iClick Interactive Asia Group Limited (NASDAQ:ICLK) Q3 2022 Earnings Call Transcript

iClick Interactive Asia Group Limited (NASDAQ:ICLK) Q3 2022 Earnings Call Transcript November 30, 2022

iClick Interactive Asia Group Limited beats earnings expectations. Reported EPS is $-1, expectations were $-1.34.

Operator: Hello, ladies and gentlemen. Thank you for standing by for iClick Interactive Asia Group Limited’s 2022 Third Quarter Unaudited Financial Results Conference Call. At this time, all participants are in a listen-only mode. After management’s 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 2022 iClick’s third 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 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 subsequent translations. Please note that all translations are for convenience purposes only. In case of any translation discrepancy, management’s 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 third quarter results and share his thoughts on our strategy going forward.

Chief Financial Officer, David Zhang, will follow and give us additional insight on the financial results. He will then turn the call back 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 US 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 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.

Photo by Science in HD on Unsplash

Jian Tang: Thank you, Lisa. And welcome to the call everyone. I will first share our strategies and execution over the past quarter and after how we envision our business in the future. We saw improved performance in the third quarter with 16% sequential growth in Enterprise Solutions revenue and a 3% modest uptick in marketing solutions, combining for 8% quarter-over-quarter increase in our total revenues for the quarter. These increases were largely driven by the gradual easing of COVID related lockdowns and containment measures and the associated resumption of business and economic activity. We are also pleased to see the recovery for our Enterprise Solutions business with revenue contribution hitting a new record high of 39%.

We remain optimistic about the continued resumption of economic activity and business fundamentals that will drive increased demand for our innovative SaaS plus technologies and services and in turn further sales growth. In addition, we have continued to drive cost optimization across our operations, allowing us to reserve sufficient cash, maintain our core teams and products intact, strengthen our capabilities in offering valuable services to customers and weather the macroeconomic headwinds, we believe this positions iClick for continued market rebound as conditions improve. This strategy is central to our future success, as we believe our core value proposition rests on our ability to remain a leading innovator in the breadth of value our solutions and value.

We achieved notable solution implementations and roll out during the quarter that drove exceptional value in assisting clients to accomplish the diverse goals. For example, we collaborated with Jingdong Technology to build a full stack private domain e-commerce solution based upon iClick’s Changxun and Jingdong Technology Cloud Service with the inauguration of Jingdong Alliance Commodity Promotion Solution or CPS and JD.KEPLER Supply Chain services. This integrated offering aims to empower retailers in the cosmetics FMCG and affordable luxury apparel industries through all ecosystem smart retail SaaS solutions. We also were recognized through numerous industry awards. For example, we the first third-party service provider of the first half of 2022 by Alighting Award.

We are honored by the strong industry destination, we continue to receive and strive to remain a leader across our industry wide solutions mix. This concludes my opening remarks. And I would now like to turn the call over to our CFO, David Zhang to discuss our third quarter financial results. David, please go ahead.

David Zhang: Thank you, TJ. Hello, everyone. I will share our key financial results for third quarter of 2022 compared to the same period of 2021. Revenue for third quarter of 2022 was $41 million, decreased by 53% year-over-year. Looking at the individual business segments, revenue from marketing solutions was $25 million, decreased by 62% compared with the $66.6 million for the third quarter of 2021 as a result of our strategic shift away from some high risk advertising business and overall advertising market slowdown in China. Revenue from our enterprise solutions was $16 million decreased by 21% compared with $20.3 million in third quarter of 2021, mainly due to the challenges from the pandemic and the control management, which affected the progress of our new clients onboarding and solutions implementation in 2022.

Gross profit for third quarter of 2022 was $9.2 million compared with $21.7 million for the third quarter of 2021, aligned with the decrease of revenue. Total operating expenses were $20.8 million for the third quarter of 2022 compared with $24.1 million for the third quarter of 2021. The changes were primarily due to decrease in share based compensation, staff costs and promotional expenses. Goodwill impairment of $3.7 million was recorded for third quarter of 2022 for marketing solutions business. This partial non-cash impairment charge represented a shortfall between the carrying value and the estimated fair value of this reporting unit as of September 20, 2022 due to the slowdown of advertising industry. Net loss totaled $19.4 million for third quarter of 2022 compared with $2.6 million for the third quarter of 2021, mainly resulted from operating loss of $11.6 million, excluding impairment of $3.7 million and impairment of equity investments of $3.4 million.

