate for myself. Management, thanks for the chance for -- for the Q&A session. And I just have one question. We all know that the second quarter results across both lines were severely impacted by COVID lockdowns and the COVID negative impacts on the macro economy. So I wonder what's the progress of our recovery, particularly in July and August? If any color of recovery from these 2 months can be shared with us, that would be really helpful.

[Interpreted] Hello, Colin, this is T.J. Let me take your question. And if we look at the July and August, we're only like 1 to 2 months past the second quarter. So over the past 2 months, we've seen some changes. The long-term changes still depends on the control measures in place as well as the industrial regulation. And over the past 2 months, we've seen the recovery in our -- we've seen some recovery in our ES and MS businesses.

For ES business, the customers' long-term demand for digitalization as well as staff, products and services are still there. Take Shanghai as an example. After this round of pandemic resurgence, customers have started to resume discussions. So we think that the demand is still there, but just postponed and put off to the following quarters. And also because due to -- because of the lockdown in Q2, the internal communication within the customers' companies was stopped or delayed. And since the company's organizational structure, usually it's very complicated, so it takes time for the customers companies to resume their operations, resume their discussions. Therefore, long-term demand, as I've mentioned for ES business, is there but just delayed.

As to MS business, we've seen some recovery of customer demand. In Q2, some customers' budgets were severely affected by the lockdown, and also the logistics was also interrupted. Therefore, some customers had to stop their ad spend. But now we've seen some recovery. So it still takes time for the demand to recover to normal levels.

Our next question comes from Nelson Cheung from Citi.

(foreign language) So let me translate myself. So I have 2 questions. The first question is about the Marketing Solutions. Just wonder if management can provide more color in terms of industry verticals, like which verticals are recovering faster and being more resilient compared to other sectors.

And my second question is related to the Enterprise Solutions. Just on the management can provide more color about the current client base for the ES business, including the retention, the paying willingness and the outlook into the third quarter.

[Interpreted] Hello, Nelson. This is T.J. I will take your first question about the Marketing Solutions business. And as to the second question about the Enterprise Solutions business, I believe David will be in a better position to answer that.

Okay. As to the Marketing Solutions business, industry verticals, since early this year, we have started to scale down the Marketing Solutions business and, in particular, those very competitive industries like gaming. And over the past 2 quarters, we have strategically winded down our businesses in these industries, so as to redirect our resources to Enterprise Solutions business as well as those part of our Marketing Solutions business that have high synergies with ES businesses such as consumables.

In spite of the weakness in the macro economy, we think that consumables still have room to survive and grow. And we've also seen a recovery in their advertising budgets over the past 1 to 2 months.

As to other industries, for example, education, you can see that their advertising spending has fallen off the cliff, and I don't think it will recover this year. And other industries, and they're also out of our radar now.

[Interpreted] Okay. This is David. Let me take your second question about the ES business. In the second quarter, 410 ES customers contributed to our revenue. Compared with Q1, there was a mild increase, about a dozen of customers. And in Q2, due to the strict lockdown in Shanghai, our businesses was severely affected. Most of our ES revenue came from -- come from our Shanghai subsidiaries. But as T.J. has made it clear that we've directed our resources to ensure that ES businesses can continue to grow. So we've seen a mild growth of the ES business in the second quarter. And our revenue has also increased slightly by 2%.

As to paying willingness, we don't see any changes. Just that during the Shanghai lockdown, some customers delay their payments. But as long as the lockdown was lifted, they've honored the payments. And as we've mentioned, the demand for digitalization services is very strong. But since the economy is weak, so customers have become more price sensitive. So we will try our best to provide more valuable services for our customers.

Our next question comes from Thomas Chong from Jefferies.

(foreign language) So I translate myself. I have 2 questions. My first question is about our Enterprise Solutions. So how do the macro headwinds impact the pace in ramping up the Enterprise Solutions and updates about our strategies in near, medium and long term.

And my second question is about the competitive landscape in Enterprise Solutions. And are there any updates about the cooperation with Baozun?

[Interpreted] This is T.J. I will take 2 of your questions. So the first question is about the strategy of ES business. Well, the macro environment has been affecting our economic conditions. And we found out that a lot of factors are out of our control. For example, the macro headwinds and the poor performance of the capital market, which has led to the closure of the financial channels for us. Therefore, the management has shifted our focus to redistribute resources so that we can ensure the further development of Enterprise Solutions business. Because we are confident about the prospect of ES business, we think that the long-term demand of enterprises for digitalization is there. And we are optimistic about the prospect of the Enterprise Solutions business. So we must redirect resources and invest in its future development.

And as to -- and also strategic-wise, we will also control the cash flow as well as the operating risk. And we will do a better job in controlling the input and output of our businesses.

Okay. Let me take your second question about the competitive landscape in the ES space, which is related to the first question also to our long-term strategy. Well, we think that the digitalization of Chinese economy as well as the Chinese businesses are still at its early stage. And different players have different business models and target different customer bases.

