CLPS Inc (CLPS) 2020 Q4 法說會逐字稿

Hello, everyone, and welcome to the second half and Full Year Fiscal 2020 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. (inaudible), 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 2020 financial results yesterday.

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, 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.

Further 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 and Section 21E of the Securities Exchange Act 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 the future results, performance or achievements expressed or implied by such forward-looking statements.

Statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation to those risks and uncertainties related to the company's financial and operational performance in the second half and full year of fiscal 2020, its 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 days on any such statements otherwise are made.

All information provided today is 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 yesterday.

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, acting Chief Financial Officer of CLPS, who will discuss financial results in more detail.

(Operator Instructions)

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.

Yes.

Hello.

Thank you, Ron.

Hello, everyone.

I want to say thank you for being here for today's call.

We are pleased to have you join us for a discussion of our second half and full year fiscal 2020 result.

We are pleased to conclude our fiscal 2020 with a solid result following the spirit of our [new] growth strategy to increase revenue.

We surpassed our guidance with 37.7% increase fiscal year 2020 revenue.

Due to our close relationship with existing clients and the additional of international and domestic clients as a result of the successful implementation of our global expansion strategy.

As a part of our horizontal growth strategy, we further extended our footprint in the Southeast Asia region, with acquisition of RiDiK.

That is a Singapore-based IT service company, which we integrate along with Infogain into CLPS Singapore.

In addition, we have established the CLPS California, which focuses on the U.S. market to support the company business growth as credit card services in one of our core competencies.

CLPS established Qinson credit card service company in Hong Kong, together, for the increasing demand for credit card service in the financial industry.

Revenue from our overseas services increased by 158.5% to $10.6 million for the year-end June 30, 2020.

(inaudible) our innovation lab, the company research and development center is committed to the research and application of innovation technologies, which enable digital transformation for ourselves and our clients.

We have tested and pilot cutting-edge technologies, including the cloud migration, robotic process automation, with data and blockchain.

This fiscal year, we boosted our globally competitive business throughout the industry or operation with investment.

Our partnership with established financial item company in China majorly benefits us as we leverage each other cutting-edge innovation and resources in financial technologies industry.

In terms of strategic investments, we have each invest a 10% ownership stake in Shenzhen Huaqin Robotics Company and Guangdong Zhichuang Software Technology Company to diversify our business industry (inaudible) regularly.

Our IT talent pay pivotal role in our success.

Through our TCP and TTP talent training program, we continue to focus on conducting thousands of streaming hours to develop our talent and retrain our human capital.

We have also cooperated with the Technological and Higher Education Institute of Hong Kong to boost its degree program in information technology, aiming to maintain a sustainable pool of well equipped, and young talent in IT.

Despite the recent COVID-19 pandemic, CLPS growth strategy remains in effect.

With reference to our fiscal 2020 financial outlook, we surpassed our project sales score with an increasing of 37.7% and have achieved a profitable net income.

In addition, we enhanced support for our clients in the health care industry, and remain well equipped to meet the growing (inaudible) demand during this challenging time.

Thus, we continue to make long-term investments to support our continued growth.

We remain optimistic about our future as we grow horizontally and vertically, expand our global footprint and market share.

Focus on digital transformation and create value for our shareholders.

Now I will turn the call to over the acting CFO, Rui Yang, who will discuss our financial results from the second half and full year of fiscal 2020.

Rui, please go ahead.

Thank you, Raymond.

Hello, everyone, and thank you for being here for today's call.

I will now provide an update on our financial performance from the reporting year.

Please note that all numbers provided are in U.S. dollar terms and that all comparisons are made on a year-over-year basis.

First, I will provide an overview of second half of fiscal 2020 results.

In the second half of fiscal 2020, our revenues increased by $12.7 million, or 37.2 percentage to $46.8 million from $34.1 million.

This increase in revenue was mainly due to an increase in revenue from IT consulting services.

Now to the revenue by services, service line of IT consulting, IT solution and others.

Our revenue from IT consulting services increased by $13.5 million of 42.3 percentage to $45.5 million and accounts for 97.2 percentage of total revenue, up from $32 million or 93.7 percentage of total revenue.

The increase was due to increased demand for the company's IT consulting services from banks and other financial institutions, primarily from existing clients.

Revenue from customized IT solutions services decreased by $1 million or 45.4 percentage to $1.1 million from $2.1 million, the decrease was primarily due to decreasing demand from existing clients.

Revenue from other services increased to $0.2 million from $0.04 million.

And now the revenue by geography, revenue generated outside of mainland China increased by 110 percentage to $6.3 million in the second half of fiscal year 2020 from $3 million in the prior year period.

The increase in revenues generated outside mainland China reflects the company's successful and continuous global expansion strategy.

