CLPS Inc (CLPS) 2021 Q4 法說會逐字稿

Hello, everyone. Welcome to the Second Half and Full Year Fiscal 2021 Earnings Conference Call for CLPS Incorporation. Please note that today's conference is being recorded.

At this time, I would like to turn the call over to Mr. Rhon Galicha from CLPS Investor Relations for opening remarks and introductions. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us on today's call. CLPS Incorporation announced its second half and full year fiscal 2021 financial results this morning. The earnings release is now available on the company's IR website at www.ir.clpsglobal.com.

Before we continue, please note that our discussions today may include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. As such, our results may be materially different from the views expressed today. Further information regarding these risks, uncertainties, assumptions and other factors that could affect our financial results is included in our Form 20-F filed with the U.S. Securities and Exchange Commission and other documents filed with the U.S. SEC.

In that respect, I would like to read the following disclaimer applicable to such statements. Certain of the statements made in this discussion are forward-looking statements within the meaning and protections of Section 27A of the Securities Act of 1933 as amended in Section 21E of the Securities Exchange of 1934 as amended. Forward-looking statements include statements with respect to the company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, which may be beyond the company's control and which may cause the actual results, performance, capital ownership or achievements of the company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All such statements attributable to us are expressly qualified in their entirety by these cautionary notice, including, without limitation, those risks and uncertainties related to the company's financial and operational performance in the second half and full year of fiscal 2021, and these expectations of the company's future performance, its preliminary outlook and guidance offered in this presentation as well as the risks and uncertainties described in the company's most recently filed SEC reports and filings. Such reports are available upon request from the company or from the Securities and Exchange Commission, including through the SEC's Internet website at www.sec.gov.

We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date hereof or after the respective date on which any such statements otherwise are made. All information provided today is as of the date of this call, and CLPS does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

With respect to any non-GAAP measures discussed during today's call, the company reconciliation information related to those measures can be found in the earnings release issued earlier this morning.

Now allow me to introduce the management team on the call today. Mr. Raymond Lin, Chief Executive Officer and Director of CLPS, will start off the call with a review of recent company developments and operating results, followed by Ms. Rui Yang, Chief Financial Officer of CLPS, who will discuss financial results in more detail.

(Operator Instructions) Following the management's prepared remarks, we will open up the call for a Q&A session. Mr. Henry Li, the company's Chief Operating Officer; and Mr. Wilson Wong, Executive Vice President of CLPS, will also join the Q&A session.

With that said, I would now like to turn the call over to Raymond. Raymond, please go ahead.

Okay. Thank you, Rhon. Hello, everyone, and thanks for joining today's call. I hope each of you and your family are safe and well. On today's call, I am excited to tell you our fiscal year 2021 performance, both in financial and business tactics, including our strategic pipeline, which we are confident will further drive CLPS scalable growth. From a financial performance standpoint, fiscal 2021 shows us another profitable year as reflected in our financial results, both our top line and bottom line.

Our revenue increased by 41% to USD 126 million, and our net income increased by 127% to $7 million year-over-year. For the details, my CFO, Rita will share with you later.

Now let me explain about our strategies that contributed to our financial growth this fiscal year. First of all, I would like to say my thank you to our more than 3,000 staff, the backbone of the company's continuous success. We exclusively appreciate your dedication. And I'm more than happy that our CLPS family is consistently growing every year. We also hired more experienced talent acquisitions, manpower to both meet the demand for IT personnel and ensure efficient IT services delivery to our existing and new clients.

From a business perspective, we achieved numerous progress with the fulfillment of our company initiatives in fiscal 2021. We continued to execute our dual-engine development strategy through the improvement of our technology and product capability while maintaining the organic growth of our business.

On February this year, we raised approximately $16 million, 1-6 million, to register direct offering which we probably utilized in various investments, M&A, joint venture, partnership and operation reach in the domestic and overseas market just on top of our existing working capital.

