iClick Interactive Asia Group Limited
Q3 2021 Earnings Call Transcript

Published: 30 Nov 2021

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for iClick Interactive Asia Group Limited, Third Quarter 2021 financial results conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Lisa Li, Investor Relations Director. Lisa, please go ahead.

[Lisa Li:]

Hello, everyone; and welcome to iClick 's Third Quarter 2021 financial results conference call. The Company's results were issued earlier today and are posted online. You can download the earnings press release and sign-up for our distribution list by visiting the IR section of our website at ir.i-click.com. In addition, during the call, management will give their prepared remarks in English. During the Q&A session, we will take questions in both English and in Mandarin, and a third-party translator will provide consecutive translation. All translations are for convenience purpose only. In case of any translation discrepancy, management's statement in the original language shall prevail. Jian Tang ''TJ '', Chairman of the Board, Chief Executive Officer, and Co-Founder of iClick will first provide a high-level review of the third quarter 2021 results and share his thoughts on our execution strategy ahead. Chief Financial Officer, Terence Li, will follow and give us additional insight on the financial results for the third quarter and provide guidance for full year of 2021. He will then turn the call back over to TJ for closing remarks before the call is opened for Q&A. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the Company's 20-F as filed with the U.S. Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that iClick 's earnings press release and this conference call include discussions of un -audited GAAP financial information, as well as un -audited non-GAAP financial measures. iClick 's press release contains a reconciliation of the un -audited non-GAAP measures to the most directly comparable un -audited GAAP measures. I will now turn the call over to our Chairman of the Board, Chief Executive Officer and Co-Founder, Jian Tang, TJ, please go ahead.

[Jian Tang:]

Thank you, Lisa Li. And welcome to the call, everyone. Our third quarter performance was marked by continued exceptional Enterprise Solutions growth, and a modest growth in our Marketing Solutions business. iClick 's Enterprise Solutions business has achieved impressive eighth consecutive quarter of record revenues, growing 131% year-over-year to $20 million. We are encouraged by this performance, which continues to demonstrate the consistently growing demand for private domain traffic and online and offline integrations. Our Marketing Solutions revenues for the quarter grew 11% year-over-year to $67 million, which was a deceleration from prior quarters. I want to first emphasize that the challenges we faced in this third quarter in our Marketing Solutions business were not unique, as we have observed this as an industry-wide phenomenon with our key partners and peers having likewise reported similar performance and outlook due to impact from shifting regulations and the uncertain macroeconomic environment. Having said this, we remain confident in the long-term growth of China's digital advertising industry and are evolving to adjust to the changing market conditions. During the quarter, we adopted a strategy to balance sales growth and a profitability in order to maximize the long-term client retention. With this, we believe that our robust and diverse client portfolio puts us in a strong position to benefit from the eventual market recovery. By contrast, the demand for private domain traffic remains solid and we continue to capitalize on this trend through investment in our Enterprise Solutions business and a robust execution strategy. Our leading industry solutions, coupled with our growing loyal client base, are driving healthy revenue growth, while offsetting volatility in the advertising environment among our branded clients. The uncertain micro-environment may result in a wider impact across business sectors in China. And we expect our Enterprise Solutions. We are not the exception. That said, we have continued to invest in sales and marketing and R&D to support our relentless devotion to developing innovative products and further expanding our market share within the account clients. In light of the demand from branded clients for fully integrating private domain traffic solutions that go beyond SaaS. We will also devote more resources to developing our enhanced SaaS Plus model, which we believe will prevail over a few SaaS solutions in China. That technology and the market dynamics have been changing rapidly in China, and SaaS, we believe our SaaS Plus model, which also covers intelligent industry methodology, and the 4-channel operations service is more suitable for helping brand clients to unlock the market potential in the region. We believe that these investments will yield high returns as micro-environment recovers. While we cannot forecast the timing of the recovery, we are committed to our long-term strategy and will continue to work closely with our clients and our partners to leverage our leading industry solutions within Enterprise Solutions. I would now like to share with you 2 exciting client case studies that demonstrates the growth engines fueling our ongoing success in Enterprise Solutions. Our recent partnership with the renowned French beauty brand, L'Occitane, exemplifies iClick 's ability to tailor cross-border smart retail solutions. We utilized our iSmartGo solution to launch our O2O -focused WeChat Mini Program called L’Occitane Travel Buddy that enables travelers to connect with brick-and-mortar duty-free stores, SaaS providing them access to a wide range of products they otherwise would miss and driving sales growth for cosmetics within China's growing domestic travel retail market. It also paves the way for L'Occitane to boost revenues from duty-free stores throughout the entire APAC region to serve Chinese outbound travelers as international travel restrictions are lifted. We also look forward to leveraging the modules we have developed for the travel retail industry to provide customized solutions for additional clients in the region. In addition, iClick helped CN Logistics, a Hong Kong listed Company, to launch its first mini program providing quality wine products and successfully helped them tap into the enormous market potential of cross-border e-commerce. In the future, we expect to generate further damages with CN Logistics beyond the current collaboration, utilizing CN Logistics expertise in the global logistics solutions to add more value to our current integrated Enterprising and Marketing Solutions. As you know, iClick has formed a number of partnerships that allow us to deliver valuable full-stack Customer Solutions for clients and also generate strong cross-selling opportunities with high-profile multinational brands. We will continue to leverage these valuable partnerships to capitalize on the digital revolution sweeping China. These impressive successes demonstrate our replicability, scalability, and the flexibility in utilizing iClick 's off-the-shelf products and our experience in tailoring solutions to meet the individual needs of multinational clients to expand both online and offline market share in China across new undergrowing sectors. In addition, we are proud to report several awards received during the quarter that recognized iClick 's outstanding accomplishments and our strong efforts. Among the awards received are 2, I believe, merit special mentioned including an award for E-commerce retail in the 2021 Hong Kong Business Technology Excellence Awards, which honors outstanding companies that made exceptional contributions in pursuit of technological innovation. We also received the Best Buy Side Team award, highly commended by the Drum Awards for digital advertising APAC, which highlights the very best of digital media and technology that sits behind the world's most effective campaigns just to name a few. We are very proud of this outstanding industry recognition, and we'll work hard to continue driving excellence in all we do. Before I end my opening remarks, I want to reiterate that we are encouraged by the continued outstanding growth in our Enterprise Solutions and remain vigilant in preserving our market share in Marketing Solutions. We also continue to be encouraged by our iClick ers ' deep commitment and we appreciate the continued support of our loyal shareholders. This concludes my opening remarks. And I would now like to turn the call over to our CFO, Terence Li, to discuss the third quarter financials. Terence?

