Q4 2021 CooTek (Cayman) Inc Earnings Call
Good day, and welcome to the <unk> fourth quarter and fiscal year 2021 unaudited financial results conference calls.
Please note this event is being recorded.
I would now like to 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 distributed earlier today and is available on our IR website.
<unk> Dot <unk> dot com and talk to you about youth were on the call today from a co pack or Mr. Karl Zhang Chairman and Chief Technology Officer, and Mr. Robert <unk>, Chief Financial Officer, Mr. Zhang will review business operations and company.
Highlights followed by Mr. Li who will discuss financials and guidance.
Both be available to answer your questions during Q&A session that follows.
Before we begin.
I would like to kindly remind you that this conference contains forward looking statements they've seen the meaning of section 21 Gosh E of the Securities Exchange Act of 1934 as amended. These forward looking statements are made under the safe Harbor provisions of the U S.
Private Securities legislation Reform Act of 1995.
These forward looking statements can be identified by terminology, such as well expects anticipates future intends plans.
I believe estimates confident and similar statements.
<unk> may also make written or oral forward looking statements in its reports filed or furnished to the U S. S. E C. Yeah. Its annual report to shareholders in press releases and the other written materials and oral statements made by its officers directors.
Or employees to third parties.
And if they made that are not historical facts, including three months about <unk> beliefs and expectations are forward looking statements that involve factors risks and uncertainties that could cause actual results to differ materially from those in the forward looking.
Stainless.
Such factors and risks include but are not limited to the following.
<unk> mission and strategies future Thursday last month financial conditions and results of operations.
Expected growth of the mobile internet industry, and mobile advertising industry. The expected growth of 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.
For information regarding these and other risks uncertainties and factors is.
It is included in the company's filings with the U S. S. E C. All of the information provided on this call is current as of the date of this call and <unk> does not undertake any obligation to update such information except as required under law.
It is now my pleasure to introduce <unk>, Chairman and Chief Technology Officer, Mr. <unk> Zhang Karl. Please go ahead. Thank you. Thank you everyone for joining our fourth quarter.
So I'll answer your question.
Earnings call.
We have concluded the year with OE revenue of USD 270 to one minute.
Our non-GAAP profitability for the suite constructive quarter, starting from the second quarter off a tiny tiny one.
Under the current circumstances in relation to the uncertainty in the China advertising market. We are confident that our balanced develop strategy and the secondary flywheel in the in the overseas mobile game segments will continue to drive the sustainable growth of the group.
To enhance our balance to develop the strategy, we optimize our resources and concentrate more on overseas mobile game business.
We cut our Chinese domestic online literature business onto novel.
But into profitability.
The third quarter Oftentimes you have you well.
Meanwhile.
We are diversifying our IP monetization business based on our own original book to increase the revenue and coffee and benefits the content the ecosystem.
We have been incubating reading our overseas online literature apps.
Thanks <unk>.
Based on the tons of progress, we expect really will start to generate profit in April 22 for the group.
And starting from the fourth quarter op target how do you what we performed a series of cost control plan to cut down the overall cost of the group.
Maybe can play.
With all the Alpha we expect that the group will generate meaningful Maxine call. After full year upside you would have been true with operating cash flow tends to be positive in the first half of Oppenheimer.
As a sign of confidence of the confidence in our long term growth and the value of our business.
Now that Iowa purchase up to 3 million U S dollar.
Our companys ADR during the.
During the six month period, starting today after this earnings release.
Firstly it is worthwhile to address our overseas mobile game business.
We have made many breakthroughs in the overseas mobile game business in time you'd have you won that.
Network beauty.
<unk> Rana both casual mobile games have pocket, both U S basketball and the Google play store getting jobs.
These achievements show costs, our data driven content production model, all the sandy RMB and distribution capabilities.
We continue to apply this methodology to many other than pipe.
In particular, the success of less density our mastery thing is a big basketball.
It is our first again, combining interactive salary line, which is composed from online.
