Hello, ladies and gentlemen. Thank you for standing by for iClick Interactive Asia Group Limited's Second Quarter 2019 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, Senior Manager of Investor Relations. Lisa, please go ahead.

Hello, everyone, and welcome to iClick's second quarter 2019 financial results conference call. The company's results were issued earlier today and are posted online. You can download the earning press release and sign up for our distribution list by visiting the IR section of our website at ir.i-click.com.Sammy Hsieh, our Chief Executive Officer and Co-Founder; and Terence Li, our Chief Financial Officer will provide an overview of the quarter, and then we will turn the call over to 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 the 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 Chief Executive Officer and Co-Founder, Sammy Hsieh.

Thank you, Lisa. Hello everyone, and thank you for joining us today. I am happy to report that for the second quarter of 2019 our total revenue grew 16% year-on-year to a record $49.3 million. Our revenue growth came despite a 7% depreciation of the renminbi against the U.S. dollars compared to the same period last year.In fact, on a constant currency basis, revenue increased 24% to $52.8 million for the second quarter compared with the same period last year. Also in this quarter, our gross profit marked the first consecutive quarter of historical high increasing by 37% year-on-year $13.6 millionThese results were achieved in light of the challenging factors and influence that currently exists outside the cost of our normal business operations. We think that these challenges may continue to affect our results in the near-term. But I am optimistic about the long-term growth prospects of our business and industry and stability of our business model.I want to note here that the retailing revolution in China remains strong as offline business continues to go online, as the country's consumer activity is already among the most be it anywhere in the world. Having said so, the offline retail sales itself remains the bulk of retail sales in China. As companies seek higher costs to acquire new traffic online, seeking more cost effective ways to understand and manage consumers even better and improve the sales performances becomes an important topic for them. And this is also filling the digital transformation in smart retail.iClick is already well positioned to provide the data and to respond companies to attract customers and increase sales performances. And we are poised to keep up with whatever demand the future holds. In late 2018, we launched a strategic initiative to develop our enterprise solution business to provide…

Thank you, Sammy. Welcome to the call everyone. In this quarter, I'm pleased to report that we achieved record revenues, gross billings and gross profit while our new enterprise solutions business increased sequentially in a very challenging macro environment. As Sammy touched on previously, along with new business initiatives, the key to our continued success is achieving greater operational efficiency across our business lines, including but not limited to, theoretically reviewing our overall business to recognize opportunities to control costs, expenses, manage our cash flow more efficiently and focus on higher margin business products and clients. These initiatives are coupled with our plans to build enterprise business and we are well on track to enhance what we have already achieved.Now, I'll provide you key financial highlights for the second quarter. Please note that all figures given are in U.S. dollars unless otherwise noted. Our total revenue for the second quarter of 2019 grew 16% to a $49.3 million from $42.7 million for the same period last year. The increase was partly offset by negative foreign exchange impact as the renminbi depreciated 7% against the U.S. dollar compared to the second quarter of 2018.On the currency neutral basis, the revenue would have increased 24% at $52.8 million for the same quarter of 2019, compared with the same period last year. Our revenues from the marketing solutions business also grew to a record $46.6 million for the second quarter of 2019, a 9% increase from the same quarter in 2018. This growth was driven by the increase in demand we are seeing from marketers.As Sammy talked about earlier, the long-term market dynamics in this area remains strong. On a currency neutral basis, the revenue increased 17% to $49.9 million for the second quarter of 2019, compared with the same period last year.…

Thank you, Terence. We are very proud of our accomplishment this quarter and so far in 2019. For the second half of this year, we remain cautiously optimistic about our outlook for growth due to the current macro environment. Yet we are well positioned for the long-term to continue our progression in a rapidly growing addressable market, combined with our strong financial metrics, we think we have a stable business model that will continue to provide steady and consistent top-line growth while we build out our enterprise solution business that will provide increasingly revenue opportunities and further enhance our gross margins.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 Instructions]. First question comes from the line of Fawne Jiang of Benchmark. Please go ahead.