As of September 30, 2022, the company had cash and cash equivalents, term deposits and restricted cash of $99.9 million compared with $88.7 million as of December 31, 2021. For the non GAAP measures, adjusted EBITDA for third quarter of 2022 was a loss of $8.5 million, compared with earnings of $3.6 million for third quarter of 2021. Adjusting net loss for third quarter of 2022 was $10.2 million, compared with adjusted net income of $0.8 million in the third quarter of 2021. Gross billing was $61.7 million for the third quarter of 2022, compared with $195.4 million for the third quarter of 2021. For further information, please see more details in the press release we issued today. With that, I’ll now turn the call back to TJ for closing remarks.

Thank you.

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Jian Tang: Thank you, David. While Chinese government’s recent announcements suggest signs of easing quarantine requirements and travel restrictions that might bode well for economic activities, supply chain disruptions lockdowns and geopolitical conflict around the world may still adversely impact consumer sentiment, weigh on company’s operations and further curtail business performance in the short term. We are nevertheless cautiously optimistic and expect recovery of consumer segments to be greatly beneficial to the overall economy, as well as our consumer centric total solutions as conditions improve. In the longer term, we remain highly confident in the intact mega trend of digital transformation in China, supporting our strong conviction with the steadfast commitment from the Chinese government.

The 20s party Congress report explicitly indicated the importance and acceleration of digital economy development. Therefore, iClick will continue implementing its SaaS plus strategy by further upgrading the product offerings of Enterprise Solutions and enhancing our top tier clients servicing capability so that we can better seize the enormous opportunities ahead and deliver sustainable growth for the future. Before I end my closing remarks, I would like to provide a recap of how our execution in 2022 has been entered by the strategy we defined at the end of last year. Even though parliament regulations, macro environment and geopolitical conflicts has constituted a uncertain operating environment for us since the second half of last year, we have remained resolute in ensuring that we maintain sufficient cash and resources to help us withstand these micro shocks.

Our strategy to wind down high operating cash, lower margin and the higher risk business within our Marketing Solutions segments is the basis of this approach. Consequently, our cash and cash equivalents have reached almost $100 million as of the end of September, compared with approximately $89 million at the end of 2021, as well as a reduction in bank borrowings. In addition, in support of the strong long term prospects of the digital transformation trend in China, we have continued to invest in our higher margin Enterprise Solutions, which positions iClick well to capitalize on rebounding economic activity and improved business sentiment and the associated recovery in client demand. Thus, our R&D expenditure has remained relatively constant.

This is core to our long term strategy as we believe the investment is what fundamentally will drive our future growth momentum. Lastly, we have in parallel being streamlining our operations and driving cost optimization, reducing expenses in a number of areas. In sum, we are proud of our solid execution with a clear vision to carry iClick forward through these volatile periods. With that, I wish to acknowledge and thank our clients, partners, shareholders and all other stakeholders for our continued support. And of course, all our iClickers who have been so dedicated to the work through . Backed by our sound management and clear strategies, we believe we will be able to deliver better results and further establish ourselves in the digital transformation market.

Thank you all, again, for participating in today’s conference call and for your continued support. This concludes my remarks and we will now open the floor for questions. Operator, please go ahead.

Q&A Session

Operator: Thank you. And our first question will come from Nelson Cheung of Citi. Please go ahead.

Nelson Cheung: So let me translate myself. Thanks management for taking my question. My first question is regarding the ES business. I’m wondering what would be the impact of COVID on the project implementation of the business in fourth quarter and next year? And my second question is related to the advertising outlook into fourth quarter and next year as well? Thank you.

Jian Tang: Thank you for your question. This is TJ. If I understand correctly, your questions are about the outlook or trends of ES and MS business. Well, compared with Q2, Q3 saw performance in our businesses. I think the reasons are very clear. In the second quarter due to the COVID, a lot of cities were under lockdown. And in Q3, these COVID related control measures were eased. However, the trend — the future trends for the COVID related control measures still remain unclear. Therefore, many industries, including many of our clients’ industries are still prudent in making the investment. Overall speaking, we’ve seen some slow recovery, but not very strong. Relatively speaking, the ES business has performed better because the demand for ES business is always there.

