Q1 2021 CooTek (Cayman) Inc Earnings Call
Good day, and welcome to <unk> first quarter 'twenty 'twenty, 1 unaudited financial results conference call.
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Yeah.
Thank you operator, and Hello, everyone and thank you for joining us today and.
And that's really wants to do with your earlier today and is available on our IR website, and I always thought crude tech dot com and on PR newswire on.
And the cookie based from crude tanker and Mr. Karl Johnsen, Chairman and Chief Technology Officer, and that's true.
And Robert Smith, Chief Financial Officer, and this is John will review business operations and company highlights followed by Mr. <unk>, who will discuss financials and guidance and they will both be available to answer your questions. During the Q&A session that follows.
Before we begin I like to kindly remind you that this conference contains forward looking statements within the meaning of section 21, and a scheme of the spec.
Curious you exchange Echo 19, and 34 and amended.
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And similar statements.
Kudos and May also make written or oral forward looking statements and reports filed with a furnished too and U S. S E C and you won't.
Reported to shareholders and press release, and other risks and material and all of a seamless to me by its officers directors and employees to a third party.
Any statements, there and not historical facts, including statements about <unk> beliefs and expectations are forward looking statements that involve factors risks and uncertainties that could cause actual results to differ materially from Don and their forward looking statements.
Such factors and risks include but are not limited to the following <unk> mission and strategies future business development financial condition and results of operations the expected growth of the mobile internet industry, and the mobile advertising and the street.
This growth of mobile advertising.
As a teacher as regards Inc, and men's sport and market acceptance of the company's products and services.
Competition from mobile application and advertising and that's true and.
Relevant government policies and regulations relating to the industry.
We're going from Nathan regarding these and other risks uncertainties and factors is included and the company's filings with the U S. SEC. All information provided on this call is covered and I spoke with based off this call and protect does not undertake any obligation to update such information, except as required under law and that's not my book.
And I showed you introduce Mr. Karl Johnny Carl Please go ahead.
Thank you thank.
Thank you everyone for joining our first quarter on a.
Carl.
We haven't reported and our first quarter results with revenue of $81.6 minute.
Which was a bit higher than our previous guidance.
After the rapid revenue growth in 2020, we have been committed to implementing a balanced approach and consolidating our business fundamentals.
We are confident that the current focus and strategy will result in a robust and huh.
Profit Bowl Fitbit motto packaging.
Sustainable growth.
What do you expect that the second quarter revenue will be a round U S dollars 80, 83 minute a minute.
Its a significantly improved bottom line towards profitability.
Firstly, let me address a spin.
Typically under a recap on that day, the chip business.
Well a phone to a novel how long a free online literature product in Chinese market, we have been upgrading the business model with a strong focus on improving user retention rate and a.
And.
A balancing our continued investment and a call in a constant a result, with our original content and platform phone book.
Such a platform.
We have continued to enrich the scale and a depth of our content ecosystem.
As a main countries how do you win the nimble a assigned ATA Inc.
A brief 2 more than a.
4000, and a 1.
100.
From a literature platform currently covered.
95 from major tactically, a male and female preclude a content.
Besides other contacts and the Asian woman.
Modern romance and a fantasy a newly imagined a popular categories.
And the other side from day novel has expanded cooperation agreements with well known copper a partner such as a cartoon literature, and YY and novel and IV literature and others.
For example, the whole awesome day.
Also non as a heavily a step 1 potato a popular online literature Arthur officially published his new census, a book.
King of all Sean.
From 2 novel, what the first on a literature platform to a <unk>.
It's a new book from a protest.
A few times a west.
We have we have been in kind of defining the community driven approach for a home to novel the average daily reading time per daily active user growth to approximately 100, and a 48 million and a match tied to a 31.
The average 30 day, new user retention rates of match funded 91 increased by 15% then that's off a December 2020.
And the average a 90 day, new user retention rates of match kind of a honeywell increased by a 20% then backup a December tiny tiny which also contributed to steady growth of lifetime value a few this on our platform.
As a result, the operational efficiency further strength and the book quarter Oftentimes a 91.
We are encouraged to see the expectation of achieving profitability for from 2 novel, while keeping a body and a sizable share base.
In addition, our overseas online literature product consistently recorded close to 1 minute.
The content of the inventory exceeded 1000 and and.
And 300 books and match country and anyway with.
With continuous improvement of a new user retention rate.
