Q4 2019 Earnings Call
[music].
Q4, 2019 conference call at this time, all participants are any of the snow me mode.
Should answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press Star Zero Wonder telephone Keypad. As reminder, this conference is being recorded it's now my pleasure to introduce your host Tony squad. Please go ahead Tony.
Thank you operator welcome to the Audionomics Q4 in 2019 earnings Conference call. Joining me today, I'm pleased to habit to out or Chief Executive Officer, and this economy Mccarthy.
Well I guess in today's call will be archived available and events and presentations section about corporate web site for a minute I'm 30 days.
[laughter].
As a reminder, this conference is being recorded.
The call, we will be making forward looking statements such a dialogue regarding our revenue expectations for four cats for the quarters and fiscal year, 2019, 2012, 20 related to where they.
These statements are based on our current expectation information available as of today and are subject to a variety of risks uncertainties assumptions actual results may differ materially as result of various risk factors that had been describing a periodic filings with yet.
As a result, we caution you against placing undue reliance on these forward looking statements. We assume no obligation to update any forward looking statements and as result of new information or future events, except as required by law.
In addition to other risks and are more fully described in I you know its public filings with the U.S. Securities and Exchange Commission, which can be viewed at www dot ASCII Sina Dot Gov.
Today March 16, 2020 of the company filed okay with yes.
And afterwards issued a press release announcing its finance adults. So participants on this who may not have parties until may wish to do the topic, because we provide summary of the results on this call.
Format of today's call will follow.
Mr out for CEO will speak companies overview and business strategy.
The effective use Oh, that's for the fourth quarter and fiscal 2000 to Nigel Mr. Kinda Mccarthy, our CFO was sort of companies operating and financial results.
Fourth quarter and the yearend 2019, and then everybody's favorite that you in a session I will now be conversation to Mr. Albert poor economic C.
Thank you Tony Thank you everyone joining our call.
29 thing source complete the business transformation, which began in 20 I see.
We've taken important steps the focus that company on two transformative industries.
Which we are confident will provide us both near term at long term revenues and the subsequent increasing shareholder value.
Those two industries, our electric vehicles and financial services.
At this point I'd like to begin with the short review of 29 team.
We passed a tremendous amount of activity into 29 team and we are proud of what we have achieved as a result, we made a broad and concerted effort to ensure the foundation for growth was solid and scalable.
There was significant challenges as any business in transformation faces, but ultimately the company's positioned with a much stronger platform for growth as a result of I'd like to activities in 29 take.
Most significant development to 29 team was the formation of our mobile and then she club motivation.
Make serves as a catalyst for change in one of the world's most environmentally sensitive areas of industry.
Which is the fast lease of commercial vehicles, the keep ever economies moving at all levels locally nationally and globally.
And I believe commercial fleet operators to shift gasoline and diesel based vehicles into clean energy saving electric vehicles helps us its right to key areas hosted helps because if I'm not sure environment by mitigating the pollutants released from vehicles powered by fossil fuels second it provides the fleet operators with tremendous return on investment.
From the largest operating expense, which is fuel costs the cost of running a navy fleet is several times less when compared to running an equivalent frito trucks powered by gasoline or diesel.
That's the benefit for the fleet operator on the bottom of course, but I'd like to speak now by the benefits of that's activity from bank and I did not mix.
Makes focus is in the acquiring of large scale commercial fleet operators through vehicle, yeah minimum financing services that we offer something we can position the company to take advantage, if the opportunity and the money to be made in the shift of energy consumption as it moves away from fossil fuels and into clean electricity.
We decided to focus on commercial fleet as it provides us with the level of scaling profitability, which cannot be achieved in the consumer vehicle market at this time.
The commercial fleet segments, we focus on a heavy trucks all season coaches logistical vans and small trucks and taxis.
We believe these represent the major opportunities in commercial fleet transition between the.
In terms of customer acquisition make attracts fleet customers by providing services to help educate them on the benefits of ebay and then support their transition to electric vehicles. The discounted vehicle procurement Bristow group holding buying and financing services. Once the fleet operator becomes a make customer we intend to market than prepaid electricity.
Utility in LNG partners to help reduce the running costs about electric vehicle fleet.