Online novel matched weekend buildings.
The top of the list of most downloaded iOS Chinese overseas games in.
December 31.
With two five minute total download.
On Google play directly at the second place on the most downloaded Chinese obviously thing.
The success of this been validated the strong synergy between our online literature and the mobile game business.
Okay.
Loved benefit target female mobile game players.
Based on various proceeds match three game play.
They've added and interactive ramen line, which fits.
With the pursuit of contemporary women's for life Rodman <unk> <unk>.
Great.
Please proceed with lunch left entity received many good reviews and has achieved high user rating of 4.4 dollars nine out of five <unk> and $4.
408 out of five on Google play store.
892, we plan to rollout more match three class interactive is very likely.
What about composed more attractive lines from the novel <unk>, our novel <unk> for overseas market.
In addition, we started to develop vigorously our game population business in overseas market.
<unk> has achieved exceptional success Apis rented as top three on the U S iOS game Chuck.
If it's a casual game developed by Rep drive and the published by mileage our ambassador studio.
We have signed a cooperation agreement with <unk> for third Party studios for population the products in overseas market.
We've developed our game population SaaS platform, which is based on our unique data driven content to put that as a model.
Our content provider.
Confused their content on this platform.
And we provide a comprehensive data matrix to help them if that was the idea.
Great content in their game and the optimized monetization and user acquisition.
Driven by our internal development and external cooperation we believe that the mobile game development and publishing business will grow rapidly in the overseas market and the revenue contribution from the overseas market, we will continue to grow.
During the fourth quarter of 193031 the total.
Total revenue from overseas mobile game business exceeded.
S dollar elaborate you act on it.
<unk> been in U S dollars and necessitate contributed to more than 60% of the revenue.
Secondly for our online literature business, we have been badly consolidated the product approach from two novel in Chinese market and really the overseas market.
And now.
And our current balanced approach, we have been continuous improving.
As the user and the content acquisition and the management's welcomed with novel.
User retention rate and the use of reading time had been consistently improving in any way.
Although the final order and the original contract books also increased by 100% and 113% compared to the same period in 2020.
As a part of our IP commercialization plan, we've reached our cooperation with Tencent video mass project, which aims to support micro drama TV adoption.
A bunch of high quality online literature work bumped into novel have entered into the bidding stage and we'll be ready for shooting a pound.
Completion of the bidding and the.
Coordination with the producers.
We also initiated that.
Dynamic novel shoe drama launching mechanics, while seeking external calculation to maximize the influence and the profitability of it work.
The customized launched launching campaign your social media and other channels have also achieved substantial results.
Okay.
In addition, we happy expanding our monetization channels by launching our social media distribution plan.
We cooperate with kols to distribute our content to relevance and the targeted audience with a pay to read monetization model, which provides a strong complement to our current free to read model.
As a result from two novel currently constitutes a strong and stable raw gross profit and the net income contribution for the group.
In terms of really the online literature app packaging overseas market.
We have been into beauty incubating it in a more tailored approach for the positioning of the product in the overseas market.
The current focus is to further strengthen the user retention rate and our performance.
The current 90 day hour exceeded 100% already.
And we are confident that the.
Perfect. After online this is a business in the overseas market continues to be strong and will start to contribute to profit.
From April <unk> had it true for the group.
To summarize we are glad that we have being mitigating effectively the different level of risks during our business development.
We expect that our profitability will be further improved <unk> had issue with a meaningful net income level to be achieved.
And improve the improvements in the cash flow data and the cash balance.
With that I will hand, the call to Robert our CFO will walk you through our financial results for the quarter. Thank you.
Okay.
Thanks, Paul Hello, everyone. Thanks, again for joining Us Tonight.
I am going to brief our fourth quarter 2021.
Net revenue was $53 million, a decrease of 48% from $102 4 million U S. Dollar during the same period last year the decrease compared with the same quarter of 2020 was primarily due to a decrease in mobile advertising revenues.
