Q4 2020 CooTek (Cayman) Inc Earnings Call
Good day, and welcome to a cool Tech's fourth quarter and fiscal year 'twenty 'twenty Unaudited financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by per.
Since our key followed by zero after today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
Please note. This event is being recorded I would now like the turn the conference over to institutional capital Advisory. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining US today, our earnings release was feature to the earlier today and is available on all of our IR website at IR.
For the types of dot com and on PR newswire.
All of the call today from Covid that are new so called Zhang Chairman and Chief Technology Officer, and Mr. Robert <unk>, Chief Financial Officer makes their job a little worried a little bit that's operations and company highlights followed by Mr. Fleet for all of these got financials and guidance they will be.
I'll be available to answer a real questions during the Q&A session that follows.
Total we begin I'd like to kindly remind you that this conference contains forward looking statements within the meaning of section 21 E of their Securities Exchange Act of 1930 for as amended.
These forward looking statements are made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 95.
These forward looking statements can be identified by current terminology, such as well expect and he's a pay future intend plan.
Leave estimates confident and similar statements.
What type of May also make written or oral forward looking for men in the U S. Brute force filed with or furnished to the U S. SEC Inc.
Annual report to shareholders in press releases and other weekend of materials and oral statements made by officers directors or employees to a third party.
Any statements that are not historical facts, including statements about for tech fleece and the expectations are forward looking statements that involve a fact factors risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements.
Such factors and risks include but are not limited to the following.
The technician and the strategies for you.
Sure.
The net financial conditions and results of operations the expected growth of the mobile industry Internet in the industry and the mobile advertising industry.
The expected growth of mobile advertising expectations regarding demand for and market acceptance of the company's products and services.
Competition in the mobile application and a glass housing industry and rather for once a month policies and regulations relating to the industry.
Well the information regarding these and other risks uncertainties and factors is included in the company's filings with the U S. S E T.
Or information provided on this call is current as of the date of this call and does not undertake any obligation to update such information except as required in the law.
It's now my pleasure to introduce Mr. Karl Zhang Karl. Please go ahead. Thank you. Thank you everyone for joining our fourth quarter and the for years have you thought the earnings call.
We are pleased to conclude the year of all kinds of a country with our revenue between 400, and the 42 minute of U S. Dollar.
Representing the growth of a hunger in the 48 per cent compared to a total of 19.
Thanks, all the IPO in putting a pause the 18th.
Our annual revenue growth approximates the Cabo.
A 80 per se from a hunger and a 34 million U S dollars.
We executed our strategic roadmap to expand our content the app portfolio and the cultivate the global pen entertainment content ecosystem from this.
While keeping the scale of our scenario based the content the app since our IPO, where he successfully developed our online. This is true in the casual game business from scratch.
Which respectively.
The contributed 38 per cent and a 37 per cent to the total revenue being part of the person.
We are delighted to announce the result, and feel very confident on our future growth.
Based on our current estimates we expect plenty of thought it was for your revenue will continue to growth.
I would like to say that it has been a solid a year for the pulp thing inside of your time here.
Our mission is to empower everyone to enjoy rather than the content of assembly, we have focused our content the app strategy and the three pillar.
And the type of it.
In terms of user base the P. A U and the M. A use of our portfolio of products reached a $37 8 million and the 85 plus the eight minutes in December a tiny tiny piece with the continuous improvement of user.
Into Asia.
Firstly, let me address specifically on the recap of our Orlando such a business.
In particular for from two novel I'll call online did such a product which country rented the number three in terms of the.
Free online literature market in China inside the country.
We have we enriched our content the rethought by increasing the efficiently the member of the signed the authors and the third party content the partners pocketing, a sliver of improving the use of sickness.
We encourage you to see the positive indicators of the Aye Aye petrified.
First of items from two a novel community.
The average daily reading time daily active user exceeded a 130 minutes and the December 20 of Patty.
We actually saw a further increase of the average daily Reading time, Inc. A January and February have you thought of it.
One.
The most of the new user retention rate from the first month to the Cove Mountain also increased steadily entirely tied to it.
