Q4 2019 Earnings Call
Your pass code is not valid. Welcome to course call, please invalid response.
Welcome to chorus call. Please hold for a conference specialist.
Welcome.
Forest college conference would you like
Hey your name, please.
your company
JoJo we don't give an overview of the operations and the financial results in line with our practice on a previous earnings conference calls. Shelton's prepared remarks will be made in a voice using personalized speech synthesis and style transfer learning technology, which was developed by the circle voice interaction Technology Center children will join a club or a portion of the court in person before management begins. They're prepared remarks. I would like to remind you of the company's Safe Harbor statement in connection with today's conference call off except for the historical information contained here. The matter is disgusting. This conference call are forward-looking statements. This statements are based on current plans estimates and projections. And therefore you should not Place undue Reliance on the forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could suck.
actual results to differ materially from those containing Edwards
Any forward-looking statements for more information about a potential risks and uncertainties. Please refer to the company's filings with the Securities and Exchange Commission with that. I would now turn the call over to our CEO Shelton Wong. Thank you, Jesse. And hello, everyone. We maintain steady progress in two thousand and nineteen months despite headwinds in the macro environment and online advertising industry in China. Our total revenue increased 9% year-over-year 2/8 billion R N B. Net income for past 730 million RMB for the Year. This was primarily driven by our dedication to continuously Drive organic traffic growth and unlock the monetization potential of our core user assets. Well at the same time further improving operational efficiencies by the end of 2019 June.
Go go search remain.
Kind of second largest search engine and our search Revenue continues to grow faster than the industry average total mobile keyboard increased its userbase to 464 million use reinforcing his position as the third largest Chinese mobile app in terms of the use according to my research with respect to our recommendation service that leverages mobile keyboard its Revenue continue to experience robust growth in addition our smart Hardware business maintain healthy mon. No thanks to ongoing upgrades to our AI offerings. Now, let me walk you through each of our core businesses including search mobile keyboard and smart card wage.
Search on top of an ongoing effort to improve the quality of services. We also strengthened our content and service ecosystem during 2019 month on the constant Funk. We make solid progress in building a more professional search platform. For example, healthcare related comments on social search continued to be perceived as more reliable power intelligent Q&A provided user rather access to high-quality content including that and ReChat official accounts. And so go off also further optimize its content ecosystem on the services from we enhance our offerings starting with health care to explore opportunities in smart key throughout the year plz significantly improved user experience in healthcare search and post average click-through volume and click-through rate per person recorded dead.
Call it in person.
Our direct answer results for food a significant portion of our overall search results with a high level of accuracy. These initiatives have effectively boost the organic traffic growth turning to mobile keyboard over the past year. We launched a comprehensive set of upgrades with funny use of perception of input with a marker enabled solutions that allow more efficient and accurate include in particular release a number of product Innovations, which differentiates us from other players and expand our user base.
For example, smart one side and a I enable communication assistant within mobile keyboard that was launched in the third quarter of 2019 recommend to use with a large variety of the models punchline replies and comments to use in charge and online shopping. The recommended content has been used hundreds of million times per day on average and the daily usage number keeps climbing. Another good example is our a I enabled voice functions such as voice conversion and personal voice recognition, which effectively strengthened our user Sickness by the end of December 2019 Fogel mobile keyboard process 54% more daily voice request average year-over-year with up to eight hundred million requests per day retaining or position as the largest voice recognition app in China.
on top of
Product upgrades we have also strengthens our recommendation service that leverages mobile keyboard to further a lot is commercial value in 2019 revenue generated from our recommendation service increased nearly 90% going forward. We intend to tap into additional use cases for recommendation type of fulfilling users suck. It needs for information Discovery while they are typing on Smart Hardware to leverage our AI Technologies to further Drive business upgrades in 2019, We successfully launched a new compelling product category. They I smart recorder see one and see one crow which led an AI driven upgrading all across the recording. In fact, the two products also topped the bestseller list of several mainstream e-commerce platforms at the same time. We proactively established and wage.
