Q2 2020 CooTek (Cayman) Inc Earnings Call

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Thank you Brent.

Hello, everyone and thank you for joining us today.

Our earnings release was distribute it earlier today and his opinion, but no I a website that yeah, Doug Coupe, Chegg dot com and PR newswire.

On the go to date from check out Mr account, Jain Chairman and Chief Technology Officer.

And Mr., Jackie Lynn Chief Financial Officer.

Mr. John Ritter read your business operations in company highlights followed by Mr. Lynn will discuss financials and guidance.

Yeah, we won't be opinion about to answer your questions during the Q and next session and that's what else.

Before we begin I'd like to can you remind you that just conference contains forward looking statements.

Within the meaning of section 21, He just Securities Exchange Commission Act of banking journey. So it was amended.

[noise] you saw what do you can statements I made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act Oh 1995.

These forward looking statements can be then decide bite you I mean, other GE such as well.

Aspects anticipates.

Future intends plans believes estimates pumps it doesnt actually meet all statements.

Could take May also make regional or forward looking statements in its reports filed with Oh furnished to.

Do you actually see see anytime you are we talked to shareholders.

In press releases and not originally materials and all those statements made by somebody says directors or employees to the properties.

Any statements that I'm not historical facts.

Including statements about cutex beliefs and expectations.

Forward looking statements involve factors risks and uncertainties.

Hi, good cause actual results to differ materially from doesn't get forward looking statements.

Such factors and risks include but are not limited to the following.

Who takes mission and strategy.

Sure John business development financial conditions and results of operations.

You expected growth of the mobile internet industry.

The mobile advertising industry.

You expected growth mobile advertising.

Expectations regarding demand for not good acceptance of the company's products and services.

Competition into more by the application another challenging industry.

And run it on government policies and regulations relating to the industry.

No no information regarding these and other risks uncertainties and factors is included in the company's finding would do U.S.. It's you see.

All information provided I'm just school is current itself the date of just school.

And could take does not undertake any obligation to update such information, except as required under <unk>.

It is now my pleasure to introduce Mr. account job count. Please go ahead.

Thank you everyone for joining how are they don't quantify how do you tend to I think oh.

Well I hate to report yet another strong quarter, well, we outperformed our expectations.

Revenue for the quarter wrote 200 and studies.

Thank you all the yet 226 million you I thought it.

Most importantly route we returned to profitability with non-GAAP net profit up 12.5, many you I thought it.

The $3 to get that strong about it they shouldn't up my wife.

If they inappropriate model and the strategic shift to content ecosystem.

Based on our current to actually make what the fiscal year <unk>. How do you tiny we expect that the at an annual revenue to be around 500, many you I thought it.

Then he had yell they getting creep up at around 180 perfect.

[noise], especially the monthly average it do you off I'll call compound to add some two novel grow to 8.1 minute in June.

If any do you have I know already exceeded 10 minute.

The July and they you up on two novel exceeding a 13 million ended the average <unk> bad but daily active ingredient you that is approximately 100 and and 10 minutes per day.

According to quit them Omar I professional business inhabitants of interest, providing China mobile internet market.

Well do novel ranking.

Number three in comes up I mean, you into free and I did such a market.

Oh that literature here that it did you come to pick segment, we began to invest in about this time last yeah.

I never came out with the ticket growth platform that you use of our online literature that grow rapidly from nothing or with a pop the 12 month.

This is indeed, a major milestones.

Show copy.

I'll follow compounds that are equal to get them strategy.

Well I'm confident that reading long and short medium and recommended reading out four key compound to track, which have appliance huge use the basis and meaningful times that.

We believe that I'm not literature locking it in nominal.

We have the potential to be got global accident either midnight.

Exceptional growth from two novel made that copied and truly even back more aggressively <unk> and I did such a market to drive that the are you grow calculate our content ecosystem and establish the brand awareness.

<unk> long term growth, we launched the phone go literature and writer platform to pass not directly with Rite.

In the foot caught up this year.

No we have accumulated over 1000 and.

Sounds good register right.

The book they publish our platform a pocket nearly 50% of total content the consumption in pumped up I'm, but.

We also develop and AI and datacenter system to enable our right to put the with more suitable content why would you the.

And the continuously attached to changing demand based on they'd have feedback.

The platform that we have beauty did not get the place what rights as possible.

