Q1 2020 Earnings Call
[music].
Welcome.
Good.
First quarter 2020.
<unk> financial results conference call, all participants will be in listen only mode.
Do you need assistance, please take only comfort specialist by pressing the Star then zero on your telephone keypad.
Today's presentation, there will be an opportunity to ask questions to ask a question you made press Star then one on your telephone keypad withdraw. Your question. Please press Star then too. Please note. This event is being recorded.
I'd now like to turn the conference over to Christian Arnell Christiansen. Please go ahead.
Thank you Hello, everyone and thank you for joining us today.
Our earnings release, just distributed earlier today and is available on the IR website, <unk> dot could check dot com and and through PR Newswire services.
On the call today from could check our Mr., Karl Johnsen, Chairman and Chief Technology Officer, Mr., Jackie lit Chief Financial Officer.
Mr., John will review business operations a company highlights.
Mr. Then, we'll discuss financials and guidance.
They would both be available to answer your questions during the Q when they session that helps.
Before we begin I'd like to remind you cut this conference call contains forward looking statements within the meaning of section 21 years Securities and exchange after 934 as amended.
These forward looking statements are made under the safe Harbor provisions provisions of the U.S. Private Securities Litigation Reform Act 1995. These forward looking statements can be identified by Terminologies, such as Bill expects anticipates future intends plans believes estimates confident and send their state crude.
They also make.
All forward looking statements units reports filed with the third and furnished with the U.S.S.P. cheap and it's anywhere at port to shareholders and pressure. These just and other written materials oral statements made by its officers directors or employees to third parties.
Any statements that are not historical facts, including statements that protects beliefs and expectations are forward looking statement that involve risks and uncertainties that could cause actual results could differ materially from those forward looking statements.
Such factors and risks include but are not limited to the following Cutex mission and strategies future business development financial conditions and results of operations expected growth of the mobile internet industry and the mobile advertising industry expected growth of mobile advertising expectations regarding the demand for and Mark.
Good acceptance of the company's products and services.
Petition into mobile application advertising industry, and relevant government policies and regulations relating to the industry.
Further information regarding these and other risks uncertainties and factors is included in the company's filings with the USSTC.
All information provided on this call is current as of today I.
They could take does not undertake any obligation to update any such information except as required under applicable law.
It's now my pleasure to introduce Mr. John Carl Please go ahead.
[laughter]. Thank you, everyone, which I know how long that's what I did not do I need to call.
I think to report yet another strong quarter, well, we outperformed our expectations.
Total net revenue for the quarter growth tiny but.
<unk>.
I put that sequentially to be hunger, then seven minutes you I thought it exceeding our guidance I'll 80, 85 minutes I talked to put that put that.
Total and May you follow content rich portfolio growth now the he put them sequentially to be 89 times.
That's because the strong growth up I'll, let you know how is that not walk and other <unk> segment.
Cash flow time, and the positive feeling drilling deposit.
They <unk> sounds exciting results demonstrate our ability to delight if it had to deal the insight and drive growth in both I want you that faith and top line.
I'm missing it thing how everyone to enjoy rather than the counted Sydney and we are confident in our ability to sustain healthy and strong growth momentum across all the way comes in the pathway. We are now focus, though I don't I literature.
And now we are based upon the App.
Okay.
Based on our current estimate we believe growth momentum well remain strong with revenue from the second the personnel and he gets back to be around 100, and I think they did you I thought it would be done to our year over year increase of alone.
200, and the 19 cents.
Despite the impact of E global calling on balance and dynamic.
As a penetration up our confidence in the long well.
Couple of business.
Now a meal shelf the pension plan.
[noise], our focus remains on developing and growing our portfolio of companies, which are to meet the bobbing eat up you that.
I mean, you I'll follow coverage before due an increase to be a 89.2 minutes in March this year.
Oh, yeah, the type of them to sequentially from 74.6 million in the December last year.
Well happy to see such strong growth in our active use debate.
Average do you watch how do I need by punch human in much up from 94.7 minutes in December.
We have been doing our job and be a you something that's been moved back we'll go from the Google play in July last Ian.
We are not able to chew up they don't.
No you, Google push notification to reach and the activity you that.
The jump off the you'll probably felt that it exactly and accessory Kathy.
We bought back.
Well take another through quarter to 40 by just the impact it's having no not what totaled the are you.
We are working to aggressively grow new paths to offset the impact.
After the strong growth momentum generated file at Neal Hot and they were very optimistic on your growth.
Over the long.
I think it doesn't however, when to enjoy rather than the company's affinity believed that the global comes into our market. It be lumpy. It's early stage of development at the present enormous opportunity.
