iClick Interactive Asia Group Limited
Q1 2022 Earnings Call Transcript

Published: 27 May 2022

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for the iClick Interactive Asia Group Limited's 2022 First Quarter Unaudited Financial Results Conference Call. At this time all participants are in listen-only mode. After management's prepared remarks, there will be the 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 2022 iClick's first quarter unaudited 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 prepare remarks in English. During the Q&A session, we will take questions in both English and Mandarin, and the third-party translator will provide consecutive translations. All translations are for convenience purpose only. In case of any translation discrepancy, management statement in the original language shall prevail. Jian Tang, TJ, Chairman, Chief Executive Officer and Co-Founder of iClick, will first provide a high level review of the 2022 first quarter results and share the results on our execution strategy going forward. Chief Financial Officer, David Zhang, will follow and give us additional insight on the financial results as well as provide guidance for second quarter and full year of 2022. He will then turn the call back over to TJ for closing remarks before the call is open 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 obligations 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 includes discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. iClick's press release contains a reconciliation of the unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures. I will now turn the call over to our Chairman, Chief Executive Officer and Co-Founder, Jian Tang. TJ, please go ahead.

[Jian Tang:]

Thank you, Lisa, and welcome to the call everyone. The first quarter of 2022 for iClick was highlighted by the successful refinement of our product mix, which will increase in our gross margin despite challenging market conditions. On today's call, I will first discuss how we achieved this improvement followed by how the micro uncertainties and other forces are affecting our implementations and finally how we will leverage current market conditions to build long-term shareholder value. First, the increase in our gross margin was achieved by our consistent focus on our higher margin Enterprise Solutions segment while conjunctively unwinding lower margin, higher risk Marketing Solutions businesses. As a result, Enterprise Solutions revenue has continued its strong momentum growing by 34% year-over-year to US$15.7 million, a record high among any historical first quarter for this segment. We are quite encouraged by this growth as it relates directly to what we expect to be the primary driver of our future revenue, our SaaS + X business model. This adjustment to our product mix will drive iClick's long-term success in the face of a complex cloud landscape defined by COVID-19 involvement and the shifting regulatory and macro influences. The contraction in the overall advertising industry has led to adverse impact on our Marketing Solutions business. As we discussed in our last earnings conference call, we have undertaken concerted action to direct our continued investment in higher growth and higher margin Enterprise Solutions business while selectively winding down our Marketing Solutions and kill such time as market conditions volunteered resumption. The regulatory clamped down on certain industries we have served within our Marketing Solutions as well as the strict COVID-19 measures to curtail the spread of the virus have raised the challenges for us compared with the same period last year as we further this broad based industry-wide phenomena. We believe our approach will help iClick better navigate these challenges, especially with the soft capital market landscape narrowing the resources we can mobilize. Well, these market factors also continue to challenge our client implementations and onboardings of Enterprise Solutions business in the first quarter and beyond. We are optimistic that our strategic shifts will result in long-term value creation. Our SaaS + business model empowers brands in China amid these challenging market conditions and continuously involving business models as clients require a higher levels of guidance and implementation from iClick regarding how they can enhance the consumers' loyalty and the repurchase rates to drive continued revenue growth. As a result, we believe our growing footprint will uniquely position the company to continue to capitalize on the very much in fact mega digital transformation trend in China. In view of this, we have relentlessly upgraded and improved our SaaS + product mix as we seek to meet the huge demands of our brand clients. For example, we launched the win version of iFans, one of our data analytics products that helps brands identify the most appropriate KOL to conduct a promotion. This upgrade in large the coverage of iFans beyond its existing media platforms

[David Zhang:]

