Q3 2021 Cloopen Group Holding Ltd Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Globus as third quarter 'twenty to 'twenty, One earnings conference call.
At this time, all participants are in listen only mode.
After prepared remarks by the management team there'll be a question and answer session.
Today's conference is being recorded.
Do you have any objections you may disconnect at this time.
I'll now like to turn the call over to Jan died Goldman's Investor Relations Representative. Please go ahead.
Yeah.
Hello, everyone and thank you for joining <unk> third quarter 2021 earnings conference call the company's financial and operating results were issued in a press release, a newswire services earlier today and are posted online you can download the earnings press release and sign up for our distribution list.
By visiting our IR website.
It depends on today's call will be Mr. Charles Jameson, our founder and Chief Executive Officer, and Mr. Stephen Lee Chief Financial Officer Management will begin with prepared remarks, and the call will conclude with a Q&A session.
Before I hand, it over to the management I would like to remind you of coupons safe Harbor statement in relation to today's call except for the historical information contained herein certain.
Matters discussed in this conference call are forward looking statements. These statements are based on current trends actually amazed and projections and therefore, you should not place undue reliance on them.
Forward looking statements involve inherent risks and uncertainties a number of important factors could cause actual results to differ materially from those contained in any forward looking statements.
For more information about the potential risks and uncertainties. Please refer to the company's filings with the Securities and Exchange Commission with that I'm now very pleased to turn the call over to our C O. Mr. Chow.
Please go ahead.
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Hello, everyone and thank you for joining <unk> third quarter earnings call. We appreciate your interest we are excited to announce that we maintain strong topline growth and thus the quarter delivering revenues of RMB 276 1 million.
Dancing, a 44.3% year over year increase was the rapid revenue growth our third quarter gross margin also remained robust at 43, 5%.
Since our IPO, we have strategically focused on our cloud based <unk> business and providing SaaS products for marketing and service to our customers. We made great progress executing our strategy during the third quarter and delivered excellent results.
This is reflected in our 125, 24% year over year revenue growth in C. U E business of the biggest revenue contributor in our group. We also increased the number of large enterprise customers to 219 accounting for 77, 4%.
Our total revenue share in the trailing 12 month period ended September 30, 2021.
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Today, I will like to discuss two important aspects of Paas business, our safety product development strategy and our technological progress first let's talk about our products.
And the Chinese market. It is important to differentiate and needs of large enterprises and small to medium sized enterprises or SME with respect to sales and product services.
Large enterprise customers required the racks out yeah, we provide private cloud based services.
Their industry Navajo Boy S. M. East, we also standardized soft products to support their focus on directing online traffic with follow ups on the original sales teams.
So that is that each customer.
We designed two distinct product breath right.
He formerly called we don't see it.
It's physically for large enterprise customers and our seven more grants or S. M. A.
Our revenues are mainly derived from two category marketing and servicing the products. We offer are constantly evolve to meet the man indeed takeaway.
We have made great strides in developing try that what type of marketing scenario. Initially we offered she paas solutions with channels to reach customers, including voice and messaging API, we again expanded our offerings to SaaS first providing S M east with standardized products Inc.
Clothing, telemarketing services and a text based chat bot Felipe reception and there are seven aircrafts.
We later added golf they try that can serve large enterprise customers, including our golf the contacts on their outbound call robot and agent assistance with these products, we're not fully leveraging our communications and tech AI technology empowering businesses to reach a broad.
There are a range of potential customers and bandwidth marketing scenario.
<unk> costs and enhance their operating efficiency.
We also acquired and lets see I am in March 'twenty, 'twenty, one, which reinforces our capabilities and basketball upsell sleep and sales process management theory in the marketing process.
Based on our data Foundation, we plan to release, our new chip to a marketing cloud of the soft product for use by both our large enterprise customers and ask them east.
She was called marketing cloud is designed to help our customers realize public to private domain traffic conversion.