Net revenues are mainly generated from three categories of our content rich apps mobile games accounted for approximately 55%.
I'll now, let Richard accounted for approximately 42%.
And scenario based upon an absolute accounted for approximately 2%.
Use of the company's portfolio of products.
$18 5 million a decrease of 32% from $27 8 million in December 2020.
They used the company's portfolio products were $62 6 million a decrease of 27% from $85 8 million.
Number 2020.
Our gross profit margin was 88, 7% compared with 93, 1% in the same period last year and 83, 1% last quarter.
GAAP cost and expenses were about $52 4 million U S dollars.
<unk> up 2% sequentially and a decrease of 57% from the same period last year.
non-GAAP cost and expenses were.
$51 6 million in U S dollars.
<unk> up 2% sequentially and a decrease of 57% year over year.
As a percentage of revenue.
GAAP cost and expenses accounted for 98% down from 119% in the same period last year.
Year over year decrease in operational expenditures are mainly due to the sales and marketing expenses reduction.
Sales and marketing expenses decreased by <unk>.
63% from the same period last year.
The increase of 18% from last quarter.
The year over year decrease in the sales and marketing expenses was primarily due to the transition of the strategy in relation to the acquisition of new users and the returns that are existing users, which resulted in the reduction of the user acquisition costs.
The sequential increase in the sales and the marketing expenses.
Primarily due to the increased investments.
User acquisition in connection with our efforts.
And still grow the user base and was partially offset.
Salary and payroll expenses associated with sales and marketing staff.
R&D expenses decreased by 1% year over year and decreased by 30% sequentially, primarily consist of costs associated with technology R&D staff.
G&A expenses increased by 13% year over year and 15% sequentially.
Question on year over year decreases were mainly due to a decrease in the salary and payroll expenses associated with <unk>.
And also third party outsourcing.
GAAP net loss was <unk> 3 million in U S dollars.
Excluding the impact of share based compensation adjusted net income was approximately 0.5 million U S dollars.
I will now quickly run through a few key full year 2021 financial results further details can be found in the earnings release.
Net revenue was $272 1 million U S dollars.
<unk>.
8% from $441 5 million in U S dollars in 2020.
Online literature accounted for approximately 39% now.
Scenario based content apps accounted for approximately 8% and.
Mobile games accounted for approximately 52% of the total net revenue.
Gross margin was 87, 9% compared with 94, 5% in 2020.
Total cost and operating expenses were $280 9 million U S dollars.
A decrease of 43% from $489 4 million in U S dollars in 2020.
Yes.
Sales and marketing expenses were $200 2 million in U S dollars.
Greece up 52%.
$418 $3 million in 2020.
As a percentage of total revenue sales and marketing expenses accounted for 73%.
Decreased from 95% in 2020.
Primarily due to the continuous transition of our strategy relating to the acquisition of new users and the retention of existing users, which resulted in the reduction of the <unk> acquisition costs.
R&D expenses were $34 4 million in U S dollars and increase of 16% from $29 7 million U S dollars in 2020.
Mainly due to an increase in the salary and payroll expenses associated with technology, R&D staff and third party outsourcing.
As a percentage of total revenue R&D expenses accounted for 13%.
<unk> from 7% in 2000.
Anthony.
G&A expenses were $17 $8 million, an increase of 19%.
From $15 million in 2020.
Primarily due to an increase in salary and payroll expenses associated with the G&A staff professional service fee.
Party outsourcing and.
In listing expenses.
And it was partially offset by decrease in there.
That provision.
As a percentage of total revenue G&A expenses accounted for 7%.
<unk> from 3% in climate climate.
Net loss was $13 9 million U S dollars.
<unk> net loss of $47 4 million in U S dollars.
20.
Adjusted net loss was $10 2 million U S dollars in 2021.
With adjusted net loss of 42 million.
U S dollars in 2020.
At the end of 2021 we had cash cash equivalents and restricted cash of about $18 4 million U S dollars compared with $49 6 million U S dollars as of December 31, 2020.