Thank you, TJ. Hello everyone. I am pleased to share with you our financial performance for the first quarter of 2022. Despite going challenging micro environment this year we reached a record high in Enterprise Solutions, in any of historical first quarters and improvement in our gross margin. I would like to begin my comments with a few key highlights from the first quarter of 2022, compared to the same period of 2021. Revenue for the first quarter of 2022 was US$47.4 million, decreased by 29% year-over-year. Looking at each segment separately, revenue from Enterprise Solutions was US$15.7 million, up 34% year-over-year, mainly driven by increasing needs for consumer behavior either integration and the digital transformation. Revenue from Marketing Solutions was US$31.7 million, decreased 42% primarily due to our strategic to go down of online advertising business in favor of resources allocation to Enterprise Solutions business. Omicron outbreak and lockdown in Hong Kong and Shanghai. Gross profit margin was improved to 33.8% from 29.4% resulting from our resource allocation to the higher margin Enterprise Solutions business and online advertising clients. Gross profit dollar amount decreased by 18% year-over-year to US$15 million in the first quarter of 2022, mainly due to the decline in Marketing Solutions segment. As of March 31, 2022, the Company had cash and cash equivalents, time deposits and restricted cash of US$91.0 million, compared with US$88.7 million as of December 31, 2021. For the rest of my discussion, I will focus on our non-GAAP measures. You can find reconciliations of these non-GAAP results in the press release we posted earlier today and which can be accessed at our Investor Relations website. Adjusted EBITDA for the first quarter of 2022 was a loss of US$3.3 million, compared with income of US$3.6 million for the first quarter of 2021. Adjusted net loss for the first quarter of 2022 was US$5.5, compared with an adjusted net income of US$0.6 million in the first quarter of 2021. Gross billing was US$99.9 million for the first quarter of 2022, compared with US$200.0 million for the first quarter of 2021. For further information, please see the detailed recap of other financial metrics in the press release we issued today. In December 2021, iClick announced a share repurchase program with aggregate value of up to US$20 million in full year of 2022. As of March 31, 2022, the aggregate value of repurchased shares was approximately US$4.2 million. In view of the resurgence of COVID-19 pandemic and the various disease control measures implemented in China, including Shanghai and Beijing, substantial uncertainties remain around the microeconomic conditions and the client demands, which help and will continue to significantly affect our client onboarding and the solution implementation. Therefore, at this stage we withdraw 2022 revenue guidance of Enterprise Solutions until visibility improved. The company will closely monitor micro environment and balance internal resources, focus on product innovation and sales pipeline to keep iClick creating more value to customers in Enterprise Solutions, which we believe has higher growth potential. With that, I now turn the call back over to TJ for closing remarks. Thank you.

[Jian Tang:]

Thank you, David. We have been adapting to involving market conditions and the micro forces over the past year, which have led to iClick strategically shift in focus to concentrated investment in Enterprise Solutions while strategically winding down the Marketing Solutions business. We are constantly evaluating our marketing position and the strategies to capture more market share in our high growth, high margin Enterprise Solutions business. While the Enterprise Solutions business may see some adverse impact on clients’ implementations and onboarding due in part to the strict measures resulting from containing the spread of COVID-19 in China for the first quarter. And now into the second quarter, we deeply believe that the mega trend driving digitization across China remains intact and we are well positioned to continue our growth in Enterprise Solutions. iClick remains at the forefront of serving this enormous market and we intend to remain a powerful and a dynamic force driving that change. Our clients realize that lines realize the tremendous value of our solutions, which are helping them to involve and capitalize on new capabilities. Our devotion to innovation and to the highest aspirations of service and execution guide us through these challenging times. We are confident our discipline and our devotion will be rewarded in the long-term for both our shareholders and our company alike. As always, I wish to especially acknowledge and thank our clients, partners and key stakeholders for the continued support and all of our iClickers without whom our success would not be possible. We will prevail under triumph with sound management keen focus on the prudent investment in the resources and the solutions that remain the drivers of our success. Thank you all for participating in today's conference call and 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:]

Thank you, dear participants. We will now begin the question-and-answer session. Thank you. The first question comes from the line of Colin Liu from China Renaissance. Please ask your question.

[Colin Liu:]

Thanks management for the chance to raise questions. I have two questions here. The first one is actually about the customer demand on Enterprise Solutions. Well, we noticed that management mentioned about some delays of onboarding and implementation due to the COVID restrictions, a lot of measures and other limitations. So just wonder how resilient do you think actually the customer demand for our Enterprise Solutions is? And once all the restrictions being lifted up in the near future we will see a very fast rebound of the revenue growth of Enterprise Solutions in the second half this year. And then my – sorry, my second question is about the Marketing Solution segment. We noticed that there were a lot of rapidly trade have in second half last year and in the first quarter this year, we have seen very restrict a lot of measures and the macro weaknesses in China. So has all the negative factors been reflected on the first year’s – sorry, on the first quarters numbers management views or maybe in second quarter, we will continue to encounter some difficulties. Is it fair to say that we reached the bottom in terms of the marketing solution growth? Or is it too early to say? Thank you.