I'm proud that domain user operations and with the support from our middleware capability businesses can gain a better understanding of their user for remarketing opportunities cross private domain users all of which drives additional marketing efficiency.
By providing communication services to tens of thousands of customers. We have accumulated a large amount of industry data and user insights that can help them true crime and don't make targeted marketing a curious Pete Florida customers.
In compliance with their requirements.
<unk> Paas and SaaS or is it fully from the public domain has also given us a deep understanding of our enterprise customers.
Yeah.
With our advantaged in these two areas, we are well positioned to extend our offerings to include marketing SaaS product, that's a clear cell pathway.
With that back to service in a row, we have thousands of customers through seven more customer service cloud and all safety products that provide functions such as multi channel access knowledge base C. I am and work order management and a path we help our customers.
Solve their online communication issues with their users now many of our customers require work other function solutions as they strive to digitize their after sales workflow management tool.
To address their evolving needs and based on existing customer service cloud product, we developed our after sales cloud what functions extending to after yourself and aftermarket.
Are you going to provide a closed loop services for enterprise customers with both our customer service and after sales clock.
Our products help helps businesses real life online workflow management cycle and empowering the customer service Department and also covering other related parties such as the downstream dealerships service outlets and onsite engineers.
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Haven't asked US our product development strategy now, let me share with you our progress on technology and the third quarter, we continued to ramp up investments in R&D to sustain our core product and technology compete NZ. We also added a top notch talent to further round out our task.
Oh team, we established an AI Research Institute and an Engineering Institute of Big data Department and audio and video at the time and the security Technology Department. Meanwhile, we successfully recruited highly regard the technical experts from leading Internet company and are actively.
Collaborating with call It college and University to develop and recruit talent.
Our patent technology system appetite three of our acquired capabilities audio and video and big data and AI and.
Audio and video Sackman, we plan to do with our own Archie M or real time Napster conforming to the most up to date industry architecture standard that's all significantly enhanced connectivity performance, but then pulling that words and realize high concurrency and low rate.
And Tim I'll think data we've quickly constructed a complete series of commercially applicable big data Satcom solution in line with industry technology and innovation standards.
To advance our AI capability, we have established two research Institute.
And our research Institute led by Professor from the prestigious <unk> University and an AI engine area Institute led by a leading Internet company fall companies' former chief scientist.
With respect to AI, we focus on natural language processing or and now T and intelligent positioning and are also actively exploring computer vision or C. D technologies.
While enhancing our three core capabilities. We are also improving our R&D efficiency, we upgraded our technical architecture to only need a single deployment solution to be compatible with all types of cloud vendors and customers. Furthermore, the low code that's bad.
The platform, we've built well enable our salaried and customized development.
These refinements will consistently true cruise as technical strength and R&D efficiency.
Going forward Cleveland is committed to becoming a SaaS company that integrates its capability in communications big data and AI to better support businesses marketing needs and drive their digital and intelligent transformation as.
We continue to refine our products and services to empower companies across industries, we are confident in our ability to create additional value for our shareholders.
That concludes our prepared remarks, now we would like to turn the call over to Steven for a closer review of our third quarter financials.
Thank you what tells you that I'm, even hello, everyone and thank you for joining our call today before going through the third quarter financials in detail I'd like to share with you. The recent developments well we are excited to announce that we received our first order from the southeast Asia market. The older comes from.
One of Thailand's largest commercial banks, marking an important milestone in our overseas expansion plan, whereas the pandemic gradually receding in this region, we expect our endeavors will progressively bearing fruit in the coming quarters, we will continue to expand our customer base in this region leverage.
Our comprehensive her proven products and services as well as abundant insurers is serving companies of all sizes across industries in China.
In addition, according to the Blue book I'm, China's cloud communications industry, which was recently released by China, Besides consultancy or see I see China's cloud based upon the futures market is expected to grow significantly from RMB $49 8 billion in 2020.