Energy and utility partners also enable make to participate in the sale of me to Donna Christy the E charging station networks.
To help develop make for growth, we hired industry executive somebody easy automotive financial services, you'd be battery and electrical energy storage management industries to run out of China operations.
Now, we announced the make salus hub and the coastal portal Qingdao as well as partnerships with leading automotive and he beam E B battery manufacturers.
Of course energy partners, including GCL, three gorgeous and Petro China.
We've also began building out the initial functionality of a proprietary management platform for make which we will develop into a cloud based destination for commercial fleet operators manufacturing, a financing partners and others and this will service as a strategic customer acquisition of attention too.
This platform has been spearheaded by Mac fogo from a product perspective, and Nick or am I cannot development team and the Ukraine from a technical perspective.
We've been very impressed with Nick and his team since the comments radar acquisition in February of 29 team they've helped us with website and systems implementation across the group and we see them as a core part of the odd nomics team going forward.
Equally or significantly for make we've sourced the life blood to D.V. enablement, which is access to capital.
Partner with insurance companies and utility companies to for large scale. These financing funds I will provide the liquidity needed to support the financing needs of commercial fleet operators.
We also began directs China strategy with the acquisition of a control controlling stake in Malaysia, maybe a manufacturer and distributor treat electric.
Which will be out growth platform for the ex China Asia region, I Hope, which we are planning an IPO was like 2020, assuming favorable market conditions.
Finally in some of that make the builder diverse pipeline of old as an opportunity is covering each of the full commercial vehicle segment, leveraging our teams network and the strategic partnerships and Jvs, we have established over the past 18 months.
In addition to I thought it so how these pompous chips hilco source order flow directly from the fleet, operator customers and a generated a consistent level of inbound inquiries.
This acquisition of commercial he be fleet customers provides us with opportunities to an upfront revenue some vehicle procurement buying spreads and origination fees from financing services.
Extends the customer lifecycle through long term recurring revenues from the consumption or electrical energy.
So those following with the the slides on line for your reference slides five and six provide more details on that deal announcement and makes revenue model I won't go the other details on this now but these are available for you to download.
I'd like to speak now about I didn't its capital.
I didn't know its capital is out division focused on the potential disruption to financial markets by the time the technologies we invested.
We believe that these technologies have a potential the disrupted improved financial services and everything pretty trading systems market performance indicators portfolio management, because from a portfolio of attrition as well as the downstream regulatory and compliance services, which can be improved through greater transparency controls.
We have two primary assets in this division you tell agenda and the Delaware Board of trade or do you bought as we call it as well, it's a minority investments and partnership agreements with exciting companies such as liquefied.
We have begun to position our dynamics capital in a similar amounts are backed by building out a platform for growth and scalability.
The Digitization of Securities is still under review with regulatory bodies globally.
And every player in this space is focused on the one thing which can bring this industry into the mainstream and that is the approval for secondary market trading digital securities in the U.S., we call that reggae plus.
Until such approvals are available we anticipate the digital securities market to remain below gross.
We recently decided to reorganize the boat and getting out of the low margin over the counter equities trading market.
[noise] on that note I would like to mention that we did not acquired the deeper ats with the intention to remind him the LTC trading market. So this is not a deviation from that Brian's rather a decision to take action, perhaps sooner than previously discussed as the market has quickly adapting away from the deep up model for that line of business.
Industry has been suffering from consolidation and fee compression for the last several years.
And adding in the recent development the zero dollar trading ODC trading businesses growing untenable.
We plan to expedite the Republic of the Ats for other types of trading and we'll be able to speak further tonight in coming weeks or months as we can be approvals required to do so.
We mentioned on our Q3 earnings call, but we'll be looking to divest all noncore assets and the negotiations to conclude those deals are being worked on at this time.
Lastly, I would like to speak about cope with 19 Corona virus as we have active operations in several countries impacted by the outbreak.
I'm going to speak briefly in concisely about the Corona virus and the impact on our business.
Obviously, China has been impacted the most the date and we see in the U.S.. We are starting to get an understanding of what that country enjoyed in the past couple of months.
I stop in China had been working remotely since just before the Chinese new year break.
And we're thankful that we do not have an installed in fact it at this point in time.