Hi, Sammy and Terence. Thanks for taking my questions. Firstly, I want to focus on your enterprise solutions business. That segment actually saw a very robust growth momentum right now. Just wonder whether you give us the update on the business right now, including the current projects and your client base, as well as the potential projects in your pipeline? In addition -- and associated to that business, if we're listening to, in the most recent earnings call for Tangent, for Baba, for Baidu, the leading Internet companies in China, I think, all of them have touched, highlighted actually, the importance of the enterprise solution business down the road. Just wonder how you have position your, I guess, growth in regards to the potential competitive environment down the road versus the potential I think opportunities as well as the challenges you may see along the way?

Fang, thanks for the questions. I think definitely, the enterprise solution is a hot topic in the market -- in China market right now. As you can see that from our earnings release, our enterprise solutions business grew more than 80% to $2.8 million in the second quarter, which is a very encouraging number for us, as we are just beginning to expand into this area. We feel that this result demonstrates our ability to execute. Currently, we see the enterprise solutions business on track to reach our annual target, given our robust pipeline of 50 clients plus.In addition, as I indicated in my prepared remarks, we have announced a strategic partnership with Vector, the leading strategic PR agency in Japan to help Japanese brands identify target and reach out to the Chinese consumers traveling to Japan, who are the most effective advertising content for establishing WeChat mini programs, integrating online and offline data, and integrating of data analytics. As of now, there are already a number of leading Japanese brands in the pipeline from this partnership, including a famous shopping mall, which features a wide variety of the consumer goods, ranging from the world's most well-known luxury brands to consumer staples.

I got it, Sammy. I guess in relation to that, on your side, that you guys made a substantial progress, and then what's the bottleneck for you right now like to potential solid -- further solid growth right now?

Yes. I think that the total addressable market of the smart retail or the new retail is enormous. Based on our research estimates, the total retail sales in China could exceed like over US$1 trillion by 2021. This is just a beginning of the smart retail. And all the players in different spaces are discovering their own business model to tap into the market and tackle the demand. When you look at our current pipeline, we see that we have a very strong pipeline in our book, so which means that we are just at the beginning of untapping the opportunities in the market.

Understood. Also, just one quick update on your resource allocation towards this business. Just wonder currently how big is the team on the enterprise side, and is there any plan to increase your, I guess, headcount down the road?

Hi, Fang. This is Terence. I think on the resources side, let me give some insights as well. I think, right now, our team on this enterprise solutions, including the team that we acquired working with Changyi, is basically now growing -- grow to around like 200 headcounts right now. In the quarters, we actually add on like around 50 people. So those including original 120 plus engineers, and also some new sales force as well to help us to market these new solutions. So your questions would be what is the bottleneck at the moment? I think, on this scale on the targets that we actually set for the market at the beginning of the year to achieve the $10 million top-line revenue, right now the scale is almost optimal for us to execute that.But in terms of whether we want to speed this up or not, I think of we are trying to strike a speed and balance of our original solution, like the marketing solutions as well, and also the split between this with the enterprise solutions. So we believe that we are still executing according to our plan to achieve the $10 million and to make sure that we can execute it right and provide the right solutions to our existing customer first. So this is our top priority at the moment.

Got it. It's very helpful. Second question regarding your guidance. Terence, you mentioned that there's potential headwind on the exchange rate side. Just wonder like, number one, what's the implied apple-to-apple, basically, in the constant currency basis your growth for the full year? Secondly, again, I think Sammy talked some of the macro, just wonder what you see in the second half, whether you are potentially feeling more headwind on the advertising growth?

Fang, let me address the macro environment first and then Terence can come back to you for the guidance part. I think from what we can see in the market, I think, many of the key players in the ad industry provide a more conservative outlook, I would say, as the macro environment and also the uncertainties surrounding the U.S. and China trade conflict, will be a swing factors with regard to the advertising demand in the second half of the year.Recently, we started to feel some pressure from our clients with unfavorable shift in the industry sentiment. Despite this outlook -- outside issues, the second half of the year has been, historically, the peak of our sales performances, and we see no reason to believe that the rest of the year will be an exception. We continue to expect 45% to 55% breakdown in revenue between first half and second half. This is the same message that we have been communicating with the market. And given several factors, including first, the sheer size of the advertising market in China; second, the shift from traditional marketing to digital marketing; and third, the ever increasing penetration rate of marketing automation, we believe that there should be a large runway for us to grow, given our leading position in the market and our demonstrated data and technology capability.