Gross profit increased by $3.2 million or 25.1 percentage to $15.7 million from $12.6 million.

Gross margin in the second half of fiscal 2020 decreased to 33.6% compared to 36.9% in the prior year period.

The decrease in gross margin was primarily due to the increase in academic provision costs during the COVID-19 outbreak.

As for operating expense, selling and marketing expense increased by $0.5 million or 37.3 percentage to $1.7 million from $1.2 million, the increase was due to the increase of salary expense as new staff were higher, enabling the implementation of the company's global expansion strategy.

Research and development expense increased by $0.5 million or 9.7 percentage to $5.4 million from $4.9 million.

The increase primarily resulted from the establishment of 4 new research projects and the company's continued R&D efforts in big data, blockchain and artificial intelligence.

General and administrative expense increased by $0.2 million or 2.7 percentage to $8.4 million from $8.2 million after excluding the impact of noncash share-based compensation expense non-GAAP general and and administrative expenses increased by $0.4 million or 8 percentage to $5.7 million from $5.3 million, the increase in non-GAAP administrative expense was primarily due to an increase in administrative personnel and M&A-related expense as a result of business expansion.

As a result of the (inaudible) operating income was $0.04 million compared to a loss of $1.78 million.

Operating margin was 1.0 percentage compared to negative 5.2 percentage in the prior year period.

Subsidiaries and other income increased to $1.1 million from $0.1 million.

Provision for income taxes increased by $0.5 million to $0.4 million, mainly due to the reduction in recoverable losses for some of the company's subsidiaries.

Net income was $0.8 million from a loss of $1.7 million, the net income was due to the decrease in noncash share-based compensation expense.

After excluding the impact of noncash share-based competition expense.

Non-GAAP net income increased by $2.4 million 196.7 percentage to $3.7 million from $1.3 million.

After excluding the impact of noncontrolling interest, net income attributable to CLPS Incorporation shareholders in the second half of fiscal 2020 was $0.6 million or $0.04 basic and diluted earnings per share.

After excluding the impact of noncash share-based compensation expense.

Non-GAAP net income attributable to CLPS Incorporation shareholders in the second half of fiscal 2020 was $3.5 million or $0.23 basic and diluted earnings per share.

This is compared to non-GAAP net income attributable to CLPS Incorporation shareholders of $1.2 million on $0.08 basic and diluted earnings per share.

And now, I will provide an overview of full year fiscal 2020 results.

For the year ended June 30, 2020, revenues increased by $24.5 million or 37.7 percentage to $89.4 million from $64.9 million.

About the revenue service line.

Revenue from IT consulting services increased by $25.3 million or 41.1 percentage to $87.1 million and accounted for 97.5 percentage of total revenue.

Revenues from customized IT Solutions services decreased by $1.2 million or 39.3 percentage to $1.8 million from $3 million.

Revenue from other services increased by $0.3 million or 219.0 percentage to $0.4 million from $0.1 million.

About the revenue by geography.

Revenue generated outside mainland China increased from $4.5 million to $10.6 million.

Gross profit increased by $7.3 million or 31 percentage to $31.1 million from $23.8 million.

Gross margin decreased to 34.8 percentage compared to 36.6 percentage.

The decrease in gross margin was primarily due to the increase of academic provision costs during the COVID-19 duration.

As for operating expense, selling and marketing expenses increased by $0.9 million or 14.4 percentage to $3.1 million from $2.2 million.

Research and development expense increased by $2.4 million or 13.8 percentage to $10.4 million from $8 million.

General and administrative expense decreased by $1.1 million or 6 percentage to $16.3 million from $17.4 million.

The decrease was primarily due to the decrease of $3.2 million in noncash share-based compensation expense.

After the deduction of noncash share-based compensation expense, non-GAAP general and administrative expense increased by $2.1 million or 20.5 percentage to $12.6 million from $10.4 million.

The increase in non-GAAP administrative expense was primarily due to an increase in administrative personnel and M&A-related expense as a result of business expansion.

As a result of above, operating income was $1.3 million compared to a loss of $3.8 million in the prior period.

Operating margin was 1.4 percentage compared to negative 5.8 percentage.

Subsidiaries and other income increased to $2.4 million from $0.7 million.

Provision for income taxes was $0.8 million compared to $0.2 million, mainly due to the reduction of recoverable losses for some of the company's subsidiaries.

Net income was $3.1 million compared to a net loss of $3.4 million in the prior year period.

The increase in net income was due to the decrease in noncash share-based compensation expense.

After excluding noncash share-based compensation expense non-GAAP net income increased by $3.5 million or 97.7 percentage to $7.1 million from $3.6 million.

After excluding noncontrolling interest net income attributable to CLPS Incorporation shareholders for the year ended June 30, 2020, was $2.9 million or $0.2 basic and diluted earnings per share.