At the time of the outbreak that chairman Dr. Bruno Williams family, we're in a part of Japan, which has not seen any corona virus activity and they have since travel to the U.S., where they remained at this time.
Battery electric team has remained largely operational throughout relatively limited cases in Malaysia, but just help I told him give me climate, although the government that took some additional measures today similar to what we're seeing here in the U.S. So a remote working plan was put in place for them today.
Our teams in the U.S. have all been advised to work remotely since last week and offices in New York, a temporary close temporarily closed as there has been a positive cases koby pointing in the building this past week.
Offices are being sanitized with closely 60 clean agents and will remain close for at least the next two weeks I want to reiterate the case and I building was not an ideal mix employee.
Similarly, Similarly, our development team and the Ukraine has been asked the work remotely as there are a number of positive cases in that city in each case, we are fortunate to be a young company with modern infrastructure. Meanwhile, our networks that VPN email systems and critical software services required to run the business I roll into cloud and accessible to add stops so long as they have an internet can.
Section.
In terms of our first quarter, the Corona viruses impeded order deliveries in China do district corn team conditions that were in place in most major cities over the last two months.
We do expect some level of revenues in Q1, which are being worked on at this time and we further anticipate things beginning to return to something closer to normal in Q2 as the warmer weather begins to slow down the impact of the virus.
That said, we would like to expect a set expectations. The China was only return to work in the past week or so and that there are still remains a lot of travel restrictions in China.
Despite this our team in China, and our partners happy Resolute and determined to conduct business as best I can and we have to say especial. Thank you to ask Bob Parkinson customers for all applying the focus to get some level of business Dom and what's been extremely demanding circumstances.
Well, it's been tough to witness a shareholders should be encouraged by the fact that staff from partners have been attending numerous meetings on conference calls in China are wearing face masks and protective clothing trying to ensure we limit the impact of the outbreak them out business.
Likewise, the FCC provides additional flexibility in terms of reporting to the company. So those companies impacted by Corona virus and while we have certainly been impacted as much as most I find it seems in New York in Beijing, and our auditors have gone over and above to ensure we met our original filing date today.
The evident determination putting to do so what we lost a lot of people listening into the call today, but I believe it warrants the level of acknowledgement in line to the professionalism and dedication they've shown so thank you on behalf of the entire I'd Nomics family to kind of a coffee in his finance team as well as to our audiences and accounting partners.
Certainly back over to you.
Thank you so much alpha and absolutely it is not quite sure to introduce I tend to Congress switching over to our CFO cannot see it is no or show now.
Thank you Tony and welcome everybody on the call then that thank you al for Ed kind words.
I've discussed earlier 2019 souls complete the business transformation, which began in 2000 it aging.
We've taken important steps to focus our company on to transformation of industries, which we are confident will provide us with both near and long term revenues and the subsequent increase shareholder value. These two industries, our electric vehicles and financial services.
The financial statements for just the year ended December 31, 2019 include a significant number of one time nonoperating noncash items incurred as part of the management's work to transition the business.
I will discuss these further in my remarks.
Revenues for the full year 2019, the company generated revenues of 44.6 billion as compared to 378 million in 2018.
The revenues for 2019 in 2018 or not readily comparable as they come from very different industries with very different profit margins.
The 2019 revenues were generation from digital asset management services.
And the first revenues from our new electronic vehicles business.
2018 revenues were generated from oil and electronic components trading both high volume low margin industries that we exited in 2018.
[noise] at the digital asset management services revenue were earned in first and second quarter of 2019.
There were no revenues from this contract in the third and fourth quarters, and we do not anticipate any revenues from this activity and twentytwenty.
Our gross profit for the year ended December 31st was 43.1 million versus 3.1 million in 2018, an increase of almost $14 million.
The gross margin for 2019 was 97% as compared to one.
Present in 2018, echoing my earlier comments that we have transitioned out of a low margin AD business in 2018 into higher margin businesses in 2019 and going forward.
Total operating expenses for treated for 2019 were $111.7 million versus 29.4 million in the prior year.
An increase of all of 82.3 million, which was largely driven by onetime nonoperating noncash charges as we transition the business.
We formed a review of our holding of GTB cryptocurrency and concluded that a combination of a very large declined in the quarter price of GGB versus the U.S. dollar.