So operator, we are now ready to take questions.
Okay.
Yes.
Yeah.
Hello, operator.
Can you hear us.
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Pardon the interruption if you wish to ask a question at this time. Please press star one on your telephone keypad. That's star one on your telephone keypad to ask a question, we'll pause for a moment to allow everyone to signal.
[noise].
We will now take our first question.
Steve Your line is open. Please go ahead.
My questions got a few.
So first you mentioned in the commentary some examples of the integration between the online literature and game segments under the unified content ecosystem I was hoping you could provide a little bit more color about how those two <unk>.
Initiatives are expected to come together further in 2022.
Yes.
Okay.
Thank you I will take this question.
This is a great question, some mobile games and on our literature at two major content debentures for us.
Both.
Typical entertainment content business.
Many synergies between them despite value the experience of being different suppressed we fully leverage our data driven philosophy too. Good at these two businesses to believe that the data driven content production is disruptive chew, which additional content protection motto in ended June .
For example, most of the game companies you really incubated new game based on key purses.
<unk> experience and their understanding of the market needs. What we do is to implement asbestos statistics idea evaluation platform.
With comprehensive data metrics to evaluate each idea about is the potential market size type of Gpus.
<unk> profile and ebay ads our eyes.
When successful projects such as.
Tesla beauty, you really come outside actually come out of 50 idea evaluations. So we do similar things for our online literature, we have already made big data driven content protection fast platform available for our Sin novel Odyssey, and our science day content.
Providers.
So this is our core competency.
By integrity team and the developing this you'd make data driven content protection platform platform, we can evaluate this.
And you bought this model and the algorithm behind.
Your factory efficiently and to benefit both.
Basics.
And second on the literature and mobile Sam businesses have strong synergy on comfort level as well so when we kick off our game business back to the end of 2019, we planned cheatwood planted to link this shoe business with content.
So that way composed a story lines based on the hop novels from our normal apps and make them available and is again a lot of empathy is a big step for us.
Because it hits our first the game.
Combining interactive storyline and match three game experience.
Excess of this embedded it is validated for strong synergy between our online literature and the mobile game business.
And we will produce more games with.
Attractive storyline from from ratings.
And potentially prompt on two novel as well.
And we are emerging internal patents related to this business to change from novels two games can make the flow make the flow more efficient. Thank.
Thank you.
Great and.
Thank you for the outlook for our net income generation in 2022 shopping.
Was hoping you could discuss briefly.
The company's flexibility in managing expenses to maintain that outlook, if the macro environment remains challenging.
Yeah Okay.
I'll take this question. So so August there as <unk> consistently mentioned during our <unk>.
Previous earnings calls.
And also this earnings call as well.
We will continue to maintain a reasonable spending.
For the cost and expenses.
And in particular for the for the sales and marketing expenses. We are taught 18 are stable.
70% as of revenue level for the next few quarters.
In particular coupon we wanted to and also we have seen.
Continues a space for improving the efficiency you agency R&D and G&A expenses as well so our.
Harvest for the R&D expenses as a revenue MGM expanded as a revenue or.
Around 10% and 6% for.
For the current year.
Thank you.
Okay, Great and last one for me just if there's any.
Guidance around the pace of new game launches in 2022, whether that might match or stay around the same range that we saw in the second half of 2021 and also just to clarify this is Steve silver from August research. Thanks, So much.
Okay I'll take this question. So we have made I would have made many breakthroughs in the overseas mobile game business intentionally wenzel.
This task work and the truth Ryan asked both casual mobile games have cognate the U S can chat.
These achievements show past, our unique data driven content protection model.
And we continue to apply these capabilities and has been hyped. So for example, lump indices, our unmatched regain copied the list of the most downloaded islands and the islands Chinese overseas games in December 2021 .
And on Google play is granted in the second place as well associated attendance success without it to develop a vigorous T. Our game publishing business in the overseas market.
And we have already released our hottest in potash.
Artist.