Also a platform to really enabled them to improve.

Based on property metric.

So that even an average writer could possible fuse content that will perform well.

I'm confident that audit al, but well ensure our now combat and that and attack.

Our mission good clean power every went to enjoy rather than the continent immediately.

We have focused our content that strategy three category.

Literature scenario, if they come from the App and cash again.

Because the only literature is one of the foundation of ice tea and coffee right.

Jonathan could be a basket to other entertainment content on that that's it movie video audio physical books and I don't like eight.

It is actually that route I'll follow continent strategy.

Well, that's strong growth I'll follow on land that the chat we further refined our overall strategy to focus on global all night analytics right and the it seem attractive.

That are the content a second one at this stage.

We realized that our casual game business had very strong dynegy with online that they should.

But and most albeit there was the big overlap between now and I didn't figure then and the Petrochem you there.

Second there is a natural synergy at the IP layer.

That is why we have continued to even back and meaningfully thinks the fourth quarter off not yet.

The strong growth off I'll I'll I didn't like the App explained why our catch up in business wrapped up so quickly thinks the fourth quarter last year.

Validating the strong synergy between these two businesses.

In the second the <unk> <unk> isn't that Oh, yeah, I'll catch up in business delivered better than expected ally.

Contributed to 45% off our total revenue during the quarter.

This leads to more confident and its enormous growth potential and it will continue to him back more in the entertainment to compete in the segment.

As I mentioned [noise].

At the tree is a one off the foundation of IP and copyright and its compounds can be adapt into other entertainment comes in for Matt.

But believe that I've.

See much as the business opportunities that we can capture based on our online is it your business.

Besides the online gaming business, where we're happy to explore other opportunities this quarter.

I mean, you fly welcome comfortably bridge before that wall 83 point.

<unk> million in June this year.

The approximately 6.5% sequentially.

Well it looks like jobs, I mean, you Wawa African.

We expect it is because our focus during the quarter well I'm like game business, what to optimize user engagement for lots of growth.

Despite the de stocking I mean, you up on like game, but be remained essentially flat, which means that you think engagements off our unlike game improved from 10.6, but then to Trump on full effect.

And we all have seemed strong D.A., you and I mean, your gross things at the beginning of the third quarter.

Our mission is seen call every once we enjoy rather than the comp lit.

Our focus will now however remain active dialogue and the growing our portfolio how come to chat to meet evolving needs you that globally.

With a strong growth Alibaba on literature that we refined our overall strategy to focus on global on either.

Two in lots of to you that they've and to improve market position. We're looking back more aggressively Inc. I literature market.

Well I believe that our business at this stage is strong and our strategy is thought it in that.

If that confidence to ship all how alpha to focus on our new strategy.

This quarter, we terminated the monetization of our lack of the app to mitigate.

Look like today after the war removed about Google from Google play into a in July last year.

So we are unable to upgrade that fix any bad argues for any new rule, which bring.

These actions have a chicago negative impact on both sell a topline and bottom line, but we have very.

Tony confidence that we will 40, I've thought impact because our hope it I'll call business remains strong.

Nevertheless, let me review or re empathize that our global rich strategy remain unchanged.

We will continue to find can't get strategy with a focus on long come close.

With that I'll hand, the call. It two hour acting CFO, Jackie who will walk you through our financial results for the club <unk>.

Oh, Thanks, Carl Hi, everyone I'm, sorry, if you could try that Tonight.

And we had a strong second quarter.

Revenue was 126 million U.S. dollar.

236% year over year, and 18% sequentially, beating our guidance by 6 million. So far we have sustained our rapid revenue growth rate in 2020.

Net revenues are mainly generated from three categories of content reach at.

Online literature scenario based content at and casual game.

Well on literature, which was strong in 20 Nike.

And then you reached 28.4 million in June 2020.

Every steer you reached 8.1 million in June 2020 that has a significant increase from a year ago.

Well do novel, if now one of the top three prepared in terms of and they use for free online literature. According to personal about.

We have seen the rapid growth of user base to continue after that Carrie Ann.

Just a few days before our earning call you a phone do Novo grew further to 10 million, representing a higher that 10% month over month growth rate.

And they you owe casual games, what 20.2 million engine.

Casual games accounted for about 45% of total net revenue.

They continue to generate could see the real revenue and profit.

<unk> business.