We have focused dollar content strategy of sleep pathway.
Andy Tetra.
I'd like to come from that I'm not sure okay.
[laughter], usually you give them growth platform I gotta with our in house at that walk fall a solid foundation.
And that's really focused on the topically opinion beauty I sleep hilla pop up on the show.
A platform that Oh, working together as a whole to ensure our competitiveness I'll I'll, usually pension and other key growth magic.
For example, I literature is off to a strategic component segment would begin to even bath <unk> body dealing the middle of last year.
Leverage and I wasn't it grows platform, but do you up on literature.
Our own rapidly from scratch over the past required.
A particularly in China.
We also established an online to teach a company ecosystem <unk> loan growth and this compound the settlement.
I'm not in the Chinese down the enormous global opportunity for us.
And we got to take advantage of yet by incubating our online it's a job in multiple countries and regions.
Another use about plans that will catch them different traditional only pops up the at the payment compensation.
Which will continue to come back in meaningfully since the fourth quarter Lafayette.
I leverage and I look rolled platform al Kaschalk ended that delay, but better than expected I'll I.
I would you off our casual good rose to 2.6 million from scratch and the path to quite a.
I had the contributed so they took effect of while the total revenue during the quarter.
This leaves us more confidence it enormous growth potential and well continue to come back more in the entertainment constant segment.
I'll I'll focus for the now however remain on developing and growing our <unk> how come the job to meet the bobbing them up.
We believe that our deep experience and leading up regional type of it it helped us generate more that.
The penetrate deeper into this recovery on the pathway going forward.
Yeah, I want to reemphasize that our probably at this stage into growing with the use of based off our company, which before the opposite rapidly.
Further calculate I'll comment on the ecosystem.
We will continue to adopt it strategy and well make the vision with long term growth in mind.
Well not volatility should go into Wisconsin, Iowa at the type of business I, reducing our dependency on it's kinda potty.
And the foot caught off last year, we officially launched what could that advertising platform.
<unk> at that one.
Throughout April Patti Pathie, we want generating over 70% Alibaba revenue from our AD network.
We will continue to strongly him back in both advertising technology and a lot at ecosystem.
With that I had the cost to our acting the Apple Jackie to walk you through our financial results for the quarter. Thank you.
Thank you Carl and thanks, everyone for joining us on the call today I'm going to walk you through our first quarter financial result.
All comparisons on a year over year basis, unless otherwise stated.
Let's talk about how users first.
And they do monthly active users for our portfolio products reached 89.2 million in March which was up 49% from a year ago, mainly because we continue to successfully develop enlarge our basket of content recap for example, the and they you have casual games they watch what 24.
5 million well it was close to zero from a year ago.
Average yeah, you daily active users for our portfolio credit they watch reach about 25.2 million up 9% compared with last year within did the average deal you have the casual game in March what 2.6 million.
Every do you have all the touched how smart input credit in March well about 136.5 million down 6% I'm not here and they you were 178.8 me, they're down 7% from last year.
Total net revenues were 107 million.
167% from Lockyer mobile advertising revenues were 106 million up about 170% from a year ago.
And with that total net revenue for the first quarter 2020 online literature and scenario based content at contribute at about 66% casual games contributed about 32% such pathmark input contributed about <unk>, 0.2% and Touchco sounder contributed about 1%.
Now turning to expenses.
Yeah, causing expenses, what about 117 million, an increase of 50.5% sequentially and up 193% from the same here at lucky or.
Non-GAAP cost and expenses, well 116 million, an increase of 55% sequentially and an increase of 200% year over year as a percentage of revenue non-GAAP cost and expenses accounted for 408%, it's flat about that it's flat that previous quarter.
So the marketing expenses increased by 274% from the same care at Lucky here at 61% sequentially.
The largest component of these expenses if user acquisition cost.
Currently we are focusing on to content reach portfolio strategy.
As such we are investing to expand the user basis. These portfolio credit encountered paid content ecosystem.
And thanks to our use the insight driven growth platform. We now have a strong growth momentum with a deeper level, Oh, I and use the retention.
We are confident that we will be able to maintain faster revenue growth in the coming period and achieve future profitability.
R&D expenses increased by 19% sequentially and by 3% year over year, primarily due to an increase in cost associated with technology R&D style and share based compensation expenses.
We ended the quarter with 577 full time employees up 7% from last year.
R&D employees represent about 61% of decoder employees compared with 63% out here.
Do you any expenses increased by 20% sequentially and by 41% year over year.
The sequential increase was mainly due to a reversal bad debt provision during last quarter.
