Luokung Technology Corp (LKCO) 2021 Q4 法說會逐字稿

Good day and welcome to Luokung year-end 2021 financial results call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to Alice Zhang of The Equity Group. The floor is yours.

Thank you and good morning, everyone. Copies of the 2021 year-end financial results press release, which was issued after market close yesterday, can be found at the Investor Relations section of the company's website, www.luokung.com.

Before we get started, I would like to note that except with respect to historical information, statements made in this conference call may constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends, the company's operations and financial results, and the business and products of the company and its subsidiaries.

Luokung's actual results may differ materially from the results anticipated in these forward-looking statements as a result of various risks and uncertainties underlying our forward-looking statements, including risk and uncertainties associated with the shares -- associated with COVID-19 and its impact on the economy and on our business as well as those risks described from time to time in Luokung's filings with the SEC, including our latest Form 6-K and subsequent reports.

Luokung specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, further developments, or otherwise, unless required by law.

A replay of this call will be provided through a link on the Investor Relations section of our website shortly after its conclusion.

On today's call, Luokung's Chairman and CEO, Mr. Xuesong Song, would like to take the opportunity to introduce Dr. Dongpu Zhang as the President of the company, and Dr. Zhang will begin the call with some opening remarks. The company's CTO, Mr. Baomin Li, will continue his discussion of the latest operational developments; and CFO, Mr. Jie Yu, will conclude with an overview of the financial results and outlook for 2022.

As a further note, Mr. Song will be here to address any questions our investors may have in the Q&A session. A Q&A session will follow management's prepared remarks. If any individuals who prefer to e-mail questions they'd like to ask during the session, feel free to e-mail me directly at azhang@equityny.com and please specify whether you would like to have me read your name as well.

With that, I'll turn the call over to Dr. Dongpu Zhang, President of Luokung. Please go ahead, Dr. Zhang.

Thank you, Alice, and thank you, everyone, for joining us this morning. I'm joined today by the members of Luokung's executive team, and we are excited to have the opportunity to discuss Luokung's growth in 2021 with the investment community today.

We are very pleased to have achieved the significant topline growth and gross margin improvements for 2021. This included delivering the record annual revenue of about USD145 million, more than seven times that of the 2020s.

2021 is the year that -- in which we are working -- worked to build a strong foundation for future growth. Luokung is a rapidly growing company connected by the core belief that our spatial-temporal technology will increase our value proposition.

As society as a whole seek to harness the intelligence and can connect it to cars, cities, and people, Luokung consider itself as a major player in the enhancement of people's daily lives and their surroundings and their connection between the physical world and our digital space.

We have established a leading position in the HD map, IoT intelligence, big data, autonomous driving and smart transportation, vehicle-road collaboration, carbon neutrality, and remote-sensing feature service, which are the necessary field in process of digital twins.

A digital twin is a representation that serves as a real digital counterpart of our physical objects or process. This is the coin critical in drawing the architecture of Luokung.

Luokung's policy centers around the connections between the physical world and our digital space, along with our three key business pillars: smart transportation, remote data sensing, and LBS. We saw revenue growth in all three of these areas in 2021 and are pleased to have the continued -- continue to win large global customers that apply our technology and solutions into their products and services for their purpose. We believe we have only just begun to realize the potential of our smart transportation and remote-sensing business.

The acquisition of eMapgo, which we closed in March of 2021, now have the most transformative developments for Luokung's volumes this year. Since integrating eMapgo to our operations, it has become a key driver of Luokung's future growth. With the positive momentum of the company, we see a unique and industry-leading technology that advantage in Luokung's existing LBS business, as well with the smart transportation and natural resource asset management service, expanding the depth and the breadth of the application, which Luokung can establish itself as a leader.

We believe that the growth to vehicle coordination is the cornerstone of the smart travel and autonomous driving in the future. Smart cars require creates smart roads, which is for -- China is very good at building smart roads, and we are actively developing smart solutions for both vehicles and the roads.

For vehicles to be exactly as strategics to secure that eMapgo's position as a leading IT map provider in the fields of the autonomous driving data service and acceleration service and a full combination AI service, we, Luokung, use our map as a cognition tool for the environment around us.

For growth, we are actively promoting the smart roads and service based on Luokung's spatial-temporal digital platform, aiming to upsize assistance that express operators in managing their digital assets more securely and efficiently and achieve the vehicle-to-road data communication. These efforts are then validated through our service, providing for the carmakers and the top tier autonomous driving companies, as well that the projects Luokung implement in the field of smart highways such as the Chinese Changjiu Express Highway. That is a first in China that explicitly use the HD map.

Moving from our second business pillar, natural resource asset management. Although Luokung's service do not directly solve the issues of carbon emissions, we believe that our data service can help policymakers, industry regulators, and market service participants make their better decision by providing access to real-time situation and monitoring and data change, as they continue trying to reduce the carbon emission and to serve as an important digital platform for carbon emissions trading.

We believe that Luokung has established the Chinese -- China's most powerful remote-sensing vehicle engine that integrates high-resolution remote-sensing data, HD map, and the version of IoT sensor feature, enabling us to launch the most efficient remote-sensing data process service include our recent launch, holographic spatial-temperature products and data fusion service, offering for the natural resource monitoring and the carbon sink accounting.

