Q3 2021 CooTek (Cayman) Inc Earnings Call

Good day and welcome to the <unk> third quarter 2021 when all of his financial results Conference call. Please note. This event is being recorded I would now like to turn the conference over to ICR Investor Relations. Please go ahead.

Thank you operator, Hello, everyone and thank you for joining US today, our earnings release was distributed earlier today and is available on our IR website at IR <unk> com and on PR newswire on.

The call today from cortex are Mr. Karl Zhang.

Chairman and Chief Technology Officer, and Mr. Robert Cherry Chief Financial Officer, Mr. Zhang will review business operations and company highlights followed by Mr. Li who will discuss financials and guidance. They will both be available to answer your questions.

Q&A session that follows.

Before we begin I would like to remind you that today's conference contains forward looking statements they've seen the meaning of section 21 Dash E of the Securities Exchange Act of 1934 as amended these forward looking statements are made under the safe Harbor.

<unk> of the U S. Private Securities Litigation Reform Act of 1995. These forward looking statements can be identified by terminology such as well.

Ex that anticipates future intends plans believes estimates confident and similar statements.

<unk> may also make written or oral for forward looking statements reports filed with or furnished to the U S. SEC Yeah. Its annual report to shareholders in press releases and other written materials and oral statements made by its officers direct.

Her or employees to third parties.

Any statements that are not historical facts, including statements about Kodak sleep and expectations are forward looking statements that involve factors risks and uncertainties that could cause actual results to differ there.

They differ materially from those in the forward looking statements.

Such factors and risks include but are not limited to the following <unk> mission and strategies future business development financial conditions and results of operations the expected growth of the mobile internet industry and mobile advertising industry.

Great.

<unk> girls off the mobile advertising expectations regarding demand for and market acceptance of the company's products and services competition in the mobile application and advertising industry and relevant government policies and regulations relating to the industry.

Further information regarding these and other risks uncertainties and factors is included in the company filings with the U S. S. Easy all information provided on this call is current as of the date of this call and cool tax does not undertake any obligation to update.

Such information, except as required under law. It is now my pleasure to pass the call to Mr. Karl Zhang Chairman and Chief Technology Officer of Kodak Karl Please go ahead.

Thank you everyone for joining our third quarter.

Earnings call.

We have reported our third quarter 'twenty one without.

With net revenue.

51, 1 million U S dollars.

And note that you can call up <unk>.

4 million U S dollars.

I have consistently mentioned, we happy implementing two well development strategy focused on.

The literature and the mobile game segment.

The balanced approach between growth and profitability has been partially impacted by the persistent uncertainty in the Chinese domestic advertising market, but we remain focused on the achievement of the group level profitability.

In addition, we have rapidly increased our exposure in the overseas mobile games and online literature headwinds.

And the revenue contribution from this business was 17% in the third quarter oftentimes at 91 compared to 12% in the second quarter of 2021.

We expect that the revenue contribution from our overseas business well continue.

Sure.

As a special note, while our mobile games business, the continuous optimization of our product portfolio and pipeline, resulting in a stable contribution to the overall.

Profitability of the group.

In the third quarter up 21.

Hi, Pat how are you investing the same studio launched the truth Renner and that's a typo or gain following the leader.

Indeed.

Catwalk beauty.

With interest.

She was running a copy the U S I O S shocks.

The other expected match three game lots, Tennessee has also started to gain momentum in the App ranking.

Hey enrichment of the match three games were also supports the increased lifecycle of the product, which can help increase the scale of the revenue and net income of the mobile games business.

Yeah.

We're also encouraged by efficiency achieved achieved in the development of the new mobile game product.

We've developed and the population of 14, new mobile games in the third quarter of call. It 91 and has a pipeline of 15 to try to gain in the fourth quarter oftentimes is underway.

And we have secured a relationship with more than 23rd party to provide the population and the operation service.

We are continuously dedicated to increase the scale of this third party game publishing business.

Coming back to our online literature business, well condo novel, a free online literature product in the Chinese market.

It constituted a.

Stable contributor to the revenue and the gross margin of the book.

With the continuously improving increasing find the author and original content. The book we have.

We can keep and engage in an active platform for our users.

Yeah.

In the third quarter up 2031 from two novel has launched a new unlike community for book lovers well.

Rita.

I cant comment on novels, and author can get instant feedback on their work.

This new community, where both the other creativity and the reader engagement.

And the further.

Does it create momentum to the development of new novel content ecology.

Building a high quality cause of ecology had been the primary goal of someday novel.

Since the beginning of the year don't do has further improved its novel quality and the reader engagement by hosting a series of Crazy, if you bet, including context.

All right.

Graham and new media content patients.

At the same time, we have been moving forward the IP operation business with licensing ebooks audible book production and the shut drama production.

The revenue from the IP business, a homebrew online literature platform recorded another 165% quarter over quarter growth in the third quarter.

Have you thought it was.

Well well overseas online literature product.

The business fundamentals have been consistently improving.

In addition to the expansion into southeast Asia, and the North African market.

And the user engagement level in the U S market.