[Terence Li:]

Thank you, TJ. Hello, everyone. I'm pleased to share with you our financial performances in the third quarter of 2021. Our third quarter finance shows improved record results for Enterprise Solutions for the eighth consecutive quarter. Let me briefly walk you through the key financial figures. Revenue for the third quarter of 2021 grew to $86.8 million, up 26% from $68.9 million for the same period of the power year, attributable to the increase in contributions for Marketing Solutions and Enterprise Solutions. Revenue for Marketing Solutions grew to $66.6 million for the third quarter of 2021, up 11% from $6.1 million for the first quarter of 2020, primarily as a result of growing market demand from specific Asian marketing campaigns. Revenue from Enterprise Solutions was $20.3 million for the third quarter of 2021, up approximately 131% from $8.8 million for the third quarter of 2020, primarily due to the increasing bids for online and offline consumer behavior data integration and digital transformation. Gross profit for the first quarter of 2021 was $21.7 million, representing 8% increase compared with $20.1 million for the third quarter of 2020 mainly due to contribution from higher margin Enterprise Solutions. As of September 30, 2021, the Company had cash and cash equivalents, time deposits, and distribute cash of 20 -- of $96.7 million compared with $94.5 million as of September 31st, 2020. For the rest of my discussion, I will focus on our non-GAAP results. You can find reconciliations of these non-GAAP results in the press release we posted earlier today, which can be accessed at our Investor Relations ' website. Adjusted EBITDA for the third quarter of 2021 was $3.6 million compared with $4.7 million for the third quarter of 2020. Adjusted net income for the third quarter of 2021 was $0.8 million compared with an adjusted net income of $2.4 million in the third quarter of 2020. For reconciliation of the Company's adjusted EBITDA and adjusted net income loss its most comparable GAAP measure, please refer to an audit reconciliation of GAAP and non-GAAP results. Gross billing was $195.4 million for the third quarter of 2021, representing a 17% increase compared with $167.1 million for the first quarter of 2020. The increase was a result of increasing marketers demand that's actually from the fashion, foods and beverages, premium and luxury sectors. Overall, the financial components in the third quarter continues to be positive despite the slower growth in our Marketing Solutions sector, which is, as TJ has indicated, is largely due to macro conditions in China and appears to be . For further information, please see the detailed recap of other financial metrics in the past release we issued today. I would now like to conclude my remarks with our outlook for full year of 2021. We have maintained our 2021 guidance and change. We have total revenue ranging from $318 million to $338 million and revenue from Enterprise Solutions falling in in the range of $62 million and $68 million. Please note that our outlook for revenue is based on current market conditions and reflects our current gauge of the COVID-19 pandemic impact. These assumptions are subject to change. With that, I'll now turn the call back over to TJ for closing remarks.