Our philosophy is to build a customized the content of production model that established the beta feedback and the matrix between our signed the authors and the reader.
So that the content of the ecosystem gets adopted through you the type of evolving content the preferences.
We launched the phone true literature platform to develop our original content the ecosystem at the end of the 19th.
Since December of 2019 from two depicts a product a combo of literature platform has the accumulate a round three solvent signs of orders and the three thousands of 600, a really low contract book.
Compelled to license the book the book of produced by our side of the authors obtained more than 50 per cent of total reading time, a phone booth Rita and total revenue.
Some of the literature platform gets beamed S. A.
First in category.
From a major category of male and female preferreds the content.
More than 70 per cent of content to focus on gender, a specialized the salaries and oven contexts and patient enrollment.
In addition, we are actively diversifying our ICEE business based on the original book from film to a digital platform.
We developed from the audio book.
New feature Inc.
Incorporated informed of a novel App to me to keep all the needs of a leader.
More of that more than 3000 audio book book a available on the platform.
We also created a short video series space of the our phone do the such a platform content and IP resources the.
First of a showed a video of drama series named the proud when when the school produced the from content from the literature platform their space on a piece of literature with a substantial and exciting salary of life.
The video series is a divided into a turnkey.
Plenty of exogenous with a running time of two or three minutes for each.
The shutdown of a had been redistributed a major shut the video site such as Belgium, the Chinese lodging a pick up in price so the ability.
C for a video among other and probably watched a stretch in phones with bad debt.
At the same time, we have also advanced our monetization capability to create additional growth momentum for the book.
Although the average revenue per user a pool you can shop.
And could volatility with the overall interest on that the advertising market with the yet to be most of the factory return of investment.
As a result the P a.
And the revenue was up from two novel recorded a significant the year over year growth of Uh Huh.
And the 6% and the 360 per cent.
Plenty of IP.
In addition, we achieved a significant milestone in the development of our overseas online literature business.
The product a constantly rented a.
One of the top apps in book category in the U S with a <unk>.
Close to one minute.
We have also seen the stable improvement of the monthly new user retention rate.
Guided by our unique content acquisition strategy, we have successfully secured the contract with a series of fast the sitting partners and the content and the concept of inventory rich. The 1000. The book of the just the one year's operations.
We are even more confident to strengthen our competitive edge in the global online literature or even the publishing market.
Yes.
Secondly for our mobile game business.
So have to live a rapid growth in kind of your country, which contributed to the revenue and the profitability of the group.
As a highly finished the.
For the logistic business to a life literature, we have successfully self developed and the shelf distributed more than 20, a Petro Canada.
They typically reflected a high ally, but short of products the cycles, which at a trade at the Russian now of optimizing our obtained product pipeline.
We are striving to upgrade our strategy by investing in the partner with other deals.
In the studio and team for delivering a more a diversified product portfolio with Petro, Canada and a bit of coffee.
We're still kind of thing that the business kind of serve as a stable source of revenue and profitability for the group.
Suddenly there's the book.
Five of its business segments since our IPO, but the net real based content. The app have been crossed the streamlined and the upgraded.
We have focused on selected verticals, such as sports and fitness, but also developing new products.
The key priority of this business is to maintain the ally and to serve as a strong foundation of the growth of the group.
As we move forward the Inc. Plenty of hydro one of our strategy remains stable.
Continue to calculate for the global kind of entertainment content the ecosystem.
The focus on the three phenotype of the pillar online literature mobile game and the scenario of based accounts on that.
A key strategy initiatives will be.
But growing.
Growing from two novel by providing the interactive and the quality of the clearance and cultivating an engaging and attractive community.
Two optimizing our casual game product.
One thing in tunnel develop and the third party investments in the partnership.
Three.
A test intensifying the oversea market expansion with our core strength built in the L. A.
A good Inc. In the online literature of segments.
For upgrading our monetization capabilities by exploring the use of paid content e-commerce and the IP assets adoption.
We strongly believe that weekend for the improve our business model with a more balanced approach delivering revenue growth and the.