We are dedicated to gain more market share and U S and a wall global online visits from us.
Yes.
And secondly.
We also upgraded our mobile game, a portfolio and pipeline both in the domestic and overseas market through internal development and external investments and partnerships.
The revenue and net profit contributed by a mobile game business returned to a quarter over quarter growth.
We maintained our strong focus and game with higher <unk>.
And the longer product cycles.
Catholics Realty.
And I kind of a game design and a relief in the global market by our investing game studio recently, and which number 1 and U S and that's a 57 countries and regions and <unk>.
Store and Google play games section.
Yeah.
The success of a catwalk beauty and the global market.
And from our R&D capability, and gaming and experience and localize the operations and the global market.
But job the whole process of the incubation of catwalk beauty.
From the creation through the development and get a siloed they built.
In addition to the creative gameplay localized UI design, and just a crucial factor to the games and outstanding performance.
We have broad and enhance the entertainment experience to its users through expertise in game innovation and development.
Cattle ability has attracted a group after a royal fans internationally with notice that they are actively share gain among a.
Sure this game and non their friends, taking videos and a share towards Youtube.
The popularity.
And those mobile game developed by us and gaining more market share and global market.
Looking forward through a <unk>.
Olympics, a incubation mechanics, and which feels rapid iteration and innovation with a confidence in achieving a large scale and protection and growing exponentially in the global market.
We have further cooperation with third party content producers partners and the mobile game and that's trying to accelerate the growth of a mobile game business by producing and a population more high quality mobile games.
We recently invested and the cartridge with 2 game studios in Shanghai.
The investment and the partnership with experienced industry veterans can further expand our product portfolio and enlarge our business and expulsion shoe.
Ambition and distributions of mobile games.
As mentioned during the earnings a relief caught and the previous quarter.
Our strategy remains stable, we will continue to cultivate a global pen entertainment and content ecosystem and focus on these 3 key business sectors.
And I literature, mobile game and scenario based accounts and that.
We are optimistic that achieving steady growth and put a profit.
Profitability at a Qualcomm a component of our strategic goals.
Is that and the car to a rabat and our CFO, who will walk you through our financial results for the quarter. Thank you.
Thanks, Karl and Hello, everyone.
So Dan for joining Us Tonight.
Have been concentrated on optimizing the resource allocation to deliver balanced development strategy.
With a continued improvement of the monetization capabilities of our.
Online literature business and the enrichment of the product portfolio with a competitive margin a follow up mobile games business.
We are optimistic about a profitability achievement of our user oriented content business model.
The first quarter of 2021 constitute a good foundation for the execution of the overall business class.
I'm going to a brief our first quarter of 'twenty 'twenty, 1 and.
Net revenue was 81.6 million and U S dollars, a decrease of 24% from.
107.
And a U S dollars during the same period last year and a decrease of 20% from $102.4 million U S dollars to AUM in the last quarter. The decrease was primarily due to the restructuring of our portfolio of products.
So net revenues a mainly generated from 3 categories of our content rich apps on.
On a literature accounted for approximately 40%.
Scenario based content and apps accounted for approximately 14%.
And mobile games accounted for approximately 45% after a total revenue.
Do you use of the company has a portfolio of products were $20.3 million a decrease of 19% from $25.2 million in March 2020.
And they use of the company's portfolio of products work, a $58.6 million a decrease of 34% from $89.2 million in March 2020.
Do you use of the company's online literature products were $7.5 million and.
And increase of 3% from $7.3 million in March 2020.
And the use of the companies on a list, which a product with $20.1 million decreased from $29.1 million and he March 2020.
The average daily reading time off the key product from the levels use US was approximately 148 minutes. He March 'twenty 'twenty, 1 which continued to grow steadily compared with 130 minutes and December 2020.
Our gross profit margin was $89.1 per cent compared with 95, 7% and the same period last year and 93, 1% last quarter.
GAAP costs and expenses were about $93.4 million, a decrease of 23% sequentially and a decrease of 20% from the same share with last year.
Sales and marketing expenses were $7.7 million in U S dollars.
A decrease of 31% from the same peer relapsed share and a decrease of 31% from last quarter.
As a percentage of total revenue sales and a marketing expenses accounted for 87 per cent compared with 96% jewelry and the same period last year.
And 100 per test last quarter.
The sequential and year over year, a decrease in the sales and a marketing expenses as a percentage of total net revenue was primarily due to the octane and optimization of the operational efficiency in relation to the acquisition of new users and the retention of existing users.