CLPS has been committed to contributing in the digital trends of global finance. Let me review the initiatives we have done. The one is we acquired a stake in 53.33% of MSCT Investment Holding Limited, that is a subsidiary of Minshang Creative Technology Holding Limited. This is a Hong Kong listing company. They have a lot of banking system products. Our first project is to upgrade the loan system to meet overseas bank needs and government's MSA regulation. Maybe in future, we will integrate with our credit card system. Also, we will upgrade more and more bank products in the future.

The two is, we set up CLPS Finance Holding Limited as a joint venture company with Columbus Century Development Company Private Limited. That is a blockchain technology solutions provider. It's armed to develop and upgrade blockchain-based digital asset solutions for financial institutions, such as custody, exchange, payment and NFT distribution platforms; business solutions, particularly [incentive] for wealth management and various investment transactions, among others.

The three is, in order to further expand our Southeast Asia business, the first, we took full advantage of our high efficacy delivery team in Southeast Asia and our expert research and development team in China. So that we can comprehensively fulfill the IT service demand of our clients in Southeast Asia. And secondly, we set up CLPS Technology Philippines core operation, which allows us to reach a wider business coverage in this region. CLPS Philippines has started to be operational and generate revenues both in our business and business activities in the key markets in Southeast Asia and Asia Pacific, such as in Singapore, Malaysia, India, Japan, Australia and Philippines. It will be more active, allowing us to lay out our value proposition in business locations.

The four is that based on our experience, we invest to develop a new credit card system. This is a new generation of credit card system. It is a development to provide complete service for credit card, insurance and life cycle management. It has been developed to support all kinds of the issuers from small to large and global financial institutions, banks and credit companies. The system has full multicurrency, multiproduct, multi-institution and multi-language capabilities and manage top portfolio across different countries and for different issuers. It's general space engine allows the modernization of financial institutions, account structure, price structure, limited structure and authorization-based management.

The system architecture is powered by distributed micro services and utilized concepts, which provide cost effective infrastructure, which provides scalability. Cloud native architecture enables deployment on-premise cloud server or on on-premise physical server. Its API is online portal that provides more than 1,200 bots. And APIs allow any third-party system to [tinker] services or data for flexible integration. And now on its pilot phase, the commercial version is expected to be launched early next year -- early year.

The five is, with a high rental rates in Hong Kong and Singapore, we have purchased office property in business location, which itself can become a promising rail estate investment asset and to supporting our IT services delivery more efficiently.

In terms of R&D, we continue to research in big data area, especially in data engines integrated with AI technology. And in contact by data collection, data analysis and decision-making, it will help our clients to improve the sales and marketing efficiency and can be beneficial for systemization, data reporting. We will launch our big data products by next year, which are extended for banks, insurance company and automobile sectors. Two, we continually conduct research in RPA with more inputs and resources intended for financial industry, such as handwriting, optical character recognition and image recognition because this (inaudible) is very important for usage effect. And we were going on to study on it.

And in terms of our client base, during the fiscal 2021, we gained IT services contracts in the U.S. with major players in the e-commerce industry. We provide IT services, including big data management, data analysis and payment risk management for their international business. During the second half of fiscal 2021, our revenue from e-commerce area increased by 100%.

In addition, our revenue in automotive industry jumped by 20% to $5 million during the remaining period of fiscal 2021. We gained service IT consulting and solution services with the leading automotive companies, which involves intelligent manufacturing navigation system, machine learning, vertical, central control system and new equipment vertical project.

Furthermore, we also underwent corporate restructuring in order to increase our business efficiency. In the past year, we feel increasingly competition. So we reorganized the company's organizational structure into the several regions and [nurturing] them to regional sales functions and improve the efficiency of the company's operations. At the same time, we hired senior advisers with extensive experience on top-tier financial institutions to guide and streamline our current and business trajectory.