The achieving profitability.
We are excited to deliver the robust performance in the maximize our long term shareholder value.
With that I will hand, the call to Robert our CFO, who will walk you through our financial results for the for them.
Yes.
Yeah.
Thanks, Paul and Hello, everyone.
Thanks, again for joining us Tonight.
As mentioned our firm strategy of the parent entertainment content ecosystem has been demonstrated by a robust growth in our user base and a revenue a plenty of 'twenty as our businesses scale reached a new high on a yearly basis, we are confident that our commitment with a further contributes to the continuous enhancement of our pro.
Of the portfolio.
I'm going to a brief you our fourth quarter and full year of 2020, so starting with the fourth quarter.
Net revenue was $102 $4 million, an increase of 48% from from a 50.
59 million U S dollars during the same period last year the.
Net revenues, a mainly generated from three categories of our content of rich apps on a literature accounted for approximately a 48 seven per cent scenario based content the apps accounted for approximately a 24%.
The casual games accounted for approximately <unk> 28 per cent of the total net revenue for.
For all of our literature a business. We are excited to report that our friend Lenovo delivered solid business growth in the fourth quarter of 2020 with the sequential average revenue per user after a growth of 22% and revenue growth of 28%, reflecting the upgraded monetization strategy.
The average do you use of the company's portfolio of products were 27 points 8 million, an increase of 13% from plenty of $4 7 million in December 2019.
I'm a use of the company has a portfolio of products were $85 8 million an increase of 15 per cent from $74 6 million in December 2019.
Our gross profit margin was $93 one per cent compared with $94 four per cent in the same periods of last year, and a 93, 6% last quarter.
The GAAP cost and expenses were about $121 5 million, a decrease of 5% of sequentially and up 62% from the same period last year non-GAAP cost kind of spirit expenses for $120 million, a decrease of 5% sequentially and an increase of 60% a year old.
The year.
As a percentage of revenue non-GAAP cost and expenses accounted for.
117% down from 100, and a 19% in previous quarter. The decrease in operation of expenditures were mainly due to the sales and marketing expenses.
Sales in the marketing expenditures increased by 51% from the same period last year and a decrease of 5% from last quarter the <unk>.
A larger component of these expenses is the user acquisition costs, which is in line with the overall expansion of our content related business.
R&D expenses increased by 14% year over year and decreased by 21% of sequentially primarily consist of costs associated with technology R&D staff and share based compensation expenses. We ended the quarter with 759 full time employees.
For up 37% from last year and up 5% from last quarter.
Andy and employees represented about 50% of the total employees the same as last quarter and compared with 63% last year.
G&A expenses increased by 41% year over year, and 4% sequentially, the sequential and year over year increases were mainly due to an increase in cost associated with the G&A staff and share based compensation.
GAAP net loss was $18 8 million of U S dollars, excluding the effects of stock compensation adjusted net loss was approximately $20 million to $22 million.
I will now quickly run through a few key full year 2020 of financial results. Further details can be found in the earnings release.
Net revenue was 441 5 million U S dollars and increase of a 148% from 100 of $77 9 million a 2019.
The full year basis, all of its Richard accounted for approximately 38% scenario based content apps accounted for approximately 24 per cent and casual games accounted for approximately 37% of the total net revenue.
Gross margin was 94% 0.5 per cent compared with 91, 4% in 2019.
Total cost and the operating expenses were $489 4 million U S dollars and increase of 128% from $214 6 million U S dollars in 2019.
Sales and the marketing expenses were $418 3 million of U S dollars.
An increase of 156 per cent from $157 million in 2019 as the.
A percentage of total revenue sales and the marketing expenses accounted for 95 per cent and increased from 88 per cent in 2019, primarily due to increase the investments in the U S acquisition.
R&D expenses were $29 7 million, an increase of 10% from plenty of $6 9 million Inc.
2019, mainly due to an increase in costs associated with technology R&D staff as a <unk>.
Percentage of total net revenue.
R&D expenses accounted for 7% decreasing from 15% in 2019.