To RMB 146 pumps five bedroom in 2020 five.
CAGR of 24, 3% with a particularly strong impetus from Cc and UC M C.
That was the only company that offers a full scope of products and services covering C. C. You will stay on the C. C pause among cloud based communications solutions provider in China, We believe group and it has a long runway for growth given our strong momentum.
Live is supported by C. S E data, reflecting our industry, leading year over year growth rates in revenues for the company and our CSA business for the first half of 'twenty 'twenty. One we are confident that company is well positioned to address this sizable market and unlock it.
Whereas our continuous efforts to refine our products and services. It has our innovation capabilities optimize our customer mix and expand our global footprint.
We are pleased with our solid third quarter operating and financial performance. These.
The impact from the after school children are a factor.
Excluding this impact our dollar based net customer retention rates remain strong above 100% for the third quarter of 2020, one, but lower compared with the previous quarter, primarily as a result of the discontinuation of some low margin customers using our C pulse messaging services.
As large on the medium sized enterprise customers, usually have strong payment abilities on the higher user stickiness, we made strategic adjustments to optimize our customer mix during the quarter, resulting in a decrease in total active customers due to a reduced the number of small size of the cost.
Mers.
No, let's look at our financial results in detail, we recorded revenues of RMB $276 1 million during the quarter.
Well, the 43 44, 3% year over year, mainly driven by the continue with the growth momentum of our business.
With an increasing number of large enterprise customers and the sooner. It is from at least they are M. <unk> business generated RMB 131, 4 million you'd revenues, representing a remarkable 125, 4% year over year increase.
According to the.
Oh, sorry.
Cost of revenues increased by 31, 8% to RMB 156 million in the third quarter, a place where they want from RMB 118, confirming only in the third quarter of 2021.
Which was primarily due to increased infrastructure and equipment cost all sourcing costs and staff costs as the company continues to scale its business.
Gross profit increased by 64, 6% to RMB $121 million in the third quarter of 'twenty 'twenty. One from RMB 72, 9 million third quarter of 'twenty 'twenty gross margin was 43, 5% in the third quarter of 2020, one comparator beds.
38, 1% in the third quarter of 2020, the increase of gross margin was contributed by the optimize the revenue structure in.
In the third quarter of 2021 operating expenses were RMB 237, plus eight 8 million, representing a 51, 5% increase from RMB 150 is very rare.
In the third quarter of 2020 R&D.
R&D expenses increased by 66, 9% to RMB 70 to $75 5 million in the third quarter of 2020, one compared with RMB $45 3 million in the third quarter up 2020 <unk>.
I'm already due to an increase in share based compensation expenses of RMB five 5 million a increase in the R&D staff expenses of RMB 18, 5 million as the company recruited highly regarded experts to develop core features and functions in cloud based solutions.
Cloud based it usually N C solutions.
Chris in Technology service expenses paid to the outsourcing service providers for the development of certain noncore features and functions in cloud based UC N C solutions.
Sales and marketing expenses increased by 42, 3% to RMB $82 6 million in the third quarter of 2021 from RMB 58, 1 million in the third quarter of 2020, primarily due to an increase in share based compensation expenses.
RMB 775 million and an increase in staff expenses of RMB 12, 6 million as the company continues to scale its business and reach a wider customer base.
<unk> expenses increased by 48, 4% to RMB 17, $9 6 million in third quarter of 2021 from RMB $53 7 million in the third quarter of 2020, primarily due to an increase in personnel costs as the company continues to build his team.
<unk>.
The increase in social insurance premiums as a company have you enjoyed a social insurance premiums detection in 2020. According to the government relief policies. During the COVID-19 outbreak and the increase in the provision for adult full accounts, resulting from increase okay.
<unk> receivables net loss for the third quarter of 2021 was RMB $112 2 million compared with RMB 93, 9 million in the third quarter of 2020 that loves merger is sharply narrowed by around 10% year over year.