Innovation aligned with leads
Recorder player in China under which we have been able to capture an increasing number of users through opening up our so-called transcription service. This also allows us to age Drive evolution of traditional recorder and to explore a service-based business model in the future going forward. We will set up R&D efforts to diversify our that's Matrix and strengthened the pipeline moving on to a i in 2019. We made great advances across our court language Centric AI Technologies, including voice computer vision machine translation and Q&A in addition to empowering our core search mobile keyboard and smart Hardware businesses. We off integrated the technology into the industry-leading solutions, including vocational avatars, and I powered simultaneous interpretation.
In particular with further Advanced vocational Avatar with real-time human interaction features moreover. We expanded the application of this into multiple sectors month including AI news anchor for News broadcasting AI virtual judge for legal services for literature and entertainment events and customer service have a table for financial services our proprietary rotational Allison. Janney had successfully hosted multiple conferences recently and gained broad recognition among industry in terms of simultaneous interpretation solution. We made substantial progress in utilizing our proprietary contacts engine computer vision package. I self learning capabilities in the latest upgrade. This means our solution is able to not only listen but also to see and sing in real time during the Enterprise.
and process
This is the first of this time in the market as a result. The accuracy interpretation results has increased 40% in 2019. So goes simultaneous interpretation solution supported nearly fifty conferences in the areas of Technology sinus Sports and More next. I'd like to talk about the impact of the recent call is 19 outbreaks before I begin. I want to say that our thoughts go out to those who have been impacted by the situation our users. I believe business partner and the general public when the outbreak started with donated thirteen million RMB worth of cash and materials to 8:39 medical staff and regions that have been severely impacted. We also pledged 15 million RMB to set up a special purpose phone, which will be used to help wage.
primary level public health and
The tution cycle the critical issues faced with an emphasis on applications. The internet technologies have played an important role in resolving these difficulties during the outbreak. This has also created emerging opportunities for Fogo which we can leverage to accumulate and cultivate additional users during the outbreak benefits from you two thirteen requests for finding reliable information and high-efficiency local search traffic reached a record high level of that Healthcare research traffic English as much as 100% year-over-year an online consultation volume Rose a very substantial 400% year-over-year. So go mobile Ki bolbo r d a youth also booked a record high of 480 million with Organic users growing significantly. The increase has also resulted from our efforts wage.
the major industry player
To quickly mobilize our R&D and technological advantages to address the situation. We are pleased that this has enabled us to make constructive contributions as the check-in time as well as to boost our development in search feed and Healthcare. Let me give a few examples of our initiatives in relation to the outbreak phone launched a series of functions, which allow users to have quick convenient and effective access to epidemic information functions, like diagnosed patients travel alerts for the first of their kind in the market which generated white recognition among our users and the industry. Meanwhile, we also facilitated the development of Health Care to serve our users during the outbreak at partnering with authorities including China's national Health commission. We launched an enabled. Yep.
And check a robot as well as an intelligence to and a robot to alleviate the threat.
Faith by primary Level Health institutions particularly in handling massive and repetitive queries about the academic.
Looking forward the epidemic so far as follows significant Interruption to businesses and economic activities across many Industries in China, including online. Advertising industry. Google is not immune to the impact and there will be a one-off short-term dampening impact on our results in the first quarter of 2029 chef from a long-term perspective. The epidemic has increased user's Reliance on the internet posted more online behaviors and generated new demands from both users and businesses, which we believe will drive the ongoing development of the internet industry.
Looking at 2020 we will capitalize on the trend to strengthen and speed up our Innovation. We will further consolidate and leverage our core competencies to deal with products and services and to increase users mindshare in search as we are committed to achieving stable business growth. We will continue to upgrade phone platform with a focus on intelligence Q&A and at the same time tapped into the potential of our organic channels and sends and content moreover. We will allocate more resources to grow our mobile keyboard and smart Hardware businesses to increase the revenue contribution. Well as it's difficult for Tate how the year will unfold with this set of strategies implemented and once things return to normal post the epidemic we currently expect our business to accelerate in the second half of two thousand and Pony Pub.
We will however keep the investment Community well informed on this moving forward with that.
Well now turn the call to Joe to go through our financials.
Hello everyone in the first quarter of 2019. We recorded total revenues of $300 and the 1 million dollars thousand remained resilient despite the pressure from external challenges.