And which is exceptional success Hep is rented and top three on the U S. A game chat.
And it is actually a casual game developed by RASK driver and the published fast.
So part Huntington to we expect to accelerate the pace to launch new games by the following factors. The one we have signed over 12.
12 hour Dolby content, if it's going to game studios with our capitation business and we developed our game ambition SAP platform already which is based on our unique data driven content production model and we are our content provider will produce the content on the platform and we provide a comprehensive data.
Ah metrics to help them your batteries the ideas evolving content in their IV ashamed of games and the optimized monetization on mobile users. So we believe this approach to enable our partners.
Well help us to scale out our new game release and form a more calm competitive content ecosystem.
And we have three games almost ready to go and we expect the mall.
Some of these accomplished model in the coming quarters.
And lap entity and the big step one.
Because it is our fluids the game combining interactive.
Your line and the match three game experience.
So the successful under the cap of this game validated the strong synergy between our online literature, and the mobile game business and the way, we all export and compose more attractive storyline from be hot Novelis upgraded.
Our novel <unk> from overseas market and internal 92, we plan to roll out more mastery class Interactive story line games I think ANV.
In Indiana the state in the course of this year USD, another one coming out.
Another match three game as well and the weeks, we are expecting more in the second half of it. Thank you.
Yes.
Okay.
As a reminder to ask a question. Please press star one we will now take our next question from Vivian Zhang from Diamond Equity Research. Please go ahead.
Hello. My first question is about the game the idea that they'll be marketing, we know that now in a chance of one of them and have launched a lot of high downloaded game for.
And to account, including catalog of Vod, and Nous N Z. So how they work with third party studios to ensure they deliver successful gains and generate significant you have Neil.
My seven classrooms that were the continued hardening of Chinese government policies on the Internet and gaming in downstream.
Back to the Companys sales out of that and the industrious pass back. Thank you.
Yeah.
Thank you for your questions I would take both of them. So.
First question is about our a game studios erratic and studios and and as I mentioned, we fully leverage our user data our data driven philosophy to build up our business. So we believe that the data driven content protection is disruptive to traditional constant production model.
We have already implemented our data driven content protection and the publisher service as a SaaS platform and beauty in all our data matching user growth engine monetization and optimization.
And the related <unk> with them about content protection and the distribution ended SaaS platform.
All our invested securities and now assigned game content providers.
Have access to the SaaS platform.
In this way, we enable our partners ensure their success to establish a healthy content ecosystem.
And if it comes up the second question is about the Chinese governments policy. So I don't think I'm in the indirect positioned to comment or predict the government's policies, but the macro in economics, especially internet advertising on demand side is relative.
Three weeks into the third quarter of 2021 being Chinese domestic market.
So I think this is correlated.
Correlated to government's regulation, which I think.
Some of them have positive long term benefit to the industry.
And there are still uncertainties about the Chinese domestic mobile game regulations.
But as I mentioned to enhance our balance to develop on the strategy, we have optimized our resources and the concentrate more.
I'll now overseas business.
Actually overseas mobile games.
We've made a bunch of critical breakthroughs in be overseas mobile game business and we are targeting all our new game project to overseas market.
And the pipeline is solid for the coming years.
And we have been incubating readings, our online novel apps for the overseas market. It has made phenomenal progress in the world back to contribute profit to the group from April 'twenty 'twenty truly believe.
Thank you.
Yes.
Okay.
Thank you.
Okay.
As a final reminder to ask a question. Please press star, one where pulse for a moment to allow everyone to signal.
Okay.
Okay.
Okay.
As there are no further questions at this time I would like to turn the conference back to your speaker for any additional remarks.
Thank you operator in closing on behalf of the entire management team of cortex, we elect to thank you again for joining this conference call today if.
If you have further inquiries in the future. Please feel free to contact us at IR at <unk> Dot com or our core tech at ICA Asia Dot com. Thank you.
Thank you.
Thank you Kash, we'll conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.
Yeah.
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Yes.
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