For the fourth quarter of 2021, Clupeine currently expects revenues to be between RMB 328 million and RMB 333 million, representing an increase of 26, 8% to 28, 7% year over year.
The above offload is based all the carbon market from teachers and reflects the company's current and preliminary estimates of market and.
Operating conditions and customer demand all of which are subject to substantial uncertainty.
With that I'd like to open up the call to questions.
Sir please.
Okay.
For the benefit of all participants on today's call.
I ask a question. Please ask first in Chinese.
In English.
Okay.
To ask a question press Star then one on your Touchtone phone.
Was it a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two.
This time, we'll pause momentarily to assemble the roster.
Okay.
Yeah.
First question comes from Tina Hu of Goldman Sachs. Please go ahead.
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So I will translate in English. So my first question is regarding the C. U E business, because we saw pretty strong growth in the third quarter. So just wondering compared to the second quarter of this year, what how is there any new development on competition changes.
In <unk> versus <unk> and then the second question is regarding the <unk> revenue guidance.
If we take for Q 'twenty, one guidance minus <unk> 20, or more rapidly than the incremental revenue is about 54 million RMB.
When we compare that to the four Q 'twenty and for COVID-19 numbers, it's actually held up a little bit lower than the previous two years. So wondering what's causing that and then the third question is PS a breakdown would be gross margin by those three different segments just yet.
Oh, Okay for the first question regarding the competitive environment for our CEC business.
So we are we we we we were actually we continue to enjoy a bigger and bigger competitive advantage, especially flower rooms CCR rule. She business why you know focus on via the large enterprise customers.
With all of our roofing business actually increased by over 400 per cent compared to third quarter of last year.
And especially in the in the finance industry.
We think we are now.
The.
It is very clear for our brother in the the fresh in the finance industry. We we actually have several very big whereas a in the third quarter.
The the finance industry right now accounted for almost 70% of our total revenue from existing business. So the Oh, what I mentioned during the call are based on the report of the the revenue increase all facets of the business.
As the top in the business, so I I think.
Alone you know, we want to continue to to dig deeper into the industries.
Industries, we focused on especially the finance industry, we will have more expertise and knowhow.
These industries and we will have a bigger.
Our competitive advantage compared to our competitors.
The second question is regarding.
The the R. R.
Goodbye for the fourth quarter of this year in terms of the revenue increase compared with third quarter, a compare that to the revenue increase for.
Last year and the year before.
Actually the reason why we won't look at a total revenue increase for our for the coming quarter compared compared to third quarter is a little bit lower compared to the previous years, mainly due to.
Can you.
Not the inquiries very much or or or maybe a little bit of decrease of our C. Paas business you Ya.
You look at our third quarter financial results. The revenue for C pass visits actually decreased a little bit compared to third quarter of last year as we continue to shift our strategic resources to our higher margin businesses such as C. C. You said the same business the revenue.
<unk> will probably for the <unk> business will probably remain flat or even if there Chris would you ever beds. So that's the major reason why our revenue for the last quarter of this year compared to the third quarter are not increased that much but so.
The for the Cc and UC Sip business, we are very confident the bar, we filed to increasing trial will continue.
The the the very the third question is.
So question.
Oh. The third question is the gross margin for for each of our business are the.
Gross margin for our Paas business for third quarter is a 28% it's roughly the same compared to two before on the gross margin for the CSA business is 56% is also roughly the same comparable before the gross margin for our U K business for the third quarter is.
A 41% this is a little lower compared to our previous quarters. This was mainly due to oh some of the the the revenues for Youll see for our CV business in the third quarter.
Was some of the other hardware so that drives our gross margin for you'll see I see business down a little bit but.
It is this is more like a one time thing so oh, we believe the gross margin for the you'll see MSA business.
It will bounce back in the coming quarters.