<unk> 0.5.
Real quick fix me then gift daughter.
Yes over your increase was mainly due to an increase in costs associated with the DNA stuff and share based compensation expenses.
Well, Nevertheless, <unk> expenses as a percentage to try to net revenue was 3%. It's a decrease from 4% last quarter and we're keeping the expenses under control.
Our gross margin was 95.7 occurs there.
From 91.2% hearing the same care a lot here and the increased from 94.4% last quarter the increased.
Mainly due to the greater economies of scale.
We better utilize all infrastructure.
We had a GAAP net loss of 9.7 meeting with all of which represents a net loss monkey nypro, 1%.
Excluding the effects of stock compensation I'll adjusted net loss was approximately 8.8 million either dollar representing a non-GAAP net loss margin of 8.2 minute I.
Thank you Chris that sorry.
As of March 31st 2020, we had cash cash equivalents unrestricted cash of about 17 meeting U.S. dollar compared with 16 media U.S. dollar at the end of the year 2019.
We had positive operating cash flow this quarter, despite the turbulence up the macro environment.
What's primary because we grew our in house ACH network, which helped us achieve a quicker turn around working capital.
Luckier, we launched a share repurchase program, where we are authorized to purchase up to 6 million U.S. dollar although 80 at during the six month here at starting on November 20, or 29 King.
Until the end of April we had use an aggregate of 5.8 meta U.S. dollar to repurchased 1 million <unk>, yes.
And we will early terminated 2019 program on May 18, 2020, and take it back a new share repurchase program finally same day.
In the new share repurchase program, we authorized to repurchase up to 20 million U.S. dollar during the 12 month period, starting from May 18 2020.
And we expect to fund the repurchases with existing cash balance.
Turning now to our revenue outlook, we expect total revenue in the second quarter of 2020 to be around 120 million U.S. dollar.
Representing an increase of 219% year over year, and 12% quarter over quarter. This estimate reflect our current and preliminary view, which are subject to change.
So now operator were now ready to take crashing.
We will now begin the question and answer session.
You asked a question you make press Star then one on your telephone keypad.
If you are using these speaker phone.
Please pick up your handset before pressing the kids.
Yes at any time. Your question has been addressed and you would like to withdraw your question.
Please press Star then too.
Once again it is star then one last quick question.
At this time, we will pause momentarily.
Campbell our roster.
The first question comes from Ivy Lou of Credit Suisse. Please go ahead.
Hi, Thanks for taking my questions. So my question is what is your current growth strategy and kind of strategy on your online at a richer leading out.
Thank you. Thank you for the question so were very optimistic and that patronage about online literature Maki.
So I reading is one now the very fundamental concerns me no doubt and a lot of people enjoy reading books in different category. So we are Oh, we actually talking about how to how many many of you global market size potentially the only literature. He is not a new settlement in mobile.
So imagine industry, but we believe by taking advantage of new technology and yield growth philosophy, the opportunities to disruption if market.
And the Plenti is once one existing market is disruptive to really huge potential. This market. It will be released which makes the market that much bigger than ever before.
Not a maybe I'm not game right position to account comments, all judge our competitors, but we believe that so we have different growth philosophy and point of view on this market. So our proven sophisticated use the inside you then gross platform I'm together with our in house at network performance I thought It foundation now firewall.
I grew up a gross capability.
Our platform and as a working together as a whole to ensure our competitiveness ally, you'll do we pension and other key magic.
So the company ecosystem is also a t. successfactors for Canada touched on market.
Hi for sure.
But we don't think backs or it's about the size healthy ecosystem. So we oh, we are establishing an online literature content that you could fit in very cost effective way.
With our gross philosophy for the PUC long term growth and there's constant segments.
So we'd have already launched our in house online literature marketplace took the Iraqi Workweeks writers and help them, making novels, I'm, making making money.
And also as I mentioned, that's a we see all night literature at the enormous global opportunity. So we are incubating our online they track in multiple countries and the region.
We will get cut pod disclose more detailed information when ready.
Thank you.
It was there a follow up Lou.
Oh nothing to be okay, sorry detail that's helpful. Thank you.
Thank you. The next question comes from all the location of Nelson Chung and Alicia Yap of Citigroup. Please go ahead.
Oh, Hi, Matt. Thank you for taking my question and congratulations on the solid quarter, a I have two questions for management. My first question. It's Oh for all night gaming given 2.6 million, India, you and are up 32% revenue mix could you share with the rough breakdown.
Yeah, you coming from China in overseas markets.