Moving forward, we remain dedicated and focused to leverage our core business for our growth as well as our investment and R&D efforts in advanced technology, such as big data, cloud and blockchain to enable our clients' digital transformation generally. We are also in process of innovation and streamlining our next-generation bank loan system. We will study to reform the banks' core loan system. However, we have a configurable workflow and high degree of automation and central control functions. As a result, we will make the banks more centralized, easier interest tracking and easier to risk control.

We will implement plans to drive our overseas presence by exploring business potential in other parts of the Southeast Asia and in the U.S. to further push our overseas revenue in upward trends.

Lastly, on behalf of CLPS family, I personally appreciate your continuous trust and support of our partners and shareholders. Thank you.

Now I would like to turn the call over to our CFO, Rita Yang, to discuss the second half year and full year of the fiscal 2021 financial results. Okay. Rita, go ahead, please.

Okay. Thank you, Raymond. I will now provide an update on our financial performance for the second half, followed by our full year results for fiscal 2021. Please note that all numbers provided are in U.S. dollar terms and that all comparisons are made on a year-over-year basis.

In the second half of fiscal 2021, our revenues increased by $20.9 million or 44.6% to $67.7 million from $46.8 million. This increase in revenue was mainly due to an increase in revenue from IT consulting services. In particular, revenue from IT consulting services increased 43.2% to $65.2 million from $45.5 million. The increase was due to increased demand for the company's IT consulting services from existing and new clients and our improved capability of service delivery.

Revenue from customized IT solutions services increased 81% to $2.1 million from $1.1 million. The increase was primarily due to the increased demand from existing clients. Revenue from other services increased by 139.5% to $0.5 million from $0.2 million. The increase was primarily due to the increased demand for other services, including headhunting services.

Gross profit increased 37.8% to $21.7 million from $15.7 million. As for operating expenses, selling and marketing expenses increased 18.3% to $2.0 million from $1.7 million. The increase was primarily due to the increase of salary expenses as new staff were hired to improve the company's capability of service delivery to meet clients' demand. As a percentage of total revenues, selling and marketing expense decreased to 2.9% from 3.5%. The decrease was primarily due to the increase in operational efficiency as a result of economies of scale.

Research and development expense increased 32.5% to $7.2 million from $5.4 million. The increase primarily results from the establishment of new research projects and the company's continued R&D efforts in big data, cloud computing, blockchain, robot process automation, that is RPA and artificial intelligence. As a percentage of total revenues, research and development expense decreased to 10.6% from 11.6%. The decrease was primarily due to the increase in operational efficiency as a result of economies of scale.

General and administrative expense increased 20.2% to $10.2 million from $8.4 million. The increase was primarily due to the increase of noncash share-based compensation expense and general and administrative personnel related expense. After excluding the noncash share-based compensation expense, non-GAAP general and administrative expense increased 15.3% to $6.6 million from $5.7 million. As a percentage of total revenues, general and administrative expenses decreased to 15% from 18%. The decrease was primarily due to the increase in operational efficiency as a result of economies of scale and refined management.

Operating income increased by 417.9% to $3.4 million from $0.7 million. Operating margin was 5.1% compared to 1.4% in the prior year period. Total other expenses, net of other income, was $0.2 million compared $0.5 million total other income, net of other expense in the prior year period.

Provision for income taxes increased by $0.8 million to $1.2 million from $0.4 million. Net income up 166% to $2.1 million from $0.8 million over the same period of last year, after excluding the impact of noncash share-based compensation expense.

Non-GAAP net income increased 53.7% to $5.7 million from $3.7 million after excluding the impact of noncontrolling increased. Net income attributable to CLPS Incorporation's shareholders in the second half of fiscal 2021 was $2.0 million or $0.11 basic and $0.1 diluted earnings per share after excluding the impact of noncash share-based compensation expense.