And to provide strong synergy to online literally trip caught up.

Yeah, you fought touched how smart input probably that in June were about 133.3 million down 7% from last year.

And they you were 174.3 million down 8% on lot here.

Since we are unable to acquire active they use as using Google services, we expect that to you and they you for this product will continue to drop.

But were not too concerned at this point of time, because we have succeeded in transit tried and tried to think through the content rich asked strategy and the revenue from Cashcall small small input only consist of less than 1% of the total net revenue.

Now turning to expenses.

Yeah cost and expenses well at about 123 million U.S. dollar up 6% sequentially and up 130, 37% year over year.

Non-GAAP caught the expense it well 122 million U.S. dollar up 5% sequentially and up 140% year over year.

As a percentage of revenue non-GAAP cost expenses accounted for 97%.

Now from 108% in the first quarter.

Sales and marketing expenses increased by 224% from the same period last year.

3% sequentially.

The largest component of this expense it if user acquisition cost.

We continue to execute on our content rich portfolio strategy, we need to keep investing to expand the user basis of these portfolio products and county, they our content [laughter].

R&D expenses increased by 6% year over year and by 18% sequentially.

Primarily due to an increase in costs associated with technology, R&D stuff and share based compensation expenses.

We ended the quarter with 643 full time employees.

9% year over year.

R&D employees represent about 61% of the total you're probably compared with 63% off here.

<unk> expenses increased by 25% sequentially and decreased by 47% compared with the same here a lot here.

Sequentially increase was mainly due to the increase of Pedro expenses and professional services.

The year over year decrease was mainly due to any decline in accrued provision for bad debt compared with the same care, but last year.

Do you like expenses as a percentage to total net revenue was 3% inline with last quarter.

We are keeping expenses under control.

Gross margin was 95.5% up from 89.4% during the same here a lot here and a slight decrease from 95.7% last quarter.

The increase is mainly due to a greater economies of scale that we better utilize our infrastructure and content document efficiency.

GAAP net income was 3.1 million U.S. dollar, which represent a net margin of 2.5%.

Excluding the effect of stock compensation.

Adjusted net income was approximately 4.5 million U.S. dollar representing a non-GAAP net margin of 3.6%.

This is the first quarter would turn profitable since Google removed all aslam pace door in 29 <unk>.

Which demonstrate our solid recovery from the crisis.

And we are now more common tend to perform so teaching moved to capitalize on opportunities in any vertical content industry as they arise.

As of June Thirtyth 2020, we had cash cash equivalents unrestricted cash of about 64.9 million U.S. dollar compared with 16 million U.S. dollar at the end up the here 2019, we generated 5.4 million U.S. dollar net cash inflow from operating.

Activities during this quarter.

Luckier, we launched a share repurchase program, where we are authorized to repurchase up to 6 million U.S. dollar of our and yet you're going to six month period, starting on November 20, or 29 team.

We use an aggregate of 5.9 million U.S. dollar to repurchased 1 million Ats before the patent was terminated early on May 18 2020.

On May 18, Tony why do you will launch a new share repurchase program, well well authorized to repurchase up to 20 million U.S. dollar of our idea during the 12 month period, starting from May 18 2020.

As of June 2020, we have use an aggregate of 1.0 nearly at U.S. dollar to repurchase 0.2 million and yet.

Turning now to our revenue outlook, we expect total revenue in the third quarter of 2020 to be around 112 million U.S. dollar.

Representing an increase over outside route 258% yoga yet.

For the full year of 2020, we expect total revenue to be around 500 million U.S. dollar representing an increase of around 181% year over year.

These estimates reflect our current and preliminary view, which is subject to change.

Okay, operator were now ready to take questions.

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At this time, we'll pause momentarily to assemble a roster.

Our first blush until they will come from shell Alicia Yap.

With Citibank. Please go ahead.

Oh, Hi, They said I think you particular my question and congratulations on the solid quarter I've two questions asking on behalf of Alicia Yap. My first question Connie your or not you can trust business because it seems like that.

As you continue to grow quite.

Well supposedly just like the normalization of use the activities. After co 50 tighter or could you elaborate what are the main reason are contributing to the solid sequential trend in second quarter and is there any preliminary targets for you by end of this you.

And my second question is regarding the revenue from all that gig.