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During the past few months and we see a trend our installed are domestic and overseas C. C band is that.
They are all adding the C D product country has activity all extending a functions of the traditional safety in mainly two categories. The first one is marketing and the second is Arthur sells and services. These two categories are just what we mentioned.
Earlier, and this and the earnings call. We also increased a lot in our R&D investments and established our our own version of the marketing and after himself a safety product, which is Oh C and SAP.
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Oh, yes that that cloud the yeah, our access to the Peanuts question, we can take the questions from the next analyst.
Thank you. The next question will be from Boris Bond of Bernstein. Please go ahead.
Okay.
Okay.
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So that's a neat.
I've two questions.
Regarding the contact center revenue.
I would like to understand what's the split between seven more business around the PC business and also the elite E. R M integrated.
Help us understand what are the growth rates.
What these three sub businesses and then second question is regarding your cooperation with Tencent that you mentioned.
Hum.
Could you help us understand a little bit more how deep cooperation with work also because it.
In the recent three two earning 10 certain talks a lot about developing their own CRM business and I would like to understand whether your products will compete with them or will cooperate with them.
Yeah.
Oh, Okay for the first question wisdom of our sensor business.
The Lucy you see revenue like I mentioned, they're doing when I answer the first person actually they are the revenue increased by over 400%, but that of course includes the revenue from ellipse our M O. The you're live Sir contributed about 12 million.
Our RMB revenue for the third quarter, so even take those it was revenue from your laser them out.
Our revenue increase for the entire soup business is still about 100%.
And as for seven more the revenue increase we're sending more for this quarter is around 35% year over year.
Yeah. So that's the answer to the first question I'll answer the second question.
We are now competing with since that Oh, I assume no Tucson is one of our strategic investors. We work very closely with Tencent, we actually just signed a strategic a frame a framework agreement with Tencent.
During October.
And under this agreement, we will work with Tencent cloud to to either turns on Cogs can actually sell our products and services to the final customers or we can worked with Tencent cloud together and combine our.
Products together and offer one solution to the customers or we can also oh for two sides. The paradigm of the service so solution.
Oh wait wait since that so.
Ah you're sharp we are now competing western side, but rather work western science to deliver our products and our services to the final customers.
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Okay.
And there are mainly two catering off the C. I am and first one is the C. I am done man itself week and another is the C. I am managing the sales process hasn't actually don't have its own CRM product, but Ah well why not.
It's and part of them for fallout social E S. A and a b to B C. I am company, which mainly the dot sells process management and the only I have to say I am as mainly Julien.
Management of sounds fleet, which are which we are sad that we.
When our CRM product is used to.
Managed a public domain traffic the traffic and the cell asleep and not a direct competitor to south shore and Patterson.
Okay.
And and that close to our answer to virus question.
Okay.
Thank you again, if you'd like to ask a question. Please press Star then one.
The next question comes down to you would see ICC. Please go ahead.
Yeah.
Yeah.
Hello can you hear me.
Yes.
Okay.
Okay.
Uh huh.
The first one is about.
Uh huh.
I guess im trying that's like that in the call.
And on top of them.
Hum.
All right.
Okay.
Gotcha.
Yeah.
Okay. Okay.
You know what time do you want to do deals like that so that's on track.
Which would you say.
With that let's see you'll see.
Yes, you do have shops.
Oh yeah.
Well I think that they're showing it.
You bet.
Oh my.
Goldman Sachs, who have done their job.
Hum.
Yeah Yeah.
Uh huh.
English.
Almost.
Austin This is moshe.
The O&M and turns it into the frame work hopefully transform Kuwait depends on cloud in October you'll give us more color on the field to accomplish that and do the second one is when they'll have.
The number of active customers and the dollar base.
Customer retention rates.
I think sometimes.
In fact in the quarter.
So more information.
About the number of customer product and my second question is about.
And the other in column before they go on there.
