Q3 2019 Earnings Call
Ladies and gentlemen, thank you for a steady bought and good evening well come to check use third quarter 2019 earnings conference call.
This time, all participants are in listen only mode.
After the management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded if he has any objections you may disconnect at this time.
Like the trends the conference overture host for todays call Chad use I, our head Mr. Joe you. Chuck. Please go ahead you check.
Thank you all birth her and thanks, everyone for joining up all the call today are Mr. Chen Dolan CEO Mr. hone child, Yeah, COO Mr. long, helping CFO and Mr. Witching Chief game Development Officer for todays agenda management will discuss highly.
For the third quarter 219. This will be followed by a question on also session. Before we continue please allow me to read you titles Safe Harbor statements statements that are not historical facts, including statements about the companys beliefs and expectations are forward looking statements.
These statements are based on current.
Estimates and projections and therefore, you should not place on June reliance on.
Forward looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those pumped and any forward looking statement for more information about the potential risks and uncertainties.
Please refer to the company's filings with the FCC, including his most recent annual report on form 20-F, I will now turn the call over a two hour CEO search and though and.
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For the third quarter of a tough define team. Our total revenue was 100, an $11 million.
All I gained performed well with revenue reaching $198 million.
Our non-GAAP net income was $34 million, which exceeded the high end our guidance.
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Or PC games, we launched a new expansion packs for tell BB Tc during a quarter to sustain your their interest. In addition, we rolled out this year second promotional event, which you rank and the reward data our high paying users we were happy to see that it not only help.
Took the same player engagement, but it also expected to be stabilize the in getting spending a player.
Overall tell B B P. C revenue, you know sort of quarter was flat on a sequential basis.
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For the fourth quarter of the 2019, we will launch another expansion pack for T. V. P. C down. The features. The addition offer new plan. We will also further improve our payment system and launch new holiday events that are specifically designed to promote engagement among mid tier paying pain.
They are given the uncertainty due to the national day holidays and fewer promotions during the fourth quarter, we expect TWB PC revenue decreased by about 7% honest sequential basis.
We will continue to focus on our cost strategy to maintain user engagement and maximize the longevity of our lives to tell the legacy PC games, such as tell BP.
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And then thanks to new content that we introduced the ordering a quarter meets or waiting our chief games Development Officer will give you an update later on our latest progress with this game.
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Highly active mobile game players. The game has performed quite a while things h. launch. However, since the game content has not particularly extensive its revenue contribution and the profitability are not comparable with love if they tell people mobile.
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Going forward, how memo RPG mobile games will continue to be our strategic focus and we will continue to work on improving the quality of the key games that we are developing so that we can't give them the best possible child to become heat.
In the meantime, we're also developing some casual and the strategy games to make sure that women Tina that Thursday, five product portfolio.
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Yeah, Let me turn the call over to me. It's early team our Chief Games Development Officer to give you an update on the latest progress of that does it tell PB mobile.
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During the quarter, we launched at expansion pack within under water or what the map and new challenging dominance following which helped to drive higher player involvement.
In addition, we were pleased to see that the newly introduced clan has being well received by players. So overall, we have been able to maintain stable user engagement during a quarter and achieved solid players spending.
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During the fourth quarter of 29 team, we will launch more expanded content that includes casual game play featuring some additional element of day to day life. Yeah addition, we will do a preliminary review of the skill system of all clients you know there to be prepay.
Head to further enhance but pvp experience in the future for legacy tell BB mobile we will continue to focus on long term oriented operational strategies and introduce new content in order to provide a better experience for players.
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Before I walk you through our financial highlights for the third quarter I will out your I'd like to remind you that the company is wholly owned subsidiary Shanghai team All culture Communication Company limited side came on in short we operated the company's cinema advertising business. So.
Operations and the wound down the business during the third quarter of 29 team as a result of a Chinese Kurt having granted a petition by Shanghai team all four bankruptcy relief Accordingly, the results of operations for the company's cinema advertising because there have been excluded from that.
Companies results from continuing operations came to come down consolidated statement of operations for the third quarter and are presented in separate line Adam as discontinued operations.
Retrospective adjustments to the historical statements have been made no other to provide a consistent basis for comparison unless indicated otherwise results presented in this release are related to continuing operations only an x. I flew.
Good results from the cinema advertising business.
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Total revenue was $111 million.
Increase of 9% year over year, and a 4% quarter over quarter exceeded our guidance.
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Online game revenue was 100, an $8 million, an increase of 13% year over year at 6% quarter over quarter exceeding our guidance the year over year increase was due to the revenue contribution from new games launched during the quarter.
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On a advertising revenue was $3 million, a decrease of 42% the year over year and 30% quarter over quarter.
Year over year end quarter over quarter decreases were mainly due to fewer games being marketed on a one selling 173 dotcom websites.
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Hi ownership for me what Weve tried to go up going for me what Queen quite isn't done. This is a function exactly settlement glass fiber that gives you can talk about now let me provide some more details about our Aldo financials from now most of the figures discussed will be on a non cap business as a reminder, if I'm fine jewelry compensation.
These non-GAAP measures are published earnings release.
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Gross margin was 78% compared with 83% in the third quarter of tend to 18 and 82% in the second quarter of 2019.
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Gross margin of the online game business was 78% compared with 84% during the third quarter of Tenda 18, and 82% in the second quarter over 2019.
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Operating profit was $35 million compared with an operating profit of $40 million during the third quarter of 2018, and an operating profit of $38 million in the second quarter of 29 team.
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Net income from continuing operations actually below two child Dot Com limited was $34 million.
Compared with net income of $57 million in the third quarter over time, the 18 and net income of $41 million during the second quarter 2019.