And recommendations service and smart Hardware continue to deliver solid growth madover again witnessed the across-the-board a.m. And our non-gaap net income increased 44% year-over-year to $39.
The solid disability primarily resulting from our stringent control in traffic acquisition costs and expenses as well as improved operational efficiency. Now work is our first quarter financials in Greater detail.
Please know that unless otherwise noted all monetary amounts like I discussed in US dollars.
Also know that I will refer to some numbers which exclude share-based compensation expenses.
You can find the reconciliation of non-gaap to gaap measures in our earnings release total revenues in the first quarter was $300 and the 1 million dollars on a constant currency basis total revenues in the first quarter would have been $300 and the six million dollars a 3% off your request. Yeah. What year
Search and research related revenues were 275 million dollars on a constant currency basis search and research related five years would have booked at 1% increase year-over-year. The increase was primarily due to growth in auction-based to pay for cloud services pay for quick Services accounted for 88% of search and research related revenues compared to 85% in the corresponding period in 2018.
On the revenues what twenty six million dollars a 26% increase year-over-year. The increase was primarily due to increasing revenues from sales of small Hardware products.
Cost of revenues was $100 and the $69 billion dollars a 9% decrease a year.
Traffic acquisition cost. Our primary driver of cost of revenues was $129 billion dollars a 14% decrease over here representing 43% of total revenues compared to 50% in the corresponding period in 2018.
That's way to continue to benefit from increasing contribution from organic traffic and Industry competitions external traffic has proved waited. We expect attack grows to be well content in 2020.
Girls profi was 132 million dollars eighteen percent increase year-over-year now cap cost puffy was 133 million dollars a 19% increase year-over-year.
Those gaap and non-gaap gross margin increased it to 44% compared to 38% a year ago. The increase is primarily resulted from our efforts to control traffic acquisition cost.
Total operating expenses were $95 million dollars 4% decrease over a year.
Research and development expenses were $49 100% increase year-over-year representing 16% of total revenues largely flat compared to the corresponding period in 2018.
And the lobbying expenses for 35 million dollars.
16% decrease representing 12% of total revenues compared to 14% in the corresponding. A 2018 so decrease was primarily attributable to a decrease in marketing and promotional spending expenses wage eleven million dollars twenty 1% increase year-over-year representing 4% of total revenues compared to 3% off in the colors morning. In 2018. The increase was primarily due to an increase in professional fees operating income was thirty thousand million dollars a $200 a 2% increase year-over-year compared to twelve million dollars in the corresponding period in 2018.
No.
Operating income was forty 1 million dollars two hundred and 16% increase year-over-year compared to Thirty million dollars in the color bulb. In 2018 other income that was half a million dollars compared to nine point six million dollars in the college. In 2018. The increase was primarily due to a 9.1 million impairment loss on the company's Equity investments in 2019.
Income tax expense was two million dollars compared to income tax benefit of four million dollars in the corresponding period in 2018 off that income was thirty-five million dollars thirty-three percent increase year-over-year compared to life income of twenty six million dollars in the corresponding period in 2018.
That net income attributable to soccer was 39 million dollars forty four percent increase year-over-year compared to nineteen twenty-seven thousand dollars in the corresponding period in 2018.
Basic and diluted earnings per 80s one nine cents now catfish a candlelit earnings per cent 80s for ten cents.
As of December 31st 2019 they had cash and cash equivalents and short-term Investments of one point 1 billion dollars compared to $100,000 as of December 31st 2018.
That operating cash inflow for the first quarter was $52 billion dollars Capital expenditures for the first quarter over 9,000 now, I'll briefly walk through the highlights of our full-year results. Total revenues were 1.2 billion dollars a 4% wage increase from 2018 or a 9% increase on a constant currency basis search and search related revenues were wondering down 5% increase from 2018 auction days to pay for quick Services accounted for 88% of search and pack Avenues compared to 84% in 2018.
other
When is 199 million dollars compared to 101 million dollars in 2018?
90 income was $89 compared to $99 in 2018. Now got 19, was $100 and $1,000 compared to 130 million dollars in 2018 basic and diluted earnings per for twenty-three years and now got busy and earnings as 27 cents.