Non-GAAP net income attributable to CLPS Incorporation's shareholders in the second half of fiscal 2021 was $5.6 million or $0.3 basic and $0.29 diluted earnings per share. This is compared to a non-GAAP net income attributed to CLPS Incorporation's shareholders of $3.5 million or $0.23 basic and diluted earnings per share.

Now I will provide an overview of full year fiscal 2021 results. For the year ended June 30, 2021, revenues increased 41% to $126.1 million from $89.4 million. This increase in revenue was mainly due to an increase in revenue from IT consulting services. In particular, revenue from IT consulting services increased 40.3% to $122.3 million from $87.1 million. The increase was due to the increased demand from existing and new clients and our improved capability of service delivery.

Revenue from customized IT solutions services increased 69.7% to $3.1 million from $1.8 million. The increase was primarily due to the increased demand from existing clients. Revenue from other services increased 51.5% to $0.7 million from $0.4 million. The increase was primarily due to the increased demand from other services, including headhunting services.

Revenue generated outside Mainland China increased 28.1% to $13.6 million from $10.6 million. The increase in revenue generated outside of Mainland China reflects the company's successful and continuous global expansion strategy.

Gross profit increased 29.1% to $40.2 million from $31.1 million.

As for operating expenses, selling and marketing expenses increased 22.7% to $3.8 million from $3.1 million. The increase was primarily due to the increase of salary expense as new staff was hired to improve the company's capabilities of service delivery to meet clients' demand. As a percentage of total revenues, selling and marketing expense decreased to 3% from 3.4%. The decrease reflects an increase in operational efficiency as a result of economies of scale.

Research and development expense increased 27.8% to $13.3 million from $10.4 million. The increase primarily results from the establishment of new research projects and the company's continued R&D efforts in big data, cloud computing, blockchain, RPA and artificial intelligence. As a percentage of total revenues, research and development expense decreased to 10.6% from 11.7%. The decrease reflects an increase in operational efficiency as a result of economies of scale.

General and administrative expense increased 2.7% to $16.8 million from $16.3 million. The increase was primarily due to the increase of noncash share-based compensation expense. After excluding the noncash share-based compensation expense, non-GAAP general and administrative expense decreased 6.2% to $11.8 million from $12.6 million. As a percentage of total revenues, general and administrative expenses decreased to 13.3% from 18.3%. The decrease reflects an increase in operational efficiency as a result of economies of scale and refined management.

Operating income increased by 161.2% to $8.4 million from $3.2 million. Operating margin was 6.6% compared to 3.6%.

The total other expenses, net of other income, was $0.1 million compared to $0.5 million total other income, net of other expense in the prior year period. Provision for income taxes increased by $0.5 million to $1.3 million from $0.8 million. Net income up 127.9% to $7 million from $3.1 million in the prior year period.

After excluding noncash share-based compensation expenses, non-GAAP net income increased by $5 million or 31.5% to $12.1 million from $7.1 million. After excluding noncontrolling interest, net income attributable to CLPS Incorporation's shareholders for the year ended June 30, 2021, was $6.8 million or $0.39 basic and diluted earnings per share compared to net income attributable to CLPS Incorporation's shareholders of $2.9 million or $0.2 basic and diluted earnings per share.

After excluding the impact of noncash share-based compensation expense, non-GAAP net income attributable to CLPS Incorporation's shareholders for the year ended June 30, 2021, was $11.9 million or $0.69 basic earnings per share and $0.68 diluted earnings per share. This is compared to non-GAAP net income attributable to CLPS Incorporation's shareholders of $6.9 million or $0.47 basic and diluted earnings per share in the prior year period.

As of June 30, 2021, we had cash and cash equivalents of $24.7 million compared to $12.7 million as of June 30, 2020. As of June 30, 2021, we had total numbers of employees of 3,352, up 22% year-over-year. Revenue per employee up by 13.5% to $37,600 per person. Net income per employee up by 86.7% to $2,100 per person.