R&D expenses increased by 32% year over a year and increased by 39% sequentially.
Primarily due to an increase and costs associated with technology, R&D staff and share based compensation expenses.
As a percentage of total net revenue.
<unk> expenses accounted for 11% compared with 6% during the same period with large share and also a 6% last quarter.
G&A expenses increased by 58% year over year and 43% sequentially.
The sequential increase was mainly due to an increase and costs associated with G&A staff and third party outsourcing fees.
A year over year increases were mainly due to increase and cost associated with G&A staff.
Share based compensation and third party outsourcing fee.
As a percentage of total net revenue.
G&A expenses accounted for 7% compared with 3% duo and the same peer with loss share and 4% during last quarter.
GAAP net loss was $12.4 million U S dollars.
Excluding the effects of stock compensation and.
Adjusted net loss was approximately $11.1 million and U S dollars.
Compared with adjusted net loss non-GAAP.
$17.3 million and U S dollars last quarter and non-GAAP adjusted net loss of $8.8 million during the same period last year.
The sequential and narrowing of the adjusted net loss was mainly due to the decrease and the sales and a marketing expenses as a percentage of total revenue driven by the by the optimization of the operational efficiency and real.
And through the acquisition of from new users and the retention of existing users.
As of March 31, 2020, 1 we had cash cash equivalents and restricted cash.
About $56.1 million compared with $49.6 million at the end of 2020.
At the same time, we have been committed to delivering a balanced financial approach by improving the overall operating leverage.
And maybe 18 plenty plenty, we announced a share repurchase program.
The 2020, a program where.
We are also right to repurchase our class a ordinary shares in a.
Form of a D access with an aggregate value of up to a $20 million. During a 12 month period, starting from May the 18th 2020, we.
We expect to fund the repurchases under this program with our existing cash guidance.
March 31, 2020, 1 we have used and aggregates.
And 5.9 million U S dollars to repurchase 1.3 million on a b assets under the 2020 program and recorded as Treasury stock.
Looking at the second quarter of 2020.1.
We expect total revenue net revenue of $83 million.
This outlook is based on information available as of the date of this press release and reflects the company's current and preliminary expectations, which are subject to a change in light of various uncertainties Inc.
<unk> related to the ongoing COVID-19 pandemic.
As a whole we are committed to executing now a well struck a structured dedicated growth path focused on continuous strength delivering revenue growth and a steadily achieving profitability.
Operator, we're now ready to take questions.
We will now begin the question and answer session.
Ask a question you May press Star then 1 on your telephone keypad.
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Please press Star then 2.
At this time, we will pause momentarily.
To assemble a roster.
The first question.
Comes from.
Nelson Cheung with Citi.
Please go ahead.
Oh, Hi, Nathan and think.
For taking my question.
And then 2 questions a number was.
Please elaborate more on the overall competitive landscape in the literature and Novo apps and do you have any update to a strategy on acquiring a local apps users.
And do you have any target market share or D. A U can be achieved by end of this year and.
And my second question is related to a gaming.
Convincing and share your view.
And the landscape competitive landscape and domestic market and a new marketing strategies.
And penetrating into the overseas market. Thank you.
Thank you for your questions and I'm going to take the first question and then I'll have a robot to take the second 1.
And we believe that global online a little tree is a tremendous opportunity for us and a long reading content and he is a foundation a fundamental content needs for a global use it.
But the traditional online publishing industry cannot meet to use a happy evolving needs and so to me and Chinese domestic market a competition landscape is not changed too much and then in the past couple of months.
And and <unk> and Novo is a DSP number went in in the free reading App stature.
And we believe it is a long run.
Priority at this stage is to cultivate our content ecosystem to improve you would see.
<unk>.
And we have been taken great efforts to optimize how we use it a retention rate and a.
If you use a content consumption from 2 novel apps from this year because we believe it is a key it is a key factor to ensure a long term success.
The average daily reading time per daily active user growth to approximate today 100, and a 48 minutes in March and it anyway.
And the user retention rate and increase and lodge in the type a a couple of months.
So from 2 novel.
Which makes us very confident that should be so that the business is going to be a better and better.
So as a result, the up operational efficiency further strength in the in the first quarter up 10, and 20, but we are encouraged to see match, our online literature business achieved profitability and recently.