And finally turning to our outlook for the first quarter of 2020. We expect total revenues to be in the range of $200 and the office forty million dollars 260 million dollars representing a 5% decrease to 3% increase year-over-year or a 1% decrease to 7% increase year-over-year in RMB terms. This near-term guidance takes into account the impact of them outbreak as well as other challenges in the microenvironment and online advertising industry.
Our search business has navigated the situation relatively while we expect search to remain resilient in the first quarter.
I mentioned we remain confident in our overall positioning withdraw execution of our strategies in search mobile keyboard and mouse Hardware. We also expect to benefit from the broader industry trend of increasing online migration. We currently expect to get back on track poster the academic and accelerate development in the second half of 2020.
Please know that for the first quarter 2020 guidance. We have presumed and exchange rate of 7 to the dollar as compared with the actual exchange rate of approximately and the 6.7 4 to the dollar for the first quarter of 2019 and Thursdays 7.03 to the dollar for the first quarter of 2019.
That's
concludes our prepared remarks
Thank you, Joe operator now like to open the call for questions.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys off to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.
The first question today comes from Thomas Chong of Jeffries, please. Go ahead.
Thursday on the business Trend someone is trying to like you $1 woman kind of hold off on that whole month or something inside the engine off to see one is in good health and say
my question is about the advertising trend of
For different Industries pain management about how different categories educate their spending in q1 and how we should think about the trend 6 to 2 and second half and my second question is about our Hardware initiated can management kpi for this year and about the time that we expect to achieve profitability. Thank you.
Okay, I'll take to a first class during the bank way back. Well benefit him from user study in class for finding reliable information and a high-efficiency. So our search traffic rage directed. Hi. The outbreak has caused a significant interruptions to China's economy and businesses which has negative short-term impact on and off. So therefore despite the strong increase in traffic our search related revenues. Well face more pressure, so we currently expect that in q1 2020. So search related Revenue will be resilient say virtually flattish were a little bit better.
Don't work out. What's going to see it on t?
So in terms of the hardware question sugar will launch mainstream Hardware product within this year talking a larger population of consumers with Buster development space and we expect to achieve mid-to-high single-digit Revenue contribution from our Hardware business office and we expect to achieve profitability in twenty Twenty-One and let me add more colors on the second quarter and the second half. So, basically a way expect a the Atlantic Avenue, we're largely recovered from the the I mean the Corona virus outbreak. So the home, uh, girls wait, we're accelerating you two and weighs hour.
We continue to unlock the value of our mobile keyboard and accelerate the hardware in the second half. The revenue will be where acceleration further. I mean caught avocado can bring to you too.
Got it. Thank you.
The next question comes from Daniel Chen of JPMorgan, please. Go ahead.
It was Hawaii since it took. Yeah, so does it has a full, because the fact there's a woman took regarding advertising business management. Give us some update on how the business recover in the last two weeks and also some preliminary view on what do we expect our authors?
When do we expect our advertising business to back to normal status? Second question is on mobile keyboard. So we have done pretty well in terms of Revenue growth for the keyboard in 2019. So waste our main strategy to further monetize and further growth our mobile keyboard in twenty-twenty. Thank you.
A vehicle without like that, okay.
So what was the past two weeks? We see the advertising revenue recovery, but with limited visibility will we still take time to look at the revenue? But basically it will recover quarter-over-quarter. So in Q2, it will suck. But of course not one hundred percent to normal normal situation, but for the second half we expect it will fully recovered in that situation. So as I mentioned with the the unlock the value of mobile keyboard and Hardware, so that's why in the South half where you back to revenue girls to accelerate.
The other two bulbs appointment to the one-time charge on the TV box that's in Atlanta. So things are dead dead.
Some time capsule people can keep home to feed the dog at the time. So
Okay in response to your mobile keyboard question. I think you have noticed that in 2019 will further growing our user base and we've launched a very Innovative function called Smart Ones I which basically transforms model keyboard through Intelligent Communication wage system that we can leverage to do all kinds of recommendations, uh, and uh internet 20, we are still step up our efforts to strengthen users mindshare and the in terms of commercialization will steadily drive forward recommendations series with more targeted recommendations of birth information and services and we are also for the unlock the commercial value of mobile keyboard user as assets such as the rollout of paid to see value birth.