Looking forward, the fiscal year 2022, we expected total sales growth in the range of approximately 30% to 35% and non-GAAP net income growth in the range of approximately 32% to 37% compared to fiscal year 2021 financial results.

This concludes our prepared remarks. Operator, we are now ready for questions.

(Operator Instructions) We'll take our first question from [Jayden Wang.]

Okay. Congratulations for the remarkable financial results. I have 3 questions. The first question is, with the recent company monopoly crackdown in China, there will be a lot more opportunities for new and smaller players in China. Given your capacity advantage in providing IT services to overseas clients for their services in China, has CLPS seen significant demand pickup since the last company crackdown?

Hello, this is Henry Li, the company's COO. First of all, thanks for your questions. Let me answer this question. Our strong financial numbers for the second half and the full year of fiscal 2021 shows the consistent growth of our clients' demand for IT services, specifically in Mainland China. Although we have always pointed out that our global expansion strategy has been very effective, of which revenue generated from outside China increased by 28.1% year-over-year, it is undeniable that our revenue from Mainland China significantly contributes to our aggregate revenue. And so we believe that it's not a matter of taking advantage of the large tech crackdown, it is the competitive advantage that we always hold on.

In addition, the effectiveness of our dual-engine growth strategy to diversify our IT products, improve our delivery capabilities in domestic and international markets and enhance client loyalty renders to increase in our income, thus bringing more benefits to our investors and could improve our overall valuation. As you have mentioned, given our position as professional IT service provider, we will explore this business opportunity as well. Thank you. And I hope I answered your question.

Okay. Okay. Got it. My last question is, the company got global contract in February 2021. Even though the company name was not released, can you provide an update on the client's global contract after working with this client for a year? I'm wondering if they would consider using CLPS more for their IT services, particularly their China cross-border transaction services and their crypto transaction platform. The company set up LINK crypto with Columbia earlier this year. Would you please provide an update? Does CLPS continue exploring the opportunities on cryptocurrency management for the financial institutions outside of China?

Thank you for the questions. This is Wilson. I would like to reiterate that due to the confidentiality agreement, we cannot disclose the name of the client. However, so we will leave it that way to ensure our long-term and stable relationship with this client. We hope for your understanding in our standpoint. However, we are very pleased that our global expansion, specifically in the U.S. market, has already paid off because of the client we gained there. Going back to your questions, our business with this client is progressively going well. In addition to the current IT consulting services we provide, we are also exploring the possibility of providing IT solutions services for this client.

This is Rita. And let me also add that this client contributes to the record e-commerce revenue in terms of operational areas. In the second half of fiscal year 2021, revenue from e-commerce area increased by more than 100%. We believe that our strong delivery capabilities and advanced IT products will further deepen our cooperation with clients. Yes. Thank you for your questions.

And we'll take our next question from Jakob Kurtz with Greenridge Global.

So you guys have released a series of positive announcements this year, but the stock has continued to fall. Why do you think that is? And how do you guys think you're going to turn it around?

Hello. This is Rita. Sorry, can you repeat your questions?

So you guys have released a series of positive announcements this year, but the stock has continued to fall. Why do you think that is? And how do you turn it around?

Rita, do you want me to answer the question for you? Hello?

Hello. Yes.

Yes. Let me take the questions. In terms of the stock price, it's so volatile. And generally, that is because of the market behavior, and material has been disclosed.

So in terms of our strategies, as mentioned by Mr. Raymond, we will continue to implement our dual-engine strategies. We will deliver our results and value to our shareholders. I hope I have answered your questions.

(Operator Instructions) It appears we have no further questions at this time. I'd like to turn the conference back to management for any additional or closing remarks.

Raymond, please go to your closing remarks. Raymond, would you like to do your closing remarks?

Okay. No questions, right? Okay. Okay. Thank you again for joining us on this call, and we appreciate your ongoing support. We look forward to updating you on our progress in this week and months ahead. Have a good day, everybody. Thank you.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.