And the inability to convert GGB into fee. It despite huge efforts to find a mechanism mechanism for converting that management to conclude that we should impair holdings of GTB at a cost of $61 million.
There were smaller impairment costs arising from the demolition of buildings that fintech village and the write down of assets that are longer core to the direction of which we the businesses moving.
The loss from operations for the year ended December 31st does 19 was 68.6 million, which includes the asset impairment charge of almost 74 million.
And earn out expenses related to our acquisition of the Delaware Board of trade a 5.1 million.
Without these one time charges. The company would have recorded an operating profit of 10.2 billion dollar.
Equal to a pro forma operating margin of 23%.
Finally, I would like to briefly discuss the interest expense number interest expense for year ended 30 Onest of December 2019 was $5.6 million versus $800000 in the prior year.
The large increase interest expenses due to the U.S. GAAP accounting treatment for the convertible note funding we engaged we engaged in in during 2019.
Interest paid in cash was $73000. So the bulk of the 5.6 billion is a non cash at U.S. GAAP accounting charge, which is reported as interest.
To conclude the financial results for the year ended December 30, Onest include a large dover onetime noncash non operating charges, which reflect the work that management has done to position the business for a very significant opportunities in the electric vehicle market in China, and the Asian ASEAN countries.
Back to utility.
Thank you so last quarter. This concludes managements prepared remarks, and I'm very excited too.
Get everybody ready for our Investor and analyst question and answer period.
Kevin who operator could you see it gives me instructional actually I.
Absolutely at the time will be conducting your question and answer session. If you'd like to replace the question can you. Please press star one of your telephone keypad, a confirmation Tony will indicate your line is in the question Q.
You mean press star Q, if you'd like to move your question from the Q for participants using speaker equipment that may be necessary to pick up or handset before pressing star one.
Once again that star one to be placed a question Q1 moment. Please poll for questions.
Once again, ladies and gentlemen that installed one three placing good question Q.
One moment, please when we pull for questions.
Your first question today is coming from Derek Hodgkin's, a private investor Your line is alive.
Hi, I'm just looking at your balance sheet here, just wondering shows 22.6 million in long term investments right using other on that.
Okay on the radar filter.
Sorry, I was on mute I didn't hear that question.
Oh I'm just wondering result.
About 22.69 in long term investments and what's that made of.
Sure and.
Yes.
Just trying to find my board paper on that so if you give me one moment I'll come back to that question.
No No park.
Okay.
Okay, we'll outlook the next one in line.
Sure next question is coming from how installed from Wall Street Research Your line is allies.
Yes, Thank you Tony ill shouldn't.
And Doug Connor.
So it seems that most of the loss.
Last year was from onetime charges or or write downs or or non cash charges.
Is it fair to say that as we're now in 2020 that the company is having positive cash flow.
Yes.
Thanks for the question.
Yes, if you want to kill cancer.
I think Adam.
The reality is we are still very much in investment mode. We have high hopes that our AD.
Electronic vehicle business in China will become AG cash generative in sometime this year.
But our operations in the U.S. are still going to require funding.
Because as we build out our AD Diva business and also this is the corporate head office, which is responsible for most of the AD public filings.
Okay.
And also could you address.
The intangible assets on the balance sheet, I know that used to and the goodwill I know that you still include some of the.
The.
Okay.
Cryptocurrency assets.
Are there.
Is that still carried under that segment or.
We wrote off our cryptocurrency an entirely aim at the end of this year and that was the largest single impairment charge, we took us as $61 million.
And the other AD you goodwill relates to add our investment in Malaysia, and our investment in deep box.
Principally.
Okay.
And the intangibles.
The intangibles related also to add de Bosch, where we have some long term contracts trade names and things like that.
Okay. Thanks you.
Thank you. Our next question is coming from David Joseph a private Investor. Your line is now live.
Moving very quickly with lots of drugs or developing your question I do apologize go ahead.
Okay. That's helpful.
Im wondering are there any other competitors in the electric vehicle financings.
Sector in China, I noticed that theres been a lot of news coming through excellent work gentlemen, but are there any other competitors in that space.
The this is helpful. Thank you very question David.
The financing spices being very interesting one.
Last year, we were confronted with the fact that part was that we previously security in the latter half of 2018 were unable to fund the.