Is this including personalized in graphic skinz Americans is teacher recommendation service has grown by nearly 19% year-over-year in 2019. And we expect it will maintain robust growth in 2020 as a percent percentage of total revenues as going to be like mid to high single-digit contribution in twenty-twenty and we while we will continue to grow through meaningful level going forward.
The next question comes from Natalie lieu of cicc, please. Go ahead.
Turn off that ship or fax just on that day you go you go on a vehicle and you can drop off I needed some fast. I will translate myself and Thursday off.
the Outlook is
Quite a student and PS and after the impact wondering if it is a different industry next month September update your up-to-date advertisers access distribution. And what would you expect that distribution to evolve by the name of this year? And my second question is regarding the investment in to change. I noticed that it's just in the investment into the online medical treatment platform. You just wondering what kind of that collaboration to do anticipate future. Thank you.
Okay, I'll take the first question. So for a q1 guidance, so if you look at the midline, you're basically means a 3% increase year-over-year that's better than industry average. That's primarily because first during the outbreak we both benefiting from use a certain price for finding reliable information. So our search traffic reach the record high.
and the second
Our search advertising has relatively small scale, which means that we have more space to further.
And the last difference maybe different sector makes they higher contributions from all and gaming streaming and education sectors which experienced significant growth as people have to stay at home during the epidemic. So if you look at Q4 the top verticals the song. Um, so I came in Ecommerce health care business services and education. So if we look up basically the the trend is that I forgave me and education. I mean on that online application, they will benefit package.
Last night I told you I am I'm checking the recently dead because it keeps in the streets and also have the option to Thursday Thursday.
What you say?
Mm. She bought it says you can't seem to make sure to call so I can you.
You guys suck. You know the most don't take the constant work is 1-800 came in response to your AI Healthcare question. I think you know in the last few years. I have been very dedicated to building a professional health research platform. Therefore we have strong presence in health search and that as a foundation, I gradually operate AI Healthcare as an independent business unit and ultimate goal is to grow into a a digital phone number.
Dr. Model
I think so goes a health care is still are targeting consumer Market given that Health Care is a low-frequency request. It's very likely that ultimate Gateway will be will still be searched and by then the AI Healthcare platform. We are not only provide Healthcare information, but also provide additional Health Care Services like smart Hai Aaj Etc. So our call Competitive Edge is actually search plus a high because we have a very ugly well recognized Healthcare search page and that's acting traffic engines for health care and nearly 10% of our total traffic is coming from healthy.
it's a
Traffic Gateway is that users have been used to and in the past few years? We've been trying to build this platform into a assertive and I'm liable Healthcare search platform providing both content and services there for this has latest solid foundation for us to develop AI Healthcare here and second Circle. It has very strong AI capabilities. This will be our leading AI Technologies able to help alleviate the shortage of Madison sources and to create a barrier to Industry peers in the competition and in 2019 was actually done a lot in developing a health club here. We've received the internet Hospital license and during the academic we've seen new opportunities with the rollout of our online Healthcare search page.
Healthcare consultant agent
Symptom checker and intelligent qnd Robles notably Healthcare search traffic has increased 100% online Healthcare Consulting action has significantly grown by 400% off in addition with launched 50 million R&B special purpose alone to drive AI capitation in healthcare. Lastly. We are authors speaking and Mondays to accelerate AI Health Care development our latest investment entering your doctor. It's actually a first-mover in the sector is part of the efforts We Believe by partnering with trying it will facilitate our development in health care in the future months.
Question today comes from Alicia of Citigroup, please. Go ahead.
Hi good evening management. Thanks for taking my question. Why do you follow up with you know the guidance office of the same time pick the lunch not woman's juices source of European. You signed a social life drink a whole should go find out through the jungle a traffic to social. I think that that door management comment regarding
Thing into the second-half where you expect a revenue to accelerate. So besides the smart Hardware new product launch, which is going to contribute a
Pretty big, you know driver on that for such Revenue. Do you also affect the real accelerations? If so, what are the driver for the search Revenue to read off and then just another quick follow-up is that are currently what are the traffic redirection from the mobile keyboard am currently. Thank you.