And now our strategy for online literature business to maintain top tier long term, usually a retention rate and cultivate our pump and the ecosystem for a long term sustainability, while keeping the business profitable.
To implement this strategy and we have a strictly keep a.
Hi, all I and a long term user retention rate has been a y acquiring.
Reading time.
And a reading you that sorry, and we expect that EBITDA you of our online literature sector increased by the end of this year comparing to the same period last year.
Thank you.
Okay.
On the second question for.
The gaming market landscape, so as we all know that online gaming.
A mobile gaming is a huge entertainment and content market. It is like a 300 billion RMB a value off market and the domestic Chinese market and 100 and.
And Bill and U S dollars a market value.
And the overseas market.
They are happening and emerging trend off the monetization model in the carbon and mobile games market, which is the IAA and gaps and with hiring for free to play mobile games.
So why would a traditional games markets.
It's dominated by Tencent and net piece and China, we find a big market opportunity for independent players and the free to play games segment.
With higher a entry barrier towards the user growth from Baidu AI based analysis and we're in a.
Good position to leverage our data a focused growth platform for a rapid development of the business by combining the product portfolios of our internal studios.
And also the third party partners.
We have witnessed a huge growth potential of the revenue and profit after performing products in 2020, and we are confident that our current strategy will result in a highly productive portfolio and pipeline.
On the other hand for the overseas markets. We have also been implementing a depreciated marketing strategy and selecting the initial publish and markets at.
And at the same time.
Our vibrant game studios are dedicated to develop games products that can meet the evolving popular trends during a specific period.
We also pre tax a key features of the games with our sophisticated data platform to ensure a higher possibility of achieving satisfactory revenue and a lot.
So a catwalk beauty has been a strong testament to the rationale of a carbon strategy. Thank you.
Thank you.
The next question comes from Steve Silver with Argus Research. Please go ahead.
Hi, and thanks for taking my question first of all congratulations on the expansion of the games segment and.
And in particular with a success of catwalk beauty.
And I guess my question is if we can have a little more color on how the company can leverage the success of catwalk beauty.
In terms of impacting the growth and the visibility of the group and general but also in terms of how that might affect the marketing spend and the customer acquisition costs going forward in terms of how 1 title can drive the visibility of the entire group.
Thank you.
And going to take this 1.
So a couple of beauty is indeed, a big success for our global mobile game strategy.
Has been rented that's number 1 and.
And actually 58 countries and regions Appstore and Google play.
So a validated our.
A holistic incubation mechanics, and which feels rapid a E.
Iteration and innovation.
We believe that.
And that can achieve that we can achieve a large scale.
A matching and the.
Larger scale and production with high quality content.
Based on the established incubation mechanics and.
And to grow rapidly in a global market. So you can expect more and more successful games to be released in the coming quarters.
From a targeted to a developed when a 2 successful products have a 2 month going to going forward.
And it is also a strong proven off our sophisticated growth platform.
Which we are leveraging to publish and distributes and mobile games.
And it makes us confident to extend our mobile game strategy took game publishing business.
And as I mentioned, so we have further cooperated with the packet content producers a partners and that mobile game industry to accelerate the growth of our mobile game business, a producing and publishing more high quality mobile games.
So we believe this that's a strategy we have released more potential of our growth a type a.
Ability.
So cash.
Kind of walk beauty is not only a success its reputation but that success and its financial performance.
As I mentioned that.
Maintain our.
Focus on tank types with higher ally and a longer product cycle.
And while driving and download.
Download through user acquisition campaigns.
We are actually keeping very high alloy from catalog and beauty. So the average return cycle of investments and actually this and a 3 day so far.
So that is category beauty and contributing profit to the group.
The product has generated a revenue.
All more than over a 2 punch remitted in the past a couple a weeks and a profit of close to a U S dollar for a minute.
What's more as it is now 1 of the most popular casual game globally a fence.
A commanding it should have a friends and taking videos and a sharing to a Youtube <unk>.
If you search catwalk beauty and Youtube you will find a lot of videos about this day and today.
So all of this behavior has helped us.
To attract a lot of organic growth, which makes it even more profit, but thank you.
Alright, great. Thank you for the additional color I appreciate it congratulations.
Yeah.
Yeah.
The next question comes from Vivien <unk> with Diamond equity.
Please go ahead.
Oh.
Good evening management.
Have a Dan from Dawn Monaco to research. Thank you for taking my questions.
So my first 1.