We have signed several contracts for carbon sink service in Anhui Province, China. As an LBS data service provider of the information flow management and the market of service, Luokung's LBS business is powered by its integrated platforms and the capability to measure the entire lifecycle market service from planning, ordering, fulfillment and conversion, monitoring and reporting. All of this is behind our ability to grow revenue nearly 700% year over year, our significant R&D investments, and the ongoing efforts to extend our existing partnership base and have enabled us to achieve this record revenue growth, which is the only beginning of Luokung's long term -- (technical difficulty) -- our stakeholders and many others, we have overcome with the challenge of DoD matters in the first half of 2021, which we have not been prepared. With this particular concern behind us, we are pleased to have been able to put our focus on our vision and the growth of our business.

In 2022, we remain fully committed acceleration of the growth and are improving our bottom line results. Five-plus months into this year, we are optimistic about the company's growth potential, and looking forward to sharing more developments in the investment community in the coming quarters.

I would like to turn the call over to Mr. Baomin Li, our CTO, for more detailed discussion of our operations. Baomin, please go ahead.

Thank you, Dr. Zhao. I would like to highlight some of Luokung's recent significant operational developments. In February 2022, Luokung announced that its operating affiliate, eMapgo, has begun providing mapping services for two new Ford Motor company vehicle models. Both models are equipped with Ford BlueCruise active driving assistance system, which supports our two autonomous driving function as defined by SAE International. This is the validation of eMapgo's leading market position in providing mapping services and we look forward to expanding our partnership in the smart transportation area, not only with Ford, but other top tier automakers as well.

In March 2022, Luokung announced that our operating affiliate agreed to acquire Beijing Hongda Jiutong Technology Development Co., Ltd., a leading big data service provider for intelligent transportation and connected vehicles in China. This is a strategic acquisition for Luokung to take advantage of Hongda Jiutong's vehicle data processing expertise, and hence, improve our intelligent highway data management system capabilities and provide additional capabilities in driving assistance to improve safety and energy efficiency when combined with our HD Map services.

We are very excited about the insight Hongda Jiutong will bring to the company in the field of autonomous driving or assisted driving, intelligent transportation, and the synergy it creates with our existing products and the services. We expect to close the deal in the second quarter of 2022.

In April 2022, Luokung announced the launch of its remote-sensing holographic spatial-temporal portfolio of products and the services for natural resource monitoring and carbon sink accounting. The launch of these series of products and services and its commercial application in a couple of country-level regions enabled us to seize a greater opportunity in China's largely untapped market of carbon neutrality and natural resource management.

The new portfolio of offerings covers areas like carbon sequestration, forestry, agriculture, and other fields. And Luokung anticipates expanding its range of services for various applications scenarios such as carbon emissions, environmental protection, water conservancy, disaster emergency management, and much more in 2022.

In May 2022, Luokung announced that its operating affiliate, Beijing BotAiot Intelligent Co., Ltd., has signed service contract to provide Research Institute of the Highway Ministry of Transportation with the electronic blockchain data and certificate storage platform services. We are very pleased to announce the cooperation with the Highway Research Institute, which is a leader in integrating strategic research and industrial developments related to highway transportation.

Luokung has been actively promoting the application of blockchain technology in various views of spatial-temporal big data. And this contract marks the beginning of our commercial services in the fields of highway transportation.

We anticipate strengthening our relationships and expanding our scope of blockchain services with more enterprises and institution partners that recognize our competitiveness in highway transportation.

Our business is centered around our proprietary technologies and expertise in HD maps and the multi-source intelligent spatial and temporal big data, which is further supported by the long-term relationships we have established with reputable global partners and customers.

While we remain committed to investing in technology improvements and product retention to solidify our leadership position in key technology areas, our partnership base is critical for our growth. And we continue striving to establish new relationships while deepening existing cooperation with players in the wide spectrum of industries.

Overall, we are proud of what we are building here at Luokung, and I'm very pleased with the progress we have made.

With that, I will turn the call over to our CFO Jie Yu for a brief review of the financials and our outlook for the year. Jie, please.

Thank you, Baomin. Thank you all for joining us. I will quickly review the financial statements and encourage each of you to review both our press release and Form 20-F, which will be filed with the SEC later.

For the year ended December 31, 2021, we recognized total revenue of $145.1 million compared to $18.3 million in the prior year. The increase was primarily a result of $113.5 million in increased revenue contribution from the LBS business as well as substantial growth in the software as a service business and the smart transportation business.

Our cost of revenue increased to $129 million, which was a proportionate increase to total revenue during the period and that was primarily attributable to traffic acquisition cost related to the LBS business.

We were able to achieve a higher gross profit margin of 11.1% compared to 4.3% for the year 2020, which was primarily driven by value-added service and improved contribution from the software and service and the smart transportation business that tend to have higher margins.

Operating expense increased to $81.7 million compared to $41 million, mainly due to interest expenses in salaries and the share-based compensation for adding personnel in the R&D department, salaries, and additional marketing personnel as well as promotional and marketing expense.