Given the global lock on come to use in second quarter do you think the U.N. revenue for overseas games will increase more meaningfully or do you think the increase will do come from domestic gave me use.
How much of this wrong for Feldman of gaming was driven by stay at home versus your ability to come out with more interesting game.
So do we anticipate a the user thinking me revenue for second quarter kinda or two remains strong despite reception.
My second question regarding the advertising outlook of whats the global slowdown coming out from the Coca 19, how do you anticipate the impact overall night athletic asked relate to co tech platform or have you seen more cautious budget allocation so far.
<unk> advertiser and domestic after taxes and do you see any shift okay advertising industry categories Senior expressly do you think you heard much.
Thank you for your question, let me answer from by one so the first questions about the online gaming clean comes up the game business. We are focusing on catch up inside this moment because that they are most suitable fatwa advertising business model. So I thought that today, we'd have already relief.
Over can catch a day and our first wave of successful Petrochem include a much games, such as idle land team I call.
Simulation games, such as hero and Patoka in such as queasy pending in which we run that.
In Q1, we extended our path to I mean, a elimination, okay bye, how they're serious such as high hopes that.
By leveraging our youth and insights driven growth platform. These petroken today about the better than expected I'll I and the contributed 32% off our total revenue.
We do get back to the revenue contribution from Petrochem web senior to increase in the coming to uphold what it.
And although we don't disclose detailed breakdown I'm used to distribution on winning steel willing to give some general information about the topic. So because all of our game I initially released in China market. The most up at the are you follow casual games at this moment it.
Made a in China region. Besides we yeah, we have already what ouch applegate to oversee market and the we anticipate to feeling strong growth in the second the hot coffee tea it in all that the market.
Competently.
Well I'm actually I don't think that's okay benefits I lots from the hurricane.
With our casual game with it in its early stage.
Q2, we spotted shoe or focus on improving gain quality localized in any given retention. So we expect to see improvements into all the I retention rate and ARPU in Q2, which continue to drive the.
Strong performance off our Patrick and because we have every company that found that thank you for the question and another question is actually up about the.
The pandemic, so depending impacted Chinese domestic advertising industry, because some of the major I haven't had the world cutting budget, which caused caused the ARPU eyes, approximately 10% to 15% lower that now we expect patients and mainly in February and to match.
And but I think the was paid the onetime or had pod and the market. It's a recovery, although I'm not that strong but feel recovery. So we expect that to the markets will return to normal status in June well for China market.
I'm frankly, I'm 50 is not a good yet for AD business, either even without this pandemic in China. It takes time to digest that the increasing AD inventory and the relatively weak demand a sentiment and it is about that China, China market at the global hasn't happened and that's.
<unk> pretty much replicating that trend happening in China.
No. So the work the pen.
Any moment have popping U.S. at a at industry based on our observation. The budget is recovering not that stromboli covering and easy to m., good recovery as well and I think with the we opened up U.S. another country the market will be 10th with normal track.
I think I'm going to the early Oh just Q3.
And it comes off D.
At the time the industry categories. There was no significant change on our platform. So all like game local services such as the what's the neighbor rate of it and economists are growing faster, which compensated the strength of other set it.
Thank you.
Thank you.
The next question comes from homes strong of Keybanc capital markets. Please go ahead.
Hi monitoring this is really on behalf of palace and thank you for taking my question. So my question is regarding so second quarterly guidance do you share some color on the Oh, what's the drivers of the second quarter revenue grows and how do you see the profitability in second quarter. Thank you.
Thank you for your question. So let me answer these questions. So by leveraging our sophisticated growth platform. We replicate I was like SAPIEN three continents adequate already and we believe that I wasn't syndicated girls platform and a lot at the bad wrote a philosophy, it's a keith that's factored into content.
Absolutely today.
So it makes us confident I'm not only Q2, but our long term growth.
In comes off Q2, specifically, Oh I can say at this moment she's that's what we are executing pretty well and as I mentioned batch our probably at this stage into role he user base off of on something that portfolio App, a rapidly and further calculates our Hudson city equal to get them. Meanwhile, we are.
Also optimizing profitability.
We have the strong revenue growth and I'll I improvement.
We expect a percentage of total revenue off Delta masking stands without decreased about.
8% in the second quarter, which drives the.
Profitability much better than that Q1, I think thank you.
[noise] it was very follow up.
No. Thank you.
Thank you very much. This concludes our question and answer session I would like to turn the conference back over to Christian Arnell for any closing remarks.
Thank you. This concludes our call for today, if you have any further questions or comments. Please don't hesitate to reach out to the Cortech IR team. Thank you for joining have a good day or you can say goodbye.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].