[Jian Tang:]

Okay. Thank you for your question. This is TJ. I will take two questions. From your first question is about customer demand for our enterprise solutions as I’ve mentioned, indeed, the COVID has produced a big impact on us. First is the impact from the fifth round of COVID resurgence in Hong Kong. And we have a lot of business in Hong Kong and then followed by Shanghai lockdown, starting from the late of March. Shanghai is now under lockdown for two months. And the Beijing is – and then followed by Beijing, which is under lockdown nearly a month. Therefore, I think the COVID impact on our enterprise solutions business mainly lies with several front. First is the onboarding of new customers. Second is the onboarding of new needs from existing customers. And the third is the implementation of a customer solutions. And this means it’s quite difficult to predict the future growth of enterprises solutions because the current economic environment is far from normal. I believe you are quite concerned about the demand in the mid to long-term. And it – this is our concern too. And recently most of our colleagues are under lockdown, Shanghai and Beijing, but we keep a very close communication with our clients. Those demands in pipeline – those demands that have already been briefed and under implementation are being delivered according to schedule. And what is problematic is those new demands. And we’ve observed that our client’s decision making cycle becomes longer. But these other customers’ demands are there and there are even more new demands from then because most of the customers we serve are bigger ones. And in spite of the pandemic and the macro weaknesses, they have no problem of survival. And in addition, they have a lot of offline outlets. So there’s urgent need for them to find a digital solution. Therefore, there’s remain a strong demand for our enterprise solutions business. So we expect that in the second half of this year, if the pandemic is put under control and if economic activities resume and become normal, we can expect a strong – a pretty good growth of enterprise solutions business in a strong demand. Okay. About your second question is regarding the Marketing Solutions, in the first few months of this year, we’ve continued to see the lingering effect of the tightening regulations in the industries. And also we’ve seen the more macro headwinds as well as the implication from the strict COVID measures. This actually has affected adversely our advertising clients in the Marketing Solutions business, because most of them were actually suffer a lot from the logistics and the supply chain and even delivery problems. And we see that some customers, although they’ve tried to place advertisements during this period, yet the consumers actually in the end drop the orders, because of the poor service quality. Therefore, we have seen that those large advertising clients have cut their budget drastically. And Q2, I don’t think the things will turn better for the advertising industry, because the impact from the COVID-19 is too severe for that. And in the second half of this year, if the economy doesn’t rebound and if the strict COVID control policies are not lifted, it will continue to be serious impact on the advertising industry. But for us, we’ve already made a strategic move to scale back on marketing solutions business, we’ve intentionally cut those high risk, low margin businesses. So to channel more resources to enterprise solutions business. So for us, I think the impact is smaller.

[Colin Liu:]

[Operator:]

Thank you. The next question comes from the line of…

[Lisa Li:]

Oh, no, sorry, please go ahead. I think we can move to the next question.

[Operator:]

Perfect. Thank you. The next question comes from the line of Nelson Cheung from Citi. Please ask your question.

[Nelson Cheung:]

So let me translate myself. So thanks management for taking my question. My first question is about your marketing solutions. Just wonder – given most of the verticals have been adversely impacted due to the pandemic. Wondering if there’s any resilient protocol that could support our business, for example, like FMCG. And my second question is related to Enterprise Solutions. Just want to management to see if you have any long-term target for gross margin of your Enterprise Solutions business. And how could we achieve that? Is that through cross selling of your product and customers as well as potential up-sell capability? Thank you.