Moving to the balance sheet. As of December 31, 2021, Luokung's cash balance was $16.4 million compared to $0.7 million as of December 31, 2020. The net proceed we received from the issuance of shares in 2021 were primarily linked to the closing the eMapgo transaction and the general corporate purpose of day-to-day operation. eMapgo has been critical in opening up variance opportunity for the company's three key business pillars: smart transportation, natural resource asset management, and LBS and smart industry service.

We are very, very pleased to have more than exceeded our goal of generating $100 million in revenue in 2021, beating this projection by 45.1%. We are now focused on 2022 and beyond, further strengthening our competitive advantage and streamlining our business to improve bottom line results.

Having established a solid foundation for further growth in 2021, our goal is to continue growing the existing business reach, including LBS and the smart industrial service, smart transportation, and natural resource asset management.

As I mentioned, our gross profit margin increased to 11.1% in 2021, which reach the continuous optimization of our self-developed LBS intelligent advertisement platform in 2021. We expect gross profit margin will improve over time as we offer the value-added services. As the company continue to diversify its value streams with increased contribution from smart transportation, from natural resource asset management, which tend to be higher margin business, we anticipate improving our margin portfolio and create more favorable revenue mix.

With the addition of more than 500 new staff, we have built a very strong team in taking our R&D effort to a higher level. The addition to Hongda Jiutong also adds some positive momentum in both enhancing our technology areas and advancing the industrial implementation of our smart transportation business. In 2022, we anticipate the R&D investment as a percentage of total revenue to remain stable as that of 2021.

Over the past years, we have had a great pleasure to communicate with our valued investors in various forms, including webinars we host to introduce our latest business development of the company. And we will look forward to continue this dialogue with the investment community. Our goal is to provide more transparent and regular updates on our activity, just like expected to be a public company.

We thank our shareholders for their ongoing support and confidence in Luokung and welcome the opportunity to speak with more of you as we move forward in the journey ahead.

With that, operator, let's open up for questions. Thank you. Operator?

Thank you, Mr. Yu. The floor is now open for questions. (Operator Instructions)

And, Ms. Zhang, I'll hand the floor over to you while we're waiting for questions to queue up.

Sure. Thank you, Erin. Appreciate it. At the beginning of the call, we received a number of different questions related to the company's operations. Specifically, I would like to ask to post the questions to management while we wait for questions to queue up.

So the first question I receive is this: will the acquisition of Hongda Jiutong result in any revenues? Because we know that this is announced as a strategic acquisition. What does that mean exactly? And that's my question.

Thank you. Hongda Jiutong is a strategic acquisition. It not only provides key technologies to us, it brings the existing business to us as well. So in terms of technology advantages to Luokung, it brings mainly two parts: wide data collection capabilities and other is the AI algorithms. We are confident that this acquisition will strengthen our HD map services and give us a competitive advantage in other areas like assisted driving, vehicle road collaboration, among others.

In 2022, we expect Hongda Jiutong to bring revenue based on existing business. And with the synergy that brings, we anticipate a much more growth in other areas due to Hongda Jiutong's integration. That is fully integrated with Luokung, so this acquisition will fuel additional resource -- revenue growth in the near term. We continue to explore various potential M&A opportunities, and we will bring -- which will bring additional value to our business and to our technology portfolio.

Thank you, Mr. Li. My second question would be, what's Luokung's growth prospects for the natural resource asset management and the smart transportation business? And how much of a percentage do they currently contribute to the total revenues right now? And how much of a contribution percentage do you expect for these two business lines for the two -- for the year 2022?

Thank you. Luokung's core product is the software and the service. So that definitely make us very special feature that when you finished the developments of the software and that platform, such as we are focused on the resource asset management and also the remote-sensing products. And when this is finished and the delivery of the product -- software product and service for the customers, that the spending part is finished, then the process will go higher and higher. That is why we spend a lot of resources first in the developments of all the platforms.

And there still will be very little adjustments there, these software, when we finish the project and the cost will drop significantly. And the profit will go higher and higher. And with the time passed, I think the profit rates will go even higher. And we will balance this profit with our development, and then for the new features and another upgrade of the old platform and software.

So I think for the profits, which will -- around may be 66% or 60% to 70%. And that is mainly software in the resource asset management.

Okay, great. Thank you, Dr. Zhang.

And, Erin, that's all of the questions we get. I'll turn the call back to you for live Q&A session.

Thank you, Ms. Zhang. (Operator Instructions)

And there appear to be no questions at this time. So I would now like to turn the call back over to Mr. Jie Yu for closing remarks.

Thank you again for joining us. And we believe Luokung is well positioned to carry out its growth strategy. And we intend to maintain our leading position in spatial-temporal intelligence big data service company and provider of interactive location-based service and HD maps in China.

We are confident that we have gathered the best team with expert from all major business lines to strengthen our core competency, and that our growing partnership base will empower the company and its customer to achieve success in the future.

We appreciate your time and interest in the company and invite you to reach out to us with any additional questions. Thank you again.

This does conclude today's conference. We thank you again for your participation. You may disconnect your lines at this time, and have a great day.