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Fully diluted net income from continuing operations attributable to China Dot Com limited for Mds was 64 cents.
Part of the with net income of 1.2 $5 in the third quarter of 2018, and net income of 77 cents in the second quarter of 29 team.
Sam It sounds yourself. So that's the kind of put out there essentially what if you count.
Moving onto the balance sheet and cash flow statement.
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As of September 30 is 29 team, we had net cash of $215 million compared with $671 million as of December 31st tend to 18. The decrease was mainly due to the distribution of a special cash dividend of up about.
$503 million in the second quarter of 29 team.
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For the third quarter, we have net operating cash inflow of $56 million.
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Finally for the fourth quarter 2019 guidance, we expect.
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Total revenue to be between $100 million and $110 million. This implies a sequential decrease of 10% to 1%.
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Moving total revenue all like gaming revenue to be between $95 million and 100 on a $5 million. This implies a sequential decrease of 5% to 3%.
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non-GAAP net income attributable to China, dot com imitate to be between $27 million and $32 million.
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Share based compensation expense to be around $3 million, reflecting through end to a certain key employees of share based though worth approved by the company board of directors under a newly adopted share intensive plant as well as remaining share based awards under 10 2000.
14 share incentive plan and assuming no other grants of share based awards fourth quarter of 29 team.
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Our guidance, we have adopted a presumed exchange rate of.
7.1, and then B to one dollar as compared with the actual exchange rate of about 6.99, and then B to one dollar for the third quarter 2019 push on the digital young woman jump with happens within half way that human ones, yet we'd iowans Parliament.
All right last quarter, we won't take any questions regarding the going private proposal in the Q and a session of this call will let yourself.
Who trail in Korea.
This concludes our prepared remarks. Thank you operator, we will outline to open the call for questions.
Ladies and gentlemen, we will now begin the question and answer session.
He wished to ask the question. Please press star one on your telephone and wait for getting to be announced if you wish to cancer request piece for us Japan or heskey.
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Your first question.
Comes from the line of Feburary grew from credit Suisse. Please ask your question.
Hi, My name is how much our hearts go wherever you go through why Youre metric or Youre, just kinda give our pipeline, though I will.
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Hi, My comments on to your potential pipeline and the potential contribution from the new games that are going to be launched thanks.
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From fourth quarter this year to answer to the and over the next year, we will launch some new games and the the most recent could it be oh the Andy.
Do come Mountaineer, we may launches in the fourth quarter or.
First quarter next year.
Pursue digital sounds analysts are the version can then high shelburne tissue that lets us.
Consists of the synergy.
It's hard to predict the revenue performance of those new games. So we need further support from testing results.
Okay. Thank you.
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Your next question comes from the line of Eddie It didn't you from B Oh A.M.L. Please ask your question.
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And finally, how many engineers I'll be right now thank you.
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We are studying the cloud based game actually for in the future. The yields are scale will be large enough, but for the provider side, there will be steel content provider and operate operator to site.
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Thanks for taking the time Delano Shaw choose well be mail should I didn't go for the I'm happy to go much receded really you'll see that people yet some of the too.
We will ship water.
Are you will be will answer the second answered a question now we have in maintaining a thousand and the 100 and the workforce.
Scale and path, we have been reviewing our game projects under development. The pure periodically so we will close or shutdown, Tom or older project without enough creative ideas. So we will have some loss in R&D workforce, but in the meantime will also.
How new Recruitments of from new projects established so we will overall speaking we will maintain the similar scale of R&D workforce.
This is usually think it very much.
Thank you already.
Your next question comes from the line up Nelson Chin from Citi. Please ask your question.
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On the marketing dollars.
Can management share.
What would be your marketing strategies going into next quarter.
Should we expect more aggressive spending in order to lengthen the lifecycle game and my second question is on the revenue mix between PC and mobile games and can management share.
The current mix between PC and mobile in terms of reported numbers and group. Thank you.
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The increase of marketing fees in the third quarter was mainly due to our new game launch in the market tells me be owner, because we had a different publishing most of this time in a path we took a distribution channels Clos advertising, but this time we use.
The method of four in Chinese since my layout and Wi Fi user traffic.
They might allies. So she is it just as we also ICANN my down or timber consumer you influences relatively tough solution that goes into a search on the though positive results.
So in terms of buying user traffic you need to consider the cost of buying traffic and the lifetime value from the buying traffic method.
No well you can see sort of Holistically polishing Hon Hai synopsis, a Joseph Allman might analytical tofu, so the future costs and the marketing fees will be dependent on the return rate of return.
Let's start with to dormer easily.
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For our cash receipts or go speeding the PC game to account for 38% and mobile game account for 62% tones high order, so like how I'm going to Taleo. Her. So that's obviously usages in terms of revenue do you think.
The account for 60% and the mobile game, 40%.
Yes.
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Once again, if you wish to ask question. Please press star one on your telephone and wait for name to pay Downs.
Once again, ladies and gentlemen, if you wish to ask a question.
Please press star one on your telephone keypad.
Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question.
Hi, I'm management now pencil.
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Continuing user engagement in the first place so Oh, we it's hard to say how much it will be decrease for the next like wind year period.
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Roughly speaking and will be the end of this year or early next year and ER, but specific timing will be depend on for the result of testing result.
Thank you.
Thank you thank you come up.
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Once again, ladies and gentlemen, if you wish to ask a question. Please press star one on your Johnson.
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[noise].
As there are no further questions. She will now begin closing comments. Please go ahead you Chuck.
Once again I would like to thank you for joining todays call if ever how photo questions. Please don't hesitate to contractor. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may all disconnect.
And.