[Jian Tang:]

Thank you, Terence. Our data-driven solutions are clearly driving scalability and sustainable growth, and the cross-selling opportunities we are seeing from our existing marketing solutions and through multiple partnerships continue to fill strong growth opportunities despite the challenges of the macro-environment. We remain proud of our performance throughout 2021 and believe this growth will continue even if at a slower rate than experienced in the first half of the year. We are confident that our core value proposition for brands and our innovative SaaS plus approach will be among the cornerstones for our ongoing growth. We also remain optimistic for continued strong growth in our higher-margin Enterprise Solutions segment. We will continue to pursue a balanced approach to retaining clients and cure advertising demand rebounds in our Marketing Solutions segment. Always we'll eye toward continuing to improve the overall profitability of the Company. I wish to thank all of our key stakeholders, partners, clients, and the shareholders who see what we see in iClick. That is, the promise for a very bright future, the promise of delivering true innovation against the backdrop of the digital transformation overtake in China. We remain focused on executing our clear strategies to weather these changing dynamics and are confident that we are pursuing the correct path. To all our devoted iClick ers who help us to deliver excellence every day, I say thank you to each of you for it is with you that our success surely rests. Thank you for your continued support. This concludes our prepared remarks. Thank you for joining us on today's call. We will now open the call to questions. Operator, please go ahead.

[Operator:]

Now begin the question-and-answer session. For the benefit of all participants on today's call, if you are a Mandarin speaker, please raise your questions in Mandarin and then immediately repeat your questions in English. Please limit your questions to only one each time. The first question is from Nelson Cheung of Citi. Please go ahead.

[Nelson Cheung:]

So let me translate myself. So first, thank you very much for taking my questions. My question is on Marketing Solutions and it's about your outlook into the fourth quarter, and to whether you believe that the worst situation is already behind us or we're going to face -- we're going to face greater uncertainty in the future, and which verticals will be impacted more severely? And then my second question is about the Enterprise Solutions, just wondering given the rise of other big players like Tencent and Baidu on their SaaS development, what do you think about the latest competitive landscape in the market? Thank you.

[Jian Tang:]

[Lisa Li:]

This is TJ. Thank you, Nelson for asking questions. I'd like to take your first question about Marketing Solutions as well as the outlook of the entire advertising industry. Short-term speaking, that is in Q4 this year and the first 2 quarters of next year, I believe the advertising industry will still be affected by macro - economy. We are tightening regulations in some industries, as well as the resurgence of the pandemic. Short-term speaking, the advertising industry will be put under some macro pressure. And therefore, in the next following quarters, the entire advertising industry will remain weak. And actually, our view is in line with the market players in this industry as well as some of our media partners. And as to our advertising business, our advertising business, many target key account clients who have very solid financial positions and in addition, our Marketing Solutions has a client that was divide in different industries. Therefore, in the face of the changing -- challenging market environment, we will be resilient enough to adjust our client mix, or -- and strike a balance between growth and the profitability. We can choose to increase profitability short-term or we can choose to sacrifice profitability to gain market share so that when the market rebounds, we will be able to actually make better returns. Then, we will also continue to pay attention to new forms of advertising in the Marketing Solutions business such as KOL and short-form videos, which I believe will help our Marketing Solution business in the future. As to the long-term outlook of the advertising industry, that is in the next 1 or 2 years or even longer, we are still optimistic about the digital advertising industry in China. We really thought the digital advertising has a great potential here.