Is that you're raising and now some do it spending with a.
Short form video given the growth a tick tock and other short video platforms.
And then provide an update on this project development and how are you.
And you'll do it is competitive and it positions.
My second question is that recently catwalk duty was ranked number 1 and app stores.
Can you provide any additional information around the company's approach to creating mobile applications and Morris and Mercedes.
And how they come they do the trade off between you bought the house and research and development versus acquiring other mobile App development farms. Thank you.
Thank you for your question, so I'm going to take this true.
So the first question, it's about a phone do a.
From the IP basically show a.
From a bidding so we are actively diversifying our a our IP business and placed on the original book from phone to a literature platform. So we've developed a phone to audio book book, a new feature incorporated informed a mobile app to meet the evolving needs of Sweden, and we also.
Crazy in a short video series based on a phone to a novel content and IP rethought. The first a showed a video a drama series with a Chinese name proud when my school produced from content from day novel.
And it's based on a piece of literature with a substantial and exciting storyline.
And the video a theory it is divided into a tiny and yourself with and running time of 2 to 3 minutes for each other.
And the shock drama has been redistributed a major a ship video sites such as <unk>.
Tick tock, and a partial availability and so on and so forth.
And we believe that exploring and releasing IP value.
<unk> 2 our content ecosystem growth, because we're committed to provide diversified commercial opportunities to ours and others.
Especially at this top tier ones so.
So we also believe that.
This is <unk>.
Middle and long term Gulf a lot.
We don't have the plan to release, our own short video App product at this moment and we identify ourselves as a content producer and we will strive to cooperate tightly with a top tier shut video platform, such as a leading take pop and pipeline.
And as for the second a question about the a.
And business. So catalog beauty has been granted and remember when you're in a.
And in multiple countries and the regions and basketball and and Google play. So it's validated L. A a holistic incubation mechanics, and which feels rapid situation and innovation.
Sophisticated growth platform has been our core competency and things.
Our I T O.
And the successful the success of Cat book Beauty, it's yet another strong validation of our sophisticated closed platform. So that we believe a key success factor of our mobile game business is to consistently publish a high quality mobile games.
Based on that.
It's actually not necessary that each game should be produced back in house.
So by embracing the industry and the cap rate with more experienced a mobile game content producers openly we can accelerate the growth of our mobile game business, achieving a larger scale game, producing production and growing rapidly and the global market.
What's more by opening up a lot.
Population capability to a third party C. P. A partners. We can also activate our in house and video.
As for acquiring other mobile game studios, we are not keeping and Oh, we actually keeping and Poland as well at this moment. Thank you.
Okay.
That makes sense. Thank you.
Yeah.
Yes.
The next question comes from Ken <unk> with Brown Tigers. Please go ahead.
Good morning.
Oh good morning, this is Ken from Tigress financial partners.
Taking my question and I think most of my questions have been answered. So ask 1 more question regarding to sales and marketing expense a we have seen great improvement on the sales and marketing margin on the post a closer to that and at times, 1 counselor a wide any guidance on the margin trend in 2022.
Thanks.
Okay. Thank you I would take a detraction.
Yeah, well focus is too.
As we always mention a.
Implement a balanced approach and.
Ensuring a stable revenue and user base growth.
And implementing.
I don't know and Heidi and attractive operational efficiency. So as you have seen the sales and a marketing expenses as a revenue.
A decrease from more than 95% from the previous quarters to the current 84% and the first quarter of 2021.
<unk> that'd be a.
Sales and marketing expenses as a revenue will.
There will be further decreasing to below 75% Inc.
The coming quarter and subsequently stabilized.
And the range of 70% to 75%.
For the next for the second half of this year so the overall targets.
The.
Operational efficiency to be achieved on this business model.
Is to achieve a stabilized and normalized sales and a marketing expenses.
<unk> revenue true.
<unk>.
50% to 70%.
As in line with a with a level that we achieved during our IPO stage back in 2018, which can further result in a more healthy and sustainable business model and also the growth.
Thank you.
Thank you.
This concludes our question and answer session I.
I would like to turn the conference back over to MS. Claire Yeung Investor Relations I see a for any closing remarks.
Okay.
Thank you operator, and closing on behalf of the entire management team of cortex and I do Thank you again for joining this conference call Tonight. If you have any further inquiries and the future. Please feel free to contact us and I are at true picked up from <unk> and I see a dot com and thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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