So, hi Fang. This is Terence. I think, in terms of guidance, and in terms of the impact of the currency, I think, that's definitely something -- or is really the reason why we are adjusting our guidance right now, because, as you know, the majority of sales are executed in renminbi and our reporting currency is U.S. dollar. So the volatility in the foreign exchange rate do have impact to us to a certain extent. So as in this first half of 2019, and there was around a 7% impact as we also disclosed, the trade conflict gradually evolved into currency issues, and we believe it is reasonable to assume that it would have some continued kind of impact and unfavorable influence on our reporting performance. That's why we have the revised our annual guidance and right now, the expectation is 5% down, because mainly of the renminbi depreciation.So our guidance also adjusts on the gross profit margin as you also noticed. I think that echoes on the comment from Sammy that we do see some oversupply of inventory in the market right now and that maybe there will be some impact on the demand as well. So it probably would translate to certain pricing pressure from some of our customers. So that's why the full year gross profit margin guidance has also been revised down for 2 percentage point, basically to reflect all these potential impacts in our best estimation, or kind of like an expectation at the moment.

Thank you. Next question is from the line of Darren Aftahi of ROTH Capital. Please go ahead.

So if I could go back to your guidance, I just want to be clear. So the revision down -- I understand the currency impact. Is your revised guidance, both gross profit and revenue changing solely due to marketing solutions or have you tempered your view on enterprise solutions as well?

Hi, Darren. This is Terence. So regarding the guidance questions, let me give some more color on that. First, a part of the revision is really mainly because of the renminbi depreciation and mainly on the marketing solutions part. And we feel that more of the impact would probably be on the marketing solutions and more than the enterprise solutions at the moment. And this is happening across I think different industries in China to feel some of the pricing pressure. But our enterprise solutions business, we're still expecting that to remain at a stable gross profit margin, around the 70% mark that we are still anticipating. So, I think, our adjustment is mainly coming from that end. So we believe that the marketing solutions will feel more pressure on that end, and that's why we adjust on the margin profile.

That's helpful. And then could you talk about -- I think I heard Sammy say that your pipeline of enterprise solutions clients is over 50. I'm curious of paying clients, how did that change from the first quarter to the second quarter in terms of absolute paying clients?

So, thanks Darren. So I will go for this year's target and close 50 key clients this year, as a reminder, we have already accumulated approximately like 10 clients in the first quarter, and also another 15 clients in the second quarter, which reinforced our belief that we are on track to reach this target. Our strategy is to acquire several leading clients in each of the vertical as to help us to accumulate industry knowledge and also the best practices. And also, we want to develop a standardized vertical solution that can help us to launch other solutions much, much faster. This will help us to drive growth and also momentum even faster within the 12 to 24 months.

That's great. And just last one for me. So, I note that you're partnering with a lot of players on enterprise solutions. I'm just curious about your thoughts with Salesforce partnering with Alibaba. Obviously, it's a U.S. player partnering with a China based player. But in terms of scale, that's obviously a competitive threat. So I'm just curious about, one, your thoughts there; and then two, do you feel like you need to partner with someone larger in order to scale this faster, or it's just too early in the life cycle of this industry that that really matters at this point? Thank you.

Okay. So, I believe that what you're talking about is our recent partnership with Vector and also the BTG. So, we have been progressing smoothly with BTG, including building up consumer data platform, the CDP, and also establishing the WeChat mini programs for a number of business units for them. So, the consumer data platform plays a very key role in that. It centralizes processing and also analyze all the data from various touch points. Aside from this, we have also begun to establish WeChat mini programs to help integrate the online and also offline data for a number of business units for the BTG.In addition to the business opportunities we see, there remains a huge upside potential for the partnership with BTG itself, given the number of the significant brands and also business unit it has under its umbrella. As a reminder, BTG owns more than 100 brands across more than six industries, including like restaurants, hotel, and lodging accommodations, and travel to name a few. With time, this could eventually become a multi-million dollar contract. Currently the financial contributions here are limited, because there's a requirement to allocate and recognize revenue over time. Given these circumstances, we continue to believe the contribution from BTG is more eminent among the other significant partnership we currently have. This is from the client side.On the publisher side I hear that your question is regarding the Salesforce.com partnering with Alibaba. We think that the partnership of Alibaba and salesforce.com makes sense, with each leveraging their respective strength. Alibaba, the largest e-commerce platform in China has a huge consumer base, and they know the online purchase behaviors of Chinese consumer extremely well, while Salesforce.com has been an expert in providing CRM SaaS products for very long time. The teaming up of Alibaba and…

Thank you. Next we have a Bo Pang of Oppenheimer. Please go ahead.