[Jian Tang:]

[Lisa Li:]

As to your second question about the competitive dynamics in the Enterprise Solutions business, our view is that the SaaS industry in China is still at its early stage of development and this market is still very decentralized. Different suppliers have been exploring different business models and the Enterprise Solutions business actually is a huge market. Since we've launched the Enterprise Solutions in 2019, we have been targeting key accounts clients. We have been helping them by providing them with SaaS solutions as well as operation services, that is the SaaS -Plus model, and so as to help our clients adapt to the new media ecosystem in China. New media here refers to WeChat and other social media or other KOL and any other online celebrity ecosystems. And for key accounts clients or the big brands, by providing them with SaaS solutions operation services, we can help them to identify new opportunities in the new media environment. So I think that we have a clear target customers and we have well established our Enterprise Solutions strategies. And based on our years of development, we've found out that there are quite a lot of opportunities in the Enterprise Solutions market. And for the big brands, actually it is very difficult for them to grow further on the e-commerce platform, but on the WeChat, on the KOL or other live streaming platforms, they still have more opportunities to grow. Just so by using the Enterprise Solutions as well as the operation services, the big brands will have a greater opportunity to grow in the future. And I think that our Company has great competitive edge in this sector because we have years of experience serving key account clients and we have a great data analytics and the consumer insights, we offer both SaaS products and operations services, and we also can customize solutions for key account clients, and we also have thousands of Marketing Solutions clients who we can cross-sell or up-sell products to them. And so I think that -- you also mentioned that some tech giants such as Tencent and Baidu are also launching their Saas solutions. Our view towards that is that the Enterprise Solution market is big enough and we actually target different customers, we use different service models. And many of our SaaS products are already included in the change of plan of Tencent and have been deployed on Tencent Cloud as to serve the clients of Tencent. So for key account clients, what they need is not only SaaS products, but also operational services. In this regard, I think there are more opportunities for us to cooperate with Tencent and other tech giant than competing with them. So this is our position.

[Nelson Cheung:]

Thank you.

[Operator:]

The next question is from Thomas Chong of Jefferies. Please go ahead.

[Thomas Chong:]

I would translate myself. My first question is, how do regulations on data privacy and the viewership of will impact our advertising business? And my second question is about the update on cooperation with Baozun? Thank you.

[Jian Tang:]

[Lisa Li:]

Okay. Thank you for your questions. And the first question is about the TITL and the data security. I think compared with the last quarter, there are no big changes. And China now is tightening the data regulation and long-term briefing, I think it's good for the healthy development of the entire industry and I also -- I think that the purpose for tightening regulations is to eliminate those gray or some dark -- illegal practices in data transactions, which actually has hurt the entire industry. And our Company has always been compliant in collecting and using data. We have been -- we have already received Level 3 certification in information security, which is the highest certification that can be given to non-banking institutions and to its impact on advertising industry. Yes, the will have some impact on the advertising industry. It means that the media needed to provide options to consumers, and let consumers to decide whether they agree to authorize the advertisers to use this information in their advertisements. And short-term speaking, it may affect the advertising precision, but long-term speaking, I don't think that it will actually affect the brand's demand for online advertising. And I think that it actually will lead to a new balance, and as long as people have figured out how to better use data. In addition, sometimes when customers opt-out this option, they found out that they still receive advertisements, so probably they will opt-in later. So we need to wait and see. And as to the data security, both our Marketing Solutions and Enterprise Solutions targeting to be customers, not to see. So we don't directly collect data from customers, instead we collect mask data from advertisers and the media and the data partners. And for Marketing Solutions, the data we've collected is non - PII data. That is, data cannot identify the identity of consumers, we use some virtual symbols and use our algorithm to place advertisements. And we've checked the current laws and regulations and these are not actually forbidden or regulated according to the latest law.

[Jian Tang:]

[Lisa Li:]

Well, second question is about the -- our cooperation with Baozun as I also mentioned previously, Baozun is an important partner of iClick and our cooperation meaning lies with WeChat ecosystem that is to help a friend to increase their private domain e-commerce. And both companies have leveraged our advantages in providing the omnichannel private domain solutions to clients. Currently, our cooperation is underway, and we have dedicated teams on both the sides to jointly serve customers. Previously, with the release of We've actually as well as Baozun 's warehousing and logistics capabilities in serving the entire lifecycle of our customers, including the WeChat ecosystem to the delivery of e-commerce. And we are also jointly serving some other customers. These customers are a big and they have very stringent authorization policies. So we cannot disclose now. And -- but we think about that there is -- there are great opportunities to cooperate with Baozun in serving the key account clients. And also it takes some time for both companies to integrate technologies and services. And now we are working with other partners too, for example, through Parllay, an acquired products of us, we have been working with HubSpot to providing overseas customers with WeChat solutions. And we have been also building a cross-border e-commerce for CN Logistics. We are at the same time using the cross-border logistic capabilities of CN Logistics in serving our customers. And also, they are some cross-selling between our Marketing Solutions and Enterprises Solutions customer base. And these kind of cross-selling has helped us to actually convert more customers into the Enterprise Solutions customers. So this is my answer to your question.