Okay. So for for search Revenue, basically if you look at q1 Q2 and the second half the trend will be bad for q1. Basically, it may be flattish War one to two percent increase year-over-year terms and in second-quarter with the epidemic come back and the advertising Revenue. Oh well with color largely recovered so the growth rate will accelerate and in the second half it will further acceleration to say maybe to around 5% So if you look at Q4 for search related Revenue, the year-over-year growth rate. It's about something around 1% on the terms over here. So that's the basic the trend for search prob.
for
Uh revenue from mobile keyboard, you know, we leverage our mobile keyboard to build up our recommendation service system so well for 10/19 the revenue from recommendation Services accounted for 8% of our total revenues comparing to 4% in 2018. So looking to 2020 Warwick continue to focus on unlock the value of our mobile keyboard. So we expect that contribution will continue to expand
Thank you.
the next question comes from Elsa Chang of Goldman Sachs
Hey, hello. Yep. Yep. Yep. That won't be a woman. She was sold for all that. You know, he's going to send that real quick. And you you are a dumb question. Transform kind of broken charging a job where I can put in.
And that your ship now.
Introduce, you know what you should do the screening through valid account. Thank you management. I have three questions. The first one is to follow up on the recovery question earlier. Just want to understand a little bit more about what kind of recovery sure we're looking at right now. It's possible and the color on the speed of recovery and second question is about our strategy on search input method and smart Hardware if we go beyond 2020 I would think about as soon as she's in developing the hardware and internet business together and the third question is want to ask about the many programs and the thinking about maybe program strategies wage local cuz as we understand it's more integrated with the input method in terms of product features for now, and how do we think about developing these two drives business in the future wage?
Okay. So for the first question regarding how the advertising Revenue will recover.
So your place relatively small-scale, maybe we are not.
Very good indicator for the whole industry and as the epidemic is still evolving and the post a lot of uncertainties. So there's a limit took the liberty regarding how it will fully recover. But if you look at so cold as I mentioned we expect Q2, we will largely recover from the epidemic and four second-half. We will fully recover from that dynamic.
Okay, so I'll take the second question.
20 month to two supers and she began attention to the finance office to get high plus which I'm totally change somebody's and if I were to put in a bunch of touch your heart, I'll put input the information as soon as the information ma'am.
Don't assume that sounds just hungry. Which are you?
No, thank you. Just the two times the whole the whole thing had a month off.
It just depends I need to change.
So in terms of your question about on the symmetries between search mobile keyboard and Hardware. Basically we are very we have a very strong AKO sa mobile keyboard is actually helping users to you know, input and uh Express themselves and service is about uh, help users to get information. Um, but before you get information, you have to impose something and Hardware is very good good carrier also connecting with input and output increase the basic functions of a search and mobile keyboard. And uh, you know, in fact we launched a new category of Hardware cause my recorder is basically a hardware version of The Swiss implementers and in the future. We are going to Bath
degreed increasingly more AI capabilities not only
The interaction interactive features like voice image computer vision, but also integrating more knowledge Computing capabilities that provide users with a direct answers a best Solutions or or services. So this is this is something that only Hardware can do off and we believe we have very strong synergies between all the assets.
s s s o go
Oh, okay. Okay, I'll give you the money. So he hasn't told me see what they have to put some time, kind of dog G. Correct. The issue is dead pencil cuz we don't know.
We think many programs are very good median that we can leverage. Actually, we having integrating many programs both search and mobile keyboard.
Many programs have been across all the information use cases across circles products and that allows us to provide users with both content and services and develop a close group of ecosystem for them. But what we have observed is that many programs are not material to driving search traffic and existing many programs how they can benefit, you know, content providers off advertisers. It's yet to be you know, it's yet to be seen I think the most successful mini program as you within the school system, but having said that we are we are really trying to tap into the potential of of the many programs and we'll we'll definitely dead.
Do something about it. Later.
This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.
Thank you everyone for joining today's call and for your continued support for so go. We look forward to speaking to you again in the future.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.