[Jian Tang:]

Thank you for the question. This is TJ. I will take your first question and David will answer the second question. First question is about also resilient verticals in the Marketing Solutions business. In Q1, we have intentionally scale back on Marketing Solutions business. Since last year, we have selectively cut those low margin high risk businesses with very long collection period of accounts receivables, such as gaming and some channels. And for FMCG and other consumables in Q1, they were affected to some extent, but it’s not because of the industry problems, it’s mainly because Q1 there is a spring festival, so usually Q1 is a low season for e-commerce. And so seasonal factors play a bigger role in the Q1 performance, but in Q2 I believe that consumables and those industries that are highly related to offline economies will be affected to a larger extent.

[David Zhang:]

This is David. I will take the second question about the gross profit margin of the Enterprise Solutions. Our expectation is under normal operating environment. Enterprise Solutions gross profit margin will be around 50% to 60%, which is healthy given our surplus business model, how to achieve that. Well, first, the demand for our digital product is growing with the strong momentum. In spite of the short-term impact from the copy related control measures. We hope that the demand will rebound very soon. And the second is our product mix is healthy. We have both the SaaS tools, as well as the services. The customers can buy full stack solutions. They can also buy a particular product or function or services, and also we will carry out communication with our customers based on their needs. So as to increase their loyalty and stickiness. So and thanks to our continuous efforts. We now have a wider variety of product and services options of our customers. So I believe that we can achieve that goal.

[Operator:]

Thank you. The next question comes from the line of Thomas Chong from Jefferies. Please ask your question.

[Thomas Chong:]

So I translate myself. Thanks management for taking my questions. So I put two questions. My first question is about Marketing Solutions. So as mentioned that we are scaling down our low margin high risk Marketing Solutions business, just wondering about the process and updates about right now and how much percent of those type of business have been scaled down. And my second question is about SaaS+X strategy. As we talked in the prepared remarks, could the management share more color about the strategies and products things?

[David Zhang:]

This is David. I'd like to take the first question and TJ will take the second question. Since the fourth quarter of last year we have started to scale down on low marketing and high risk marketing solutions business, and currently speaking we have achieved our target. We've cut a third of that business, so you can see that the marketing solutions revenue has dropped by 42%. Of course, there are many other reasons that play here, for example, the macro headwinds and logistic, the problems caused by the COVID control measures. But we hope that these are just short-term variables that will go away very quickly. And currently we have US$91 million cash on hands, more than at the end of last year, and we've also paid back US$18.5 million bank loans and we've also reduced operating leverages. Therefore we have enough resources to support the further development of Enterprise Solutions development. And we are currently in a very good shape in terms of the business development and survival.

[Jian Tang:]

Okay. This is the TJ. The second question is about the SaaS+ strategy of Enterprise Solutions business. Well currently our SaaS+ business models and actually provide both the products and the services to brands. Our logic is that now a lot of domestic international brands as well as some emerging China fashion brands, they are in desperate need of the online digital solutions. And so we want to meet their needs for that, and we mainly work on two ecosystems; one is WeChat, the other is KOL. And for WeChat we provide like as a CRM and the Mini Programs as well as some back office digital operating platforms to connect their online stores with the offline stores. And a case in-study is L'Oréal. This year many brands of L'Oréal will use our system. We now provide L'Oréal with two systems. One is a WeSocial which is a CRM system. The other is cloud store which is mini – which is a B2C shopping mall based on the mini-programs. And it will actually link the consumers or inform the consumers of the inventories at the closest outlets of L'Oréal, and as through the WeSocial, we want to connect over thousands of sales guys of offline stores of L'Oréal with their consumers. So that in-spite of the lockdown these sales guys can still provide online services to their consumers. As to our KOL ecosystem we also have a specific product and services. Now more and more big brands including Chinese ones and international ones are using KOL platforms, such as the . And our systems will help brands to identify appropriate KOL. And we also offer tools to create content strategies for brands, so that they can deliver the right messages to their clients. So the goal of our SaaS+ strategy is to help brands to operate in the WeChat and KOL ecosystem, so as to increase their sales.

[Lisa Li:]

Excuse me. Have you finished with your questions, Thomas? Thank you.

[Thomas Chong:]

Yes. Yes.

[Operator:]

Thank you. As there are no further questions, I'd like to turn the call back over to the company for the closing remarks.

[Lisa Li:]

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

[Operator:]

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