[Operator:]

The next question is from Brian Kinstlinger of Alliance Global Partners. Please go ahead.

[Brian Kinstlinger:]

Okay, great. Thanks for taking my question. Can you talk about the surprising gross margin pressure, especially with a much stronger mix of enterprise revenue? Is this the new baseline? And how long do you think it'll take to recover back that 29% range? And then my second question is. You mentioned, you are maximizing long-term retention. What are those steps you're taking and what is the incremental expense and will that increase, decrease, or flatten out going forward, that spend? Thank you.

[Terence Li:]

Hello, Brian, this is Terence. So maybe let me get back to you on the gross margins, the questions about that. So basically, as TJ has mentioned, during the quarters we do face a lot of unusual issues within the market and overall the sentiment and a lot of pressures are coming from different verticals. We've been missing some of the major verticals like education and some of the kinds from some of the gaming sector as well. So, we've been trying to capture new demand and also trying to compete for new budgets. And I guess in this process, we're also trying to retain our long-term customers and we've been providing a little bit more discounts towards these clients, and that's why it pressures much our margins. And at the same time, because the media is probably also having some changes, so we're also trying to capture more benefits, but it seems that potential is there and that we're trying to strike for the balance between the profit and also the growth and the retention of clients. And these two, a ton of job in terms of the gross margin in the quarter. And it probably would last for until next quarters. And maybe in the next year, we will have more visibility as T.J. mentioned I think this is only a sub term phenomenon that we are observing right now. And as you said, the Enterprise Division side, it's still growing pretty much strong. And is still maintaining a decent margins overall. And so, we've been forecasting or looking forward to that going into next year. Hopefully when the enterprise revenues do keep going, and that will be growing to -- right now is already keeping like 20% in the mix. And when going to next year is probably going to 30% to 40% mix then, I think we will be able to recover over the margin, and also the Marketing Solutions margin will also be improved, as TJ also mentions, the business was only relatively software and that we've been able to recover when the market turns backs and getting some new clients and new business, also some new solutions as well. Regarding your second question on how do we maximize the non-term retentions and whether there would be incremental expenses going forward? I think typically that would be for the enterprise SaaS model. I think on the Marketing Solution model, we basically keep it gradually actually, backed in terms of how we manage, overall, the growth with the operating expenses. But in terms of the Enterprise Solutions, basically, we still need to strengthen what to be some incremental expenses and not just for retentions, but also for growing the salmon and growing more trying days as well and stupid and much tier tons shipments at a point and we're still pretty much trying to capture more demand from the market. So, it's more abstract at this moment and hopefully, we'll be able to discuss more next. And here would be my answers and we'll see if TJ has anything to add on, but these are for my remarks.

[Lisa Li:]

Hey, hello, operator, can we open up the question to the next participant?

[Operator:]

The next question is from Colin Lieu of China Renaissance. Please go ahead.

[Colin Liu:]

So I'll just translate it for myself. Thanks, management, for the chance of asking the question, I only have one. If we look at gross margin for this quarter, it is actually declining on 2 basis. I wonder what's the reason behind. Is there anything to do with the broad and macro witness? Thank you.

[Jian Tang:]

[Lisa Li:]

Okay. Let me take your question first and then see whether Terence has anything to add. You've mentioned about the declining gross profit margin. And I think that actually this is largely due to the entire sentiment in the advertising industry. In Q3, and even in the second half of this year, the entire marketing -- advertising industry has faced very severe challenges. And you can see that in the financial statements in the mainstream media. And due to the weak market of sentiments, the weak demand actually has intensified the competition in this industry. So, our strategy right now is to adapt to this changing environment by sacrificing some gross and profit margin so that we can maintain the long-term healthy relationship with our customers. We want to share the growth of customers so that we can recover in healthy manner when the market rebounds. And in addition, as I'd mentioned previously, our Marketing Solutions actually cover a wide variety of industries. So, we are resilient enough to strike a balance between growth and gross profit margin. In addition, we are currently working to connect data of Marketing Solutions and Enterprise Solutions so that we can create more synergies from these two businesses. I believe that each will help improve the gross profit margin of our Marketing Solutions in the future. So, this is my answer.

[Operator:]

As there are no further questions, I would like to turn the call back over to Lisa Li for closing remarks.

[Lisa Li:]

Thank you once again for joining us today. If you have any further questions, please feel free to contact iClick 's Investor Relations Department through the contact information provided on our website. See you next time. Thank you. Bye, bye.

[Operator:]

This concludes the conference call. You may now disconnect your line. Thank you.