<unk> demonstrated very positive improvement.

We are confident that the product will become the next the growth driver of the group.

Okay.

Most recently.

We haven't announced our initial men have us in the end and that's and that's T plan and fourth and in tunnel work group to study and to implement such a pack.

Our medical plan takes full advantage of our two dominates business.

Literature, and the gaming two great new World of Entertainment.

On the one hand.

Our online literature apps have produced the quality original content.

Which in which numerous exceptional novels emerging from different categories, such as San Jose War, and the science fiction.

The immersive experience provided by this work is essential to the creation of the metaverse.

We can also cocainize the original digital books and the visualized.

Virtual items off the books, such as weapons and dresses to be in that piece.

Allowing those and that piece to be collected and traded both within and outside of our apps.

On the other hand.

Fastback global operation and the distribution capability.

And labeled as the largest other chat toppling games, including catalog beauty and truth Rana.

With the emergence of met members, we are well positioned to leverage its strengths from this two business to create synergy.

As we integrate the two businesses to construct our own metal box ecosystem.

Boundaries between novels and game well gradually much to create a unique user experience of reading a novel and playing games.

Readers can interact with the aggressive and other readers in the form of games with the possibility of adjusting their rules.

Appearance skills and the problem.

All of these special items can be turned into and that's teeth, allowing users to take that into other star rewards for continuous usage.

We are confident in creating such a high highly immersive met of us.

Going forward, what about used our best in future endeavors.

And that was to execute our strategy strategic roadmap in building, our content rich and the youth oriented equals it.

With that I will hand, the call to Robert our CFO, who will walk you through our financial results for the quarter. Thank you.

[noise] Andrew called.

Hello, everyone.

Thanks, again for joining us Tonight.

Two brief our third quarter of 2021.

Net revenues were $51 1 million U S dollars, a decrease of 52% from $105 7 million U S dollars. During the same period last year and a decrease of 39% from 83.2 million U S. Dollars you want me to last quarter the.

The decrease compared with the same quarter of 'twenty 'twenty was primarily due to a decrease in mobile advertising revenues.

The net revenues are mainly generated from three categories of our content rich apps.

Mobile games accounted for approximately 56%.

Literature accounted for approximately 39% and a scenario based content apps accounted for approximately 4% of total revenues.

You yourself the company's portfolio of products were $18 7 million a decrease of 32% from $27 7 million.

September 2020.

Use of the company's portfolio of products were $57 2 million decreased from $94 8 million in September 2020.

You yourself the company's online literature products were four 5.0 million decreased from 10.0 million September 2020.

And then yourself the companies on a literature products were $13 5 million decreased from $29 5 million in September 2020.

The average daily reading time off the tea product home doing all those users.

Approximately 153 minutes in September 2021, which remained stable compared with 153 minutes in June 'twenty or 'twenty one.

Our gross profit margin was 82, 2% compared with 93, 6% in the same period last year and 89, 4% last quarter.

Cost and expenses or about $50 1 million U S dollars.

So 39% sequentially and a decrease of 61% from the same period last year.

Sales and marketing expenses were $28 7 million U S dollars, a decrease of 73% from the same period last year and a decrease of 52% from last quarter.

As a percentage of total revenues. So it was an themselves and the marketing expenses accounted for 56% compared with 102% during the same period last year and 72% last quarter.

The sequential and year over year decrease in the sales and marketing expenses as a percentage of total revenues was primarily due to the continuous transition off the strategy.

In relation to the acquisition of new users and the retention of existing users, which resulted in the reduction of the user acquisition costs.

R&D expenses increased by 12% year over year and decreased by 5% sequentially the sequential.

The decrease was primarily due to a decrease in salary and payroll expenses associated with technology, R&D staff and share based compensation expenses and was partially offset by increase in third party outsourcing feet deep.

The year over year increase was primarily due to an increase in salary and payroll expenses associated with technology R&D staff and it was partially offset by decline in share based compensation expenses.

As a percentage of total revenues R&D expenses accounted for 18% compared with 8% during the same period last year and 12% last quarter.

G&A expenses increased by 8% year over year, and a decrease of 18% sequentially.

Sequential decrease was mainly due to a decrease in listing expenses and bad debt provision and was partially offset by a rise in share based compensation.

The year over year increase was mainly due to an increase in salary and payroll expenses associated with the G&A staff and the bad debt provision and was partially offset by decline in listing expenses and professional service fee.

As a percentage of total net revenues.

<unk> expenses accounted for 8% compared with 4% during the same period last year and 6% during last quarter.

Net loss was zero point Formula U S dollars compared with net loss of 22.

<unk> zero million U S dollars during the same period last year and a net income of <unk>.

<unk> 3 million U S dollars last quarter.

<unk> net income was zero point formula in U S dollars compared with adjusted net loss of $20 5 million in U S dollars in the same period last year and adjusted net income of $1 1 billion in U S dollars last quarter.

Sequential decrease of profitability compared with the adjusted income last quarter was mainly due to the decrease in revenues the achievement of profitability compared with the adjusted net loss for the same quarter last year was mainly due to the decrease in the sales and marketing expenses as a percentage of total revenues.