G&A expenses were 15 million of U S dollars, a decrease of 8% from $16 three many of U S dollars. The appointing 19 primary due to a crude bad debt provision of the zero point for many of U S. Dollars in 2020, a decrease by a $3 7 million from $4. One many of you.
A million U S dollars in 2019 and was partially offset by a net increase in professional expenses and an increase in cost associated with G&A staff and share based compensation expenses.
As a percentage of total net revenue G&A expenses accounted for a 3% decreasing from 9% in plenty of 19.
Net loss was 40.
Seven 4 million of U S dollars compared with net loss of $36 8 million ending 2019 a.
Adjusted net loss was 42 million U S dollars in 2020, compared with adjusted net loss of $33 2 million U S dollars in 2019.
At the end of year of 2020, we had cash cash equivalents and restricted cash of about 49 6 million of U S dollars compared with 50 million of U S dollars at the end of 2019.
A made the 18th 2020, we announced a share repurchase program. The plenty of 'twenty a program, where we are authorized to repurchase our class a ordinary share in the form of eight years with an average value of <unk>.
220 million of U S dollars during the 12 month period, starting from May that the 18th 2020, we expect a phone the repurchases under this program with existing cash balance.
As of end of year 2020, we had used an aggregate of the $4 7 million U S dollars to repurchase the <unk> nine minutes, a day assets under the plenty of 'twenty program and recorded as Treasury stock.
For the first quarter of 2020 one.
We expect total revenue to be about $80 million. This outlook is based on information available as of the date of this.
The press release and conference call and reflect the Companys current kind of preliminary expectations, which are subject to a change in light of various uncertainties, including those related to the ongoing COVID-19 pandemic.
Looking at the overall 2021.
We are committed to further execute a well structured debt inherited a growth plan focused on continuously delivering the revenue growth and a steadily achieving profitability at the same time, we also committed to deliver a balanced financial approach by improving the overall operating leverage.
Operator, we're now ready to take questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble a roster.
Our first question is from Vicky Wei from Citi go ahead.
But even the last months thanks for taking my question.
Speaking on behalf of a mixture of yet and we've got three questions here.
Can management comment on latest completion landscape for a library of the market. What is the latest market share of them do and do you have that in their market share target to a N T.
All of a second question is what type of content, we either typically on the platform well all of the main differentiation of these content creators of let's say.
Passengers.
Our first question is what is the company felt a marketing spend pocket and overall use of acquisition Paul. Thank you.
Thank you Vicki for your question, let me answer the first two questions and then we'll hand over to Robert to answer the the rest of the question. So in terms of the competitive landscape of the reading market I separate the question into two regions the China domestic market.
In the overseas market, so in China domestic market for the novel race.
From scratch.
Within two years period, and the remained the number three position of a free it is such a market.
And of the market a competition.
So now I'll focus a bit more on calculating our big content the ecosystem to build up a competitive competition burial and a sustained the long term growth. So we believe that the competition is it's a long run and the content the ecosystem gets a call to win the game eventually so as for the Oh.
This market, we are pioneer of a free reading model. So the thing.
For the strong a global come to the App experience.
Our long term goal is to become the number one.
Online literature community in multiple countries.
Now, let's talk about from the literature platform. So since December 10 T. A December 2019 from the literature platform has accumulated over a 33 southern borders and the 3000 to $60 600 original content contract book.
So compelled to license the book the book produced by our style ATA obtained more than 50 per cent of total a reading time and from a phone to a reader.
Rita and total revenue.
From the literature platform is deemed as diverse in the category. So covering a 13 major categories and a male and female a preferred content so compelled to other platform.
More than a 70% of content focus.
The specialize the stories in other context context, and the patient enrolment for besides.
We're not only focusing on traditional a life book format, which is a really long to over a 1 billion watt, but also of cultivating a middle of length of format sorry.
The specialized salaries will bring our community diverse user base and the provider.
Our use of a different content between joy.
Thank you.
Yeah, Okay. So for the third question on the <unk>.
Most of the marketing spend targets.