After excluding the impact of noncash share-based composition expense non-GAAP net income attributable CLPS shareholders for the year-end June 30, 2020, was $6.9 million or $0.47 basis and diluted earnings per share.

This is compared to non-GAAP net income attributable to CLPS incorporation shareholders of $3.7 million or $0.27 basic and diluted earnings per share in the prior year period.

As of June 30, 2020, we had cash and cash equivalents of $12.7 million compared to $6.6 million as of June 30, 2019.

Looking forward, for fiscal year 2021, we expect the 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 2020 financial results.

This concludes our prepared remarks.

Operator, we are now ready for questions.

(Operator Instructions) We can now take our first question from Peter Wu, private investor.

Okay.

First off, congratulations on your impressive financial performance.

And I would like to know what about your (inaudible) going forward and what is CLPS competitive advantage compared to other competitors?

Thank you your question, Mr. Okay.

CLPS strategy is very clear.

In the next, we were -- going forward, our strategy in the horizontal for the global expansion, we will go through the set up the new company in the overseas globally or to the M&A acquisition to acquire some institution in the globally.

We were using this to attracting the new client for the global expansion.

In the vertical, we continue to enhance the IT consulting services and IT solutions for our existing client and for potential clients, globally.

Okay.

And we also drive the IT innovation for R&D in the company.

We invest in the cutting-edge technology just like the robotic, processing, automation, big data, block chain and cloud and make it one of our growth drivers in the future.

Yes.

And surely, we review the operation achieved to repeat our goal.

Also, we will attract qualified people and good people in the market to make our stronger in the future.

And for the next question is how is that that CLPS competency and advantage?

Okay.

For this CLPS is a good customer, booked new clients in the global.

The clients is the first path in the world.

This is good for us.

And the second advantage is that we have the world-class human capital base because we have many, many, many professionals, agents speak good English and good Chinese.

It's a by-language people.

And also, we have a large pool of the IT talent in the banking, wealth management and e-commerce often notice in this area, yes.

And first is, we have a good management team most of the manager, what you have the about -- I think it's over the 5 years, maybe 10 years in this area, they have know-how to maintain operation in progress.

They will know how to do the specialty work for the company.

The final advantage is we have a TCP program and TTP, program.

The TCP program is a talent creation program.

We can train the new people into this industry.

And after that, we continue to train them to be a higher level.

This program is and make us (inaudible).

Any other questions?

One more question.

Would you tell me how COVID-19 impacts to our business?

Okay.

Thank you.

Thank you, Mr. . For the COVID-19, we're not -- and it did not effect to our business because the IT job, IT work, most of the staff can be work from home.

And the second thing is the China recovery is very flat in the world.

So at this time, most of our staff have been normally work for our clients.

So we can see more and more business coming on coming soon.

Thank you.

We can now take our next question from Mary Lou, private investor.

My question is to (inaudible) base, how you expect your revenue trends in the next fiscal year?

Yes.

About our looking forward for fiscal year 2021, we expected total sales growth in the range of approximately 30% to 35% percentage.

And through our growth strategy, we are confident that we will achieve our growth rate in the next year to come.

And also about this forecast, just to reflects the current and preliminary deals, which are subject to change and are subject to risks and uncertainties, including, but not limited to potential accounting adjustments attributable to RiDiK acquisition as well as various risks and uncertainties facing the company's business and operations as identified in our public filing.

Thank you.

That's the answer for your questions.

And also your revenue ended very well.

And what is the reason why your gross margin decreased in the second half and the full year of fiscal 2020?

Thank you for your questions.

Yes about the decrease in gross margin was primarily due to the increase in (inaudible) provision cost during the COVID-19 outbreak.

And the health and safety of our employees and their families as well as our customers and business partners are and will continue to be our top priority.

We have taken proactive cautionary measures to ensure that our staff are protected against the COVID-19, we are doing our best to optimize our operations.

Yes.

So that's the reason for our gross margin.

Okay.

And I have another question about the working capital of the company.

And do you mention the sufficient fund and the CLPS anticipated need to raise more cash in the near future.

Okay.

About this question, as of June 30, 2020, the company had an aggregate cash and cash equivalents and short-term investments of $13.2 million compared to $8.4 million as of June 30, 2019.

And the cash on hand is enough for our daily operations.

However, based on our global expansion strategy remained to raise capital for funding in the future.

Yes.

This concludes Q&A session.

I would now like to hand the call back to management for closing remarks.

Raymond, please go ahead for the closing remarks.

Okay.

No more questions?

Okay.

Thank you again for joining us on today's call.

And I -- we appreciate your ongoing support.

We look forward to updating you on our progress in the weeks and months ahead.

Have a good day, everybody.

Thank you.

This concludes today's call.

Thank you for your participation.

You may now disconnect.