And we think that in the next 3 to 5 years, this will still be a blue sea market. Therefore, it is critical for companies to establish a leading position in this time window. And for us, our advantages are: first, we have accumulated a large number of quality customers in our MS -- from our MS business. And the second, we have adopted SaaS+X model, which provides both products and services to our customers. And because we think that this kind of a model will increase the stickiness of medium- to large-sized customers by meeting their long-term demand.

And the second thing about the competitive landscape is that the ES business -- or ES market actually is a 2B market unlike 2C market, which is a winner-takes-all market. So in the ES segment, there will be companies like Weimob and Youzan. They will also be caught -- they will also be company's cloud departments like some cloud departments of a giant companies. So as long as the digitalization market in China is big enough, I think our company will grow to a large scale.

And the third thing about the competitive landscape is every company has its DNA. It's not easy to simply copying others. For example, some companies are good at SMB business. But for us, we -- since we've started, we have been accumulating large and medium-sized customers -- or targeting large and medium-sized customers. Therefore, our way of thinking, our organizational structure are actually geared towards the large and medium-sized companies. And therefore, we think that we have our place in this market segment. And since we've started to enter the ES segment in 2019, the first industry we've chosen is consumables. And up until now, consumables remain the most important customer base for us. And we think that it is the right choice, in particular, given in this market environment. Because even when the economy is weak, consumables are still in the less demand of our customers. So as long as we continue to improve our services, this business will be sustainable and we'll have a big room to develop. Thank you.

Third question is about cooperation with Baozun. We have made very valuable explorations with Baozun, and we've come to some solutions which have been validated or implemented by our customers. And both of us have also introduced customers to each other. But just that some customers, didn't want us to promote it. So we didn't make a fuss about it. And -- but having said that, our cooperation with Baozun has since generated big revenues, and there are a lot of reasons for that. The first is the pandemic.

And the second is the challenges facing Chinese ADR companies currently. Both of us are Chinese ADR companies. So we have been really affected by the recent developments. And in the future, I think we're going to further explore better ways of cooperating with each other. All in all, we have made some progress in solutions, in our customer recommendation as well as customer validation. And we will also already started talking with Tencent about a cooperation, but it's just that there are some suspension due to the various reasons. So in the future, when things go back to normal, both of our companies, well we will talk about how to better cooperate with each other.

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

It's [Trevon] on for Brian. Could you just talk about really quickly how the pace has changed for new mini app integration to your Enterprise Solutions over the second quarter and thus far in the third quarter compared to the beginning of 2022 and even the second half of 2021?

Sorry, can you repeat your question?

Yes. Can you hear me all right?

Yes, yes. Can you slow down a little bit?

Yes, sure. Can you talk about how the pace has changed for the new mini app integrations for your Enterprise Solutions over the second quarter and thus far in the third quarter compared to the beginning of 2022 and even the second half of 2021.

(foreign language)

[Interpreted] Brian, this is TJ. I believe your question about the pace of mini app integration of Enterprise Solutions business is related to our WeChat ecosystem. And compared as to the specific data, I would like to ask David to provide you with that data, but I can give you some overall picture.

Compared with the same period of last year, we were seeing the ES business in the WeChat ecosystem slightly increasing or at least stabilizing. And you can see that compared with the Q1, I believe there was also some slight growth. And due to the impact of the pandemic in lockdown -- down due to the impact of a lockdown in Q2, and our businesses was very impacted, yet we've accumulated a lot of customer demand in Q1. And at that time, we didn't have enough resources to deliver to customers. So in Q2, we have started to deliver to customers through remote working. And this has shown that there is a strong customer demand for ES businesses in the WeChat ecosystem.

And in Q2, our colleagues couldn't go out to pitch to new customers. And our customers, they will also suffer some internal communication issues, but still we've delivered.

And as to the July and August, now we've seen that the pandemic was put under control. So our colleagues can go out to find new opportunities now. So I believe that in the following quarters, the ES business will recover steadily.

[Interpreted] Okay. This is David. Let me add a few points. In the second quarter, ES customer base has increased compared with the first quarter this year or the second half of 2021. Although the ARPU has dropped, and the ARPU dropped in the second quarter this year due to 2 reasons. First is the control measures, and the second -- strict control measures, and second is the poor macroeconomic conditions.

And the second reason is, although there are some new ES customers, yet they didn't contribute substantially to our revenue in the second quarter. I believe their contribution has been delayed. And overall speaking, the growth momentum of the ES business hasn't changed dramatically, thanks to our SaaS+X model. And you can see that our customer number -- if you look at from the customer number perspective, the retention rate is about 60% because some customers, when they come in, they may find our solution is not very valuable for them. So they will leave, but all the retained customers are long-term, high-quality customers. Thank you.

And ladies and gentlemen, with no further questions, I'd like to turn the floor back over to Lisa for closing remarks.

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

This concludes the conference call. You may now disconnect your lines. Thank you, and have a great day.

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