So as we have seen we have invested in the customer or use the acquisition given we have started to build out of our own a literature and casual games business since the fourth quarter of 2019, and we are encouraged to see we have achieved important milestones with our user base and the revenue reaching new highs.
As a result, our sales and marketing expenses as a revenue indeed increase from about 60% of 2018% to 95% in plenty plenty.
As a key Poland component of our growth strategy. We have also been committed to optimize the cost and expense structure targeting a moving forward towards profitability. So there are several important initiatives.
In relation to this strategy. So first we have been launching diversified and innovative marketing campaigns to improve the efficiency of the new user acquisition.
Second with the enrichment of our content of a resource on our online literature platform. We have seen stable improvement of the user retention rates, which can contribute to the marginal reduction off the sales and the marketing expenses in relation to the management of the existing users and at the same true.
We are also diversifying the monetization strategy for all of the list which of products with paid content E Commerce and adaptation.
Which will support the growth of the a pool and a lot and third we have also been striving to increase the ROI for our casual games products and to diversify the pipeline given the casual games business represent higher ARPA and shorter the investment return period the contribution from all of the <unk>.
For me products can also help increase the operating efficiency. So with all of these efforts. We are convinced that we'd have steadily implement the Spanish approach of achieving use of video.
Based on the revenue growth and at the same time the book level of profitability. So to summarize we forecast a stable reduction of the sales and the marketing expense as of revenue for the percentage in the coming quarters and on a yearly basis, the sales and the marketing expenses as of revenue is expected.
It to decrease by 10% to 15% plenty of 'twenty, one while keeping the growth momentum of our user base and revenue.
And we are confident of delivering in delivering this operating leverage.
Thank you.
Thank you.
Our next question is from Hunter Diamond from Diamond Equity Research go ahead.
Hi, Firstly, congratulations on the strong earnings.
So we want to just get an update on your strategy for expanding the overseas market whatever additional information you can tell us on that approach.
Yeah.
Okay, So I'm going to take these questions. So yes.
We will stick with our mission to empower everyone to enjoy rather than the content. So Inc. 2021 we will continue to grow our overseas market business.
The priorities. So we believe a global online literature is a tremendous opportunity for us so by leveraging our AI and the big data.
Technology, we get a chance to improve the efficiency and the precision of long reading content, the protection and the distribution of profit.
Not only in China domestic market, but overseas market as well.
We will focus on English speaking countries as the first of this fab to reach this goal. So we will drive to cultivate local content ecosystem.
So a cooperating with local content partners and the enabling local artist.
With our AI technology our priorities.
So at the same time, we are expanding our mobile game business to the overseas market as well. So we have already launched nearly 10, a mobile games to overseas markets and have achieved a success for most of them.
So we are exploring the sale of change between online registry and mobile game business.
Obviously the market. So the strength of strategic go to establish a strong set of tools to connect online literature and mobile game business are.
Just as to what we already realized with flow into novel in the mobile games in China domestic market.
Thank you.
Great. Thank you for the additional information on the approach.
Our next question was obviously a global mobile content is experiencing very high growth of 2020, a 2021 as well.
Given the COVID-19 stimulated demand for entertainment based applications. So we wanted to see your expectations on the outlook for the company and the industry in the post pandemic period, and what measures will couture a cake to maintain the level of growth at the scene.
After COVID-19.
Yes, so we are optimistic on the long term growth.
All of global mobile content of industry, especially of entertainment based apps.
The post the pandemic period.
So if we look at the time spend distribution of mobile devices of global users. Most of the use of most of US. The time spent on mobile entertainment based apps today.
But if we look at the total time spent on mobile devices, a global use of with five of that the growth gross rates of total time spent on mobile devices the mixed.
So in some developed countries the.
The growth rates of decline.
The timing, but in emerging countries. It's the.
We're increasing significantly so that is in developed countries a pet.
It's been a.
Dividend is disappearing and the App a.
Competing for you that the attention so that brings the opportunity for companies who focus on cash.
Calculate the healthy and the quality content ecosystem and improving content distribution efficiency.
If it efficiently and the precision so with drive to innovate on both AI technology and the business model to calculate our content the ecosystem grow and the monetize our user base the effectively and develop our use of community. So we believe the measures will drive.