Has declined almost basic science.
And Japan, and Asia and other regions, so how to compete with them all but it's kind of pegged kind.
Trust income I'll call that customer acquisition channel Oh.
Thank you.
Yeah, Okay for the first question I asked for the our relationship or our cooperation with Tencent like I mentioned Tucson is one of our sort of takes me rosters.
So we are we we we had a lot of synergies with some sense for where you say, let's say business turnaround continues to to offer of alternatives in our industries, such as industrial manufacturing energy governments.
And for our so you save US this like I mentioned so the last question, we signed a strategic framework agreements with two sides in October and within those agreements are we have a different ways to work with Tencent Tencent.
Either sell all products directly to two to the end customers or we can combine our paradox and Tencent cloud our products together and offer a one solution to the customers or we can offer our technology and service Oh.
Products to two says and Oh, well this out to the customers right now there are over 10 million of.
Contract value is either sign or is in the process of being science.
Clooney via the governments or in the cruise industry in the finance industry in the manufacturing industry in the e-commerce industry and so long.
For the second question.
That's where the active customers for a different for the different product lines of our business.
By the end of third quarter, the actual customer numbers over 12000 for the trailing 12 months C pass business has about a 6000 active customers a sister vessel has also about six.
6000 active customers and use them to business has over 100 active customers Oh, we we actually mentioned during the call. The major reason why the the number of customers and also the are the are the nuts are the dollar based net retention rates.
It is a little bit compared to previous quarters is mainly due to was the impact from the education sector and to we we cut off some very small enterprises on purpose. So.
So that's a R. R. R O Oh, our gross margin will be better off.
The last person news regarding our overseas expansion.
We are yes, we right now we have all patients in Japan in Galicia in also in a fairly Paas Oh asked for our competitive advantage in the overseas markets are that right now we don't have the the competition yourself that use the Asia market.
Is not asking to us.
The China market, so our paradox actually pass the advantage compared to our other product offered by by by other competitors in terms of customer experience.
In terms of everything and also we work very closely whereas the telecom operators in the southeast Asia to look for potential opportunities.
We really sell our standard products in the South East Asia market.
And also we actually enjoy a oh, great advantage in terms of pricing compared to the products offered by those are local or other overseas companies in the southeast Asia market a steal.
<unk> has a better gross margin compared to the Chinese market. So those are the advantages we have when we compete in the southeast or in the overseas markets.
Well, Tony I know you guys don't out there he is a guy that's at home.
As you know Neal but into the panel.
Save the town this year and to all of this Oh each year, Oh man, that's yeah sure.
You guys laid out in our system.
Oh man this year that you found me on I guess, the gather locally based on golf gather users had a.
The Gulf War that hadn't been in your favor in the suite.
Okay, She and gummies I'm in.
Yes, it hung in there.
Yeah, Oh man and woman with Guangzhou are doomed to hide as you move through the physical size of food that people are jobless.
We also have another two advantages.
Other founders and South Asia Southeast Asia market, that's restaurant as our price is very competitive I'm not many local vendors are playing and just market in South East Asia. Most of them are most of the services are covered by you all and you asked how many.
And their license and services I felt very expensive, so I'll try and vary.
Sorry.
Patents have comparator there and the second advantage is that we are looking for.
Those enterprises are adult Chinese enterprises, which are also julianna overseas are businesses that we can provide our products to sell something.
Yeah.
Uh huh.
Okay.
Oh that is or the answer further questions.
Come in trying to see I see.
We're good to take the next question or.
Yeah.
Thank you showing no further questions. This will conclude our question and answer session. At this time I'd like to turn the conference back over to alien Investor Relations for any closing remarks.
Yeah.
Once again, thank you everyone for joining today's call. We look forward to speaking with you again soon good day and Goodnight.
Okay.
This concludes our earnings conference call you May now disconnect. Your line. Thank you.
Uh huh.
Yeah.