Similar monitor what they've been fronting internal combustion engine vehicles, primarily because the battery in the battery pack within the vehicle is such a large part of the cost of the vehicle Tassler, it's around 35% in a box or lost track it could be 55%. So the fleet operators typically not used to.
Having to pay the types of deposits that the financing industry was looking for.
I can tell you that at this point, we're not aware of any direct competitors as we've set up. These these large liquidity posed to do the lease financing.
For the capital markets are very efficient so I'm sure there's money to be made there will be competitors in the future, but we continue to receive inbound inquiries for people that are unable to place.
Financing for TV commercial vehicles at this time.
Okay. So you would then we could say that youre its first to market with regards to this business.
Plan or structure.
I think it's fair to say that we couldn't find any any partners to to work with us in China. So we effectively went out too.
So the amount of utilities and insurance companies people with cash on their balance sheet, you typically buy typically by corporate debt and we asked them to help us filled the space in the in the marketplace. So while we're not aware of any at this point, we feel we do have a first mover advantage like I said, the capital markets pretty efficient when people start to see us, making money I'm sure Bill onshore competition.
Okay and is welcome.
Absolutely and then I read in the news release back in 2018 of loses timber, which you the company was coordinating organizing a electrification.
Fund and was in the 6 billion dollar Mark I Trust and I saw that also in your announcement to previous announcements. This fund is still being put together as a close to being completed and I gather this with the fund that's going to be doing the leasing et cetera.
Yes. This is one of the funds that will be doing the leasing demand we've set up to the could be pools of about 100 billion renminbi. Each these are not our funds. Obviously these are the funds that belong to what for one of a better term LP Sewell supplying the funding to lease financing as part of that we're going to be providing 6 billion of that too first auto loan which was one of.
Our partners, who previously previously as a good size market share.
In China for traditional lease financings, we thought direct great qualified partner for US and then we hit this amount of road block which is.
Every lease financing company was requiring a much larger deposit freebie than it was typically for combustion engine vehicles and the fleet operators Didnt have that extra that business model just was built around the status quo. So bringing these liquidity pulls together gives us not only the ability to bridge that gap in financing.
But also the new 100% financing where its appropriate.
Okay.
Very good and core strengths, where do you think is what is the core strength of iden Omics. At this present time, obviously you guys are building and now you're focused on two sectors will read what would you say is of course drinks with the company.
Right now I would say that.
Without wanting to get the it's kind of two braggadocio.
I don't believe there is another company out there with the IP capability Abbas of what it takes too.
Enable agb Avi en masse for the commercial markets.
Because we are involved right from the supply chain side through to the financing side and ABS refinancing and without manufacturer battery partners everything Rebuy partners. The government level. We're involved in every aspect of it. So I think we have as a bit of for brain Trust right now really good understanding of how to do enablement at scale and I think it'll.
Take some time for others to catch up with us.
I hear you. So so for example, fine Mr Fleet, operator in China, I have a 100 vehicles and I need to convert them into.
Electrified them all I would come to your to your hub and you guys would take care of everything for me is that it works is breaking financing yep sure absolutely I mean, the the.
We were aware, but that number cities, we're looking to establish themselves as a levy hub. So we we spoke to many of them we partner with the city, a qingdao because its port city.
It's across the water from Japan, and Korea. So it attracts some other business from those countries in the auto manufacturers, so that seem to be a very strategic up for us, but on the hub will showcase the best of.
Obviously, our financial services to help people get the vehicles purchase but also from all of our manufacturing and battery partners, but over and above that we'll have insurance services on site and we'll also have vehicle registration services on site. So the equivalent of the local DMV will be will be on fighting Qingdao. So we can take care of every aspect of or whatever the come.
Actual vehicle partners needs on we're developing that hopping to something of an exposure. So if you are right.
Fleet operator, you can come to Qingdao you can see the very best of what's available to the market and kind of do a one stop shop and became the two for whatever Unita.
Thank you. My next question is coming from David will have a private investor Your line is alive.
I would just wondering but megs revenues will eventually start to come in and.
Perhaps have an exponential effect when do you see their revenues is really starting to comment not grantley, a second or third quarter fourth quarter.