And in our ES business, we help and meet the digitalization needs of our customers by providing them better opportunities to interact with their consumers and manage their digital assets better. So there is always a strong amount of our ES businesses. Therefore, the pipeline is quite good. However, due to the COVID related control measures, some clients’ demands have been put off, because it usually takes a rather long time for our clients to make a decision about working with us and then onboarding and then a solution implementation and the lockdown and other control measures have actually delayed the entire process. And therefore — and also during the onboarding of new clients, it requires a lot of interaction with our clients. But overall speaking, our Q3 performance is better than Q2.

Well, as to the Marketing Solutions business or the entire advertising business, we’ve seen some kind of recovery in Q3, but not very strong. Actually, this year the entire advertising industry is weak. Since last year, many industries have been adversely affected. In particular, some industries such as the education or the gaming industries just disappear because of the tightening of government regulations. And due to the logistic (ph) facing e-commerce companies, even some big brands have started to adjust their advertising budget. So overall speaking, the Marketing Solutions business remained weak this year. And that’s actually is in line with our strategic decision to wind down some value for marketing solutions business. And we can say that we have forecasted this trend and made our choice early this year.

This is my answer to your question. Thank you.

Operator: The next question comes from Thomas Chong of Jefferies. Please go ahead.

Thomas Chong: Thank management for taking my questions. So I have two questions. My first question is for the Enterprise Solutions business. So how for new and existing clients and how is our client acquisition strategy so far? And my second question is also for the Enterprise Solution business. And how should we view the competition landscape and our competition advantages? Thanks.

David Zhang: Well, this is David. Let me first take your question about retention compared with Q2, the Q3 saw a good retention rate. You can see that in terms of their customer number, the retention rate was 65% and dollar amount, the retention rate was 95%, quite high level. And many existing customers have contributed more to our sales. And as to the question about competitive landscape, I would like to invite TJ to answer your question.

Jian Tang: Okay. Let me answer your second question about competition landscape. I think in China, the digitalization process is still at its early stage. And there are a lot of players in this track, including SaaS providers, some giant companies and also service providers. And these companies have different business models and customer bases. I think the next three to five years will be key for these companies to build up their competitive advantages. And for us, our advantages lies with the fact that we have accumulated great expertise in serving medium to large sized customers through our MS business and our SaaS plus X product plus service model is very helpful for us to serve this kind of customers. And this is a competitive edge that we have been built up over the past two to three years.

And for me, 2B business is very different from 2C business. 2B business is not a market for winner takes all and the digitalization market in China is leading us to accommodate more big players. That’s why we think that our SaaS plus X model will have a big room to develop in the future.

Operator: The next question comes from Brian Kinstlinger of Alliance Global Partners. Please go ahead.

Brian Kinstlinger: Great. Thank you for taking my questions. My questions are financial . The first one is, DSO has dramatically improved, what has led to this much better collections? And can you continue to improve DSO which is still quite high? And then second, can you discuss why the gross margin in the third quarter is lower than the second quarter? Your revenue in both segments is increasing, you have a much better mix of the higher margin enterprise revenue. So I’m trying to understand when we’ll start to see the margin recover.

Jian Tang: Let me take two of your questions. The first question, in Q3 our accounts receivable turnover is around 120 days compared with Q2. It’s already like 30 to 40 days improvement. And due to the COVID related control measures, a lot of cities were locked down and that’s why the current receivable days has increased. But Q3, we’ve seen some improvement and we have putting a lot of efforts to improve the collection of these receivables. And we also have been maintaining good relationship with valuable customers, trying to increase their contribution to our revenue. And the second question about gross profit margin. The gross profit margin has decreased in Q3 because we have provided more Enterprise Solutions services to existing customers in order to retain these valuable customers.

When the economic condition is poor, these customers usually have a higher bargaining power. Therefore, we offer some discounts to them. As to new clients, they may not contribute a lot to our Q3 revenue. Yes, our strategy is to retain those high value €“ valuable customers so that in the future we’ll have the chance to increase their contribution to our revenue. Thank you.

Operator: There are no further questions at this time. I’ll now hand the call back 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. Thank you.

Operator: This concludes the conference call. You may now disconnect your lines. Thank you.