A continuous growth thank.
Thank you.
Okay.
Great No I appreciate the additional information on the strategy. So again congratulations on the earnings.
Thank you.
Our next question is from Aaron Chu from Tigress financial planners go ahead.
Thank you for taking the pension.
So I have two kind of in the first question.
Regarding the the.
The true.
The guidance. So what is the main reasons for these inc.
And the day.
Day would be the strategy.
<unk> revenue guidance and the second question is with regard.
The online later each of business.
China So.
How do you see the current churn of downhill.
True business in China and.
He is the total addressable market of for this business in China.
Thank you.
Okay, Yeah. Thank you.
And for the first question and in Colorado a.
The second question for the for the first quarter 2021 guidance was based on our current estimates of.
Obviously, it's in line with the a seasonality.
Seasonality in relation to the domestic online advertising market in particular in the Chinese market and the relevant a monetization strategy upgrade of our portfolio of products in particular for the on a literature and mobile games business, but as a general a reminder, we skew or we are committed to a further.
Or continuously deliver growth for.
<unk> for the a food.
Full year revenue user base and for the steadily achievement of the profitability for the coming year. So this is based on the current estimates and our internal a.
Management plan for.
For a given this for the Tigers.
And yes in terms of the online literature market in China, and the global market. So to US I think a we think that's the online literature, a business, especially the free online literature a market. It is yes. It is.
A new area.
Which has tremendous opportunity for us so so.
So we released the from two novel in a 2019 and in the in the bearish a period, we grow the user base to the over a 10 million.
The a youth so which means that's a so we actually benefit from the the the.
A great potential of the off the market.
And we also believe that the global online with a tree is a tremendous opportunity for us as well so.
Because of low long reading content that gets a thumb fundamental content of the need for global users.
But the traditional online publishing industry cannot meet the users ever evolving needs.
By leveraging our AI and big data technology, we get the chance to improve the efficiency and precision of four of the long reading content production and the distribution process. So for example, we introduced the AI assistant and the Big data technology from the literature platform to establish.
As a to establish a they'd have a feedback loop, which enabled our signed office.
And the then the performance of their book and to help them to consistently improve there at the same thing happened all of our global online literature App for English speaking countries, especially the U S.
So we're trying to innovate on both AI technology, and the business model to cultivate our content the ecosystem grow and monetize that will use a paid the fact safely and develop our use of community.
Hmm.
So we believe that such innovation on both the AI technology and the business model will drive continuous growth for the ambition and that as I mentioned that we believe online literature is a tremendous opportunity globally. The way we're actively expand our user base a.
Not only China, but also a overseas market to two to drive growth.
Yeah.
Thank you.
Our next question is from Steve Silver from Argus.
Go ahead.
Oh, hi, everybody and congratulations as well on the strong revenue growth and using metrics a very impressive year.
Most of my questions have been answered, but I did have one remaining you guys mentioned that the share buyback status as of December 31.
I was just curious if you had any color that you could provide a S.
For your current thinking on accessing the program given the downturn in technology stocks towards the end of the first quarter.
Okay.
Yeah. Okay. Thank you I'll share a discussion so as mentioned as of December 31, 2020, So we have reproach or used for the U S dollars for selling many of them worth of shares.
And.
As a general rule, we will monitor the markets and the stock price for evaluating a.
The further the pan and the potential.
Potential next step but.
As always we have higher priority for the business growth and will be bounded for delivering the long term value for our shareholders. So it is really a subject to our a M.
<unk> a monitoring of the of the market and the stock price and we don't have additional details to disclose at current stage.
Okay, great. Thank you and congratulations again.
Yeah.
Thank you. Thank you.
This concludes our question and answer session I.
I would like to turn the conference back over to institutional capital Advisory for closing remarks.
Thank you operator in closing on behalf of the entire management team of course that we would like to thank you again for joining this conference call Tonight.
If you have any for inquiries in the future. Please feel free to contact us at IR <unk> com.
Or could that I see a a shot that pump thinking.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.