We don't know what the fully Packard grown a virus will be it looks like its type run off very quickly because of the measures taken within China, we're starting to see similar measures here.
We follow the news in the last 24 to 72 hours.
We've managed to get some revenues, we haven't finished the quarter, yet so sensitive to that entirely but there are revenues in Q1, we'll see it lifting Q2 to what extent.
We'll be dependent on a full lifting of the the intrastate transportation at the moment to move from Province, The province, which is like moving from state to state in the last.
There's still a lot of restrictions and you can't get deliveries done while those restrictions were in place of the fasteners restrictions lifted.
The better, but we are anticipating as lives to returning to normal in China for Q2 to two were to record revenues as well.
Our at the end, how but how about can take village any update on that or what's the future for that.
Fintech village, where we're taking a long hard look at that it's been a much longer slow grind through the to the approvals process.
With the everyone from though.
Part of environment, and the environmental protection agency because of the contamination buildings through the weapons commissions and others, because it's got to protect the weapons on the property.
So we're looking at the moment to to bring some partners into.
To help Reinvigorates life in their while we put more of our time attention to make at this point.
Thank you. Our next question is coming from Tim Linehan from Janney. Your line is alive.
Hey, guys how are you.
Can you hear me good behavior was okay.
Just give us an update on the.
Probably not saying it right the Meg mall and.
Is it.
I'm kind of confusing you purchasing an all marlin revamping it it's a brand new structure or what's the status with that.
Okay. So this is being provided by the city Qingdao is an existing facility.
Several of US we're out there was already being refurbished to be a navy hub and they were looking to try and attract partners into it.
Mike was the one the went in there. The building is mostly finished it's obviously been slow down because of the Corona virus.
But the idea of it is it's about a million square feet of space.
The idea there will be there will be vehicles on side similar to what you would see in very high end shagrir.
There'll be multiple manufacturers from across TV industry will be a friendly.
Additive environment.
I will also be the administrative offices for make.
Centrally for all of its processing.
For the everything from you know invoicing through the rebates and the and accounting systems things like that will be device there for Matt.
It is rent free.
So the city Qingdao estimate that the rent free to US. The also made an investment into us as you probably aware from the from the press releases.
But it's a it's a very exciting project for us for us it doesn't matter. If the building is its new around it's being completely refurbished so the sides of it they're going to be as new it's all going to be glass frontgate and sharing garden style in terms of the vehicle displays so.
So for us it's not it's incredible opportunity.
Weve sync up really well with what the city of Qingdao and the province is looking to looking to achieve and they know they're being prepared to put that money with analyses with investments as well so.
We're still in negotiations for for other other lines of investment with them as well as part of that part of expanding that relationship.
So you said rent free and no expense CNN as well.
Absolutely rent free now expense to get in the rent phase for initial period of 10 years, but.
They won't allow somebody have asked this recently with inquiry to Investor relations they won't allow us to charge when Stevie partners, because obviously, they don't want to provide a building rent free to us another us sublease of out of profit.
Oh participating partner subleasing from us will be rent free as well, there's some tax breaks that go along with that.
There are also folding in the existing activity at the site at the moment. The site is used for a number of purposes, but a large portion of it currently over the years of vehicle sales side, so they're going to be folding that into contributing that part of the business too.
A subsidiary of Mac, but they invested into.
Thank you we've reached end of our question answer session on let's turn the floor back over management for any further closing comments.
Ladies and gentlemen, now just due to just on behalf of Tony Connor divested the ongoing sorry about that I will.
Yes.
[laughter] sorry as on the yeah. Thank you very much. Thank you Kevin very much operator I. Appreciate that this is all the time that we have today and that concludes the idea and on the first quarter 2019 investors, earning conference call. We encourage our committed to continue to reach out to us as well as any lessons that we didnt end up getting answered for you.
No I had excellent into IR at <unk> Dot com, we'd like to thank our listeners shareholders analysts and others will take and little bits or Nicole we earn two with Barrick, where later Sep filing for any information that you need this call will be available on our website in the Investor Relations section in the link there.
We are looking at values better information in a timely manner. We recognize you following up on on social channels for our newsletter and explore our website at www Dot I'd now like that thank you everyone for participating in listening on this call today.
Thank you that does conclude our teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Okay.