Driven by the continuous transition of the strategy in relation to the acquisition of new users and the retention of existing users.

As of September 32021, we had cash cash equivalents and restricted cash of about $36 2 million in U S dollars compared with 39.0 million U S dollars as of June 32021.

Operator, we're now ready to take questions.

Thank you.

I would like to ask a question. Please press star one on your telephone keypad. Please ensure the mute function on your phone is switched to also know your signal to reach our equipment.

Again, Please press star one to ask a question.

We will take our first question from.

Steve Silver from Argos Research. Please go ahead. Your line is now open.

Thank you and thanks for taking the question and congratulations on the recent meta versus announcement met.

I had a quick question about your thoughts on the impact of the meta versus our initiative in terms of the R&D behind it or the the operating costs behind that and how the launch of this new strategy.

We'll work in conjunction with the previously announced plans to balance growth with profitability and just whether the meta versus changes you're thinking along the along those lines. Thank you.

Okay. Thank you I would take these two questions.

So the recently announced Matamoros and M. S T plan.

<unk> does not constitute a change in the existing business.

And also are in relation to the financial strategies, we will keep our balanced approach between growth and profitability.

By the recent uncertainties in the Chinese mobile advertising markets, which impacted the revenue growth off the group. So we started to concentrate on products with long product cycles and high all eye performance in the Chinese market and we expanded our exposure in the mobile games and online literature.

<unk> in the overseas market.

Which supported the continuous achievement of several several profitability.

So this a new matter rose and F. T plan is a natural strategic move to fully utilize our resources in the IP original contract Bush and mobile games aiming at the execution of the faulty synergetic business combination involving long term massive.

And then S. T vision. So we started to form as mentioned and the internal work group to reevaluate the reasonable action plan and we believe that our current core business segments offer significant potential to extract the value in relation to my diverse and then F. T. However in the short.

Term, we don't expect significant R&D.

R&D expenses to implement such a plan.

As a long term and a strategic path with further development of the existing business model. Thank you.

Okay. Thanks for that color.

We will now take the next question from Vivian Zhang from Diamond equity research.

Okay.

Yeah.

Good evening. This is that they then from Diamondback with U S. H. So my question is also regarding your newly announced.

Can you give us some more color on this new business model and your God did you Brett. Thank you.

Thank you and I'm going to take this one.

Yes, we have been implementing our two wells developing strategy focus on literature, and mobile segments to build up our pen entertainment ecosystem. So the trustee has achieved significant results in both the domestic and the elephant.

And so we will stick with this strategy continue to invest and grow in the global online literature, and the Hoboken segment, and our new rig build met over plan is actually a part of this strategy.

But there is a natural connection between online literature gave me and the Med Atlas.

All of those creates virtual virtual woods, and the salaries and or sometimes even the woodville, which can be for the visualized through gain and use it well.

Be able to interact explore trade and living such virtual setting.

So the high level of emotion and the.

All around an open social structure created by the novel based again consistence with the core concepts of met of us.

So as could have to integrate the two business two constructed all metals our ecosystem.

You're right between novels and the data that we all graduate a much two combined user experience of reading a novel and playing games.

So read as kind of interacts with the corrector and other readers.

In the form of a game with the possibility of adjusting their loss appeal and the skills and the prop. So all of these virtual items that will be we'll be in that piece and allowing users to treat and pick them to other Hollywood. So let me give you. An example of how we visualized and <unk>.

And on a novel Chew Unlike eight.

Our new heat match three game loved Tennessee is obtaining very strong growth momentum and recently at his top three ranking position on both Google and Apple or Google play and absolutely in U S. So actually this innovative and interactive game if storyline is.

From an online novel.

It is a testament to link novels with gains and the possibility to construction and unique met of us.

And then on the other hand, we are also looking into the potential disrupt that's N E and F T could bring to the entire constitute our industry. So we believe that and that he brings new opportunities for us to to benefit our content ecosystem and expand the monetization.

So our internal metal working group is incubating, a product, which cocoa life digital books and the visualized.

Virtual items off the books, such as the justice crop weapons castles and so on so on and so forth. So readers who are fascinated by the book you get a chance to collect and treat those and in that piece.

So this and that piece will be tradable Worthing outside off all apps.

So as long as the book gets more and more popular and that Pete how does enjoyed the appreciation.

One day, a new gate is produced on top of that the salary. The books storyline. They can bring the N F piece to the gate to play entry.

So with the emergence.

None of us.

We believe that we are well positioned to leverage our two dominated business to create synergy and expand our success.

Thank you.

Okay.

Thank you for additional detail that's all my questions.

Okay.

Okay.

There are no further questions on the phone at this time.

Okay.

Yeah.

Thank you operator in closing on behalf of the entire management team.

Okay.

We would like to thank you again for joining US today. If you have further inquiries in the future. Please feel free to contact us at IR at <unk> Dot com.

Cool attack at ICA Asia Dot com. Thank you bye bye.

Yeah.

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Yeah.

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