Given the revenue contribution from on that games east or roughly at 45%. These quadrant Oh the games become to major groups driver either coming quarters, what will be the company approach, who oh growing but all night game basis, whereas this or not it's true and do you have any ambition of entering into new.

Categories ABS new business models. Thank you.

Thank you Alex's question, yes, the do your growth trend is quite thought it and I think the most important reason you back that we are optimized our content ecosystem.

To generate proper content, which is most useful for users to conceal so when we establish our content ecosystem.

We think more about how to enable I was not just the writer with <unk> and able to pay the platform and the magic.

Instead of focusing on quality all off our books, we actually focused more on the quality. So these threats strategy increase that you this technique.

And drive the long term user retention rate higher.

So usually retention rate is key to drive the or your growth.

As I mentioned that we see online literature as a global enormous opportunity. So we don't despite that we don't disclose internal target, but what are we don't think we do think that's we have tend to be went off the market leader not owning trying to market, but local market too. So we expect.

Growth momentum remains strong in the coming quarters because of the accident you that retention rate.

And then as far as well I like game business. It actually benefit a lot from the fast growing or online literature business. Because they are highly Ah think phenotype in comes off topic, you debate and called me right.

As long as we can sustain the growth momentum off I'm wrong I literature that.

I don't like any business well continue to grow.

I think the money or the monetization up on that does it also probably thing I want to see that both business well be the major growth driver off the company.

Income felt the plan, we actually released the over 10, new game. According to sustain the growth. So we do have the plan to enter into new category off game. For example, when I try to release game with makes them out like a use a paid adamant that advertisement.

Thank you.

Thank you.

Our next question will come from so each one with Keybanc capital markets. Please go ahead.

So even in management's thank you for taking my question. So this is a question on behalf of cans from Keybanc Oh, just wonder could you provide some color on the so called triple flexibility given sort of course is up in your guidance is down sequentially. That's doesn't mean that the bottom lines also supposed to be dogs.

Potentially and then how do we think about sic code to net income even though there's a changes in strategic focus and actually took the legacy a advertising business.

Well, what's the Intouch health, Doug on our third quarter profit.

Thank you.

<unk>.

Well, yes, hey, I want to emphasize that we'd happy bureaucratic brought the growth for all three opinion with quota and its effect on the quota we returned to profitability our call App. That's sold two novel agents recognized has a a feature that in the market how business is proven screw.

And Ah sustainable so our confidence on loan growth based on the college business momentum the management team made the borrowings teaching division.

First firstly, we see a draw rolled off our literature as we refine our overall strategy to focus on a global online literature, and you see much I ER content segments at this moment.

Taking a lot to use the blade and improve the market position.

We will get back more aggressively in online this is your market.

So the investments we tend to cycle off <unk> literature that it's a longer than our online game.

Let me back thinking I listen to apps, resulting shutting off.

But it's but its long term user retention rate is much higher and the overall I'll I'll follow on a this app that's fairly problems.

So the investments we made this quarter lobby pay back in the common quotas and eventually bring more profitability.

What belief that our business at this stage is very strong and I was just a strategy of society in that so it gives us confidence to show all outlets to focus on your strategy. So secondly, this quarter with dominated the monetization of our next the app to mitigate the <unk>.

So those lack the App war removed that Google from Google play in July and not yet and so we are unable to operate those app fix any bought all important any new doors, which brings with.

This action has approximately EUR 20 million U.S. dollar maxcv impacts on both topline and bottom line, but we believe hit that right thing to do and we are strongly copy them back and we will already have stopped impact within the quarter.

And our core business remains very strong and we expect our annual revenue all <unk> poultry punky to be around 500 million U.S. dollar.

And now doesn't it let me reemphasize that our global reach strategy remains unchanged.

So suddenly this guidance also reflected the can Uh huh.

So the key opinion about the impact off probably my team global advertising.

So the global advertising industry, especially you Ed is pretty much a replicating the trend happened in China. The budget is the recovery, but that you see P.M. hits, the up below our expectation about 5% to 10% so with the.

Thank you.

This will conclude or question answer session.

The conference back over to run there by the same for any closing remarks.

Thank you Brian.

This concludes our goal for two day. Thank you again for joining the call Tonight. If you have any questions or comments, please don't hesitate to reach out to us directly.

Good night.

The conference has now concluded. Thank you for a time in today's presentation you may now disconnect.