Hi, Sammy, Terence and Lisa. Thanks for taking my question. So I really have two quick one on the marketing solutions. So can you first talk about the top verticals for the business line? And then which one of the top verticals are you seeing is the most challenging under current environment? And then, my second question is, if we look at the 2Q gross billing, it actually grew pretty well sequentially, but if you look at the revenue takeaway, it was down a little bit. Could you just explain a little bit on the dynamics here? Thank you very much.

Hi, Bob. This is Terence. So, I think your first part of question is about our growth or driver of the gross billing in this quarter. I think we are growing significantly in terms of gross billing in this quarter. And I think, a lot of verticals that we are serving basically show significant uptick in this quarter, and including some outperforming verticals, like the e-commerce sector, and some personal care, beauty, food and beverage, also show some uptick. Also, some of the slowing or relatively sluggish verticals in the first quarter like automobiles and petroleum, because we just have an enterprise kind of clients in that particular sector, as we announced before, so basically it's ticking up quite well. And some of the sectors still a bit are under performing at the moment, like the gaming, entertainment and media, but we also expect that maybe have some -- come back as well when all the regulatory issues become more clear. So in terms of the growth on different verticals, that's our understanding at the moment. So your second part of the question is, can you repeat that? Sorry.

Actually, it was a related one, like the gross billing growth was factored in the revenue growth in the second quarter for the marketing solutions. Could you explain the dynamics here?

Okay. Understood. I think, if you look at our Q1 and Q2 performance, you can see one difference is basically that our margin profile has a bit difference. So this is attributable to our -- in the first quarter, I think we have explained that, we are trying to focus more on some high margin product and also clients and then we can produce a much better profile margins -- and profit margins. So in this quarter, I think when we have more visibility in the market, after the first quarter, then we are starting to uptake some bigger budget or bigger clients and managing or releasing some of the cash flow to the market, then we've been able to attract and get some bigger spending clients. But then in this regard, then we sacrificed a little bit in terms of gross profit margin. So that's why you see the difference in terms of takeaway, and also the growth rate and also the margin profile. But in most of the case or in the current situation, we do like to strike a balance between both the growth and the margin of our clients. So that's our strategy at the moment.

Thank you. Next we have is Nelson Cheung of Citi. Please go ahead.

Hi, Sammy and Terence. Thanks for taking my question. I have a question on company investment. With the rise of selling and marketing expense this year, operating expense in general, can management share with us what's the staff incentive rate this quarter and what's your incentive policies for the next few quarters? And in general, can management rank your investment opportunities or priorities in 2019, and in the coming years, like is it global expansion, or is it your reinvestment in your enterprise solutions or enhancement in your internal infrastructure? Thank you.

So I think that I can address the second part, the investment strategy. So when we look at our marketing solutions business, I think we are still having very steady growth, while we are maintaining the growth on the Marketing Solutions, but we will keep on investment into the enterprise solutions. When you look at our numbers we have pretty good demand in our pipeline. And also, when we look at our Q2 numbers, actually, we have over 80% of the revenue growth in our enterprise solutions. And also, we see that the macro environment, more and more customers, they're looking for the marketing automation to improve their internal efficiency. And also another investment area will be our international business. So, for example, we have a partnership with VGI, the BTS Group, and also, we are actively expanding into our Japan, and also the Korean market.

Yes. So, for the first part of the questions, I think you talked about the operating expenses. I think comparing to the first quarter, we've been growing this likely on a cash OpEx basis around 5%. Sales and marketing is still our largest part of our operating structure and is still taking a major part. And in terms of commissions basis or the incentive basis, I think, in order to push our new enterprise solutions, and also the sale of some high margin product, such as some of our [MCM] products, some of our like travel products as well, we've been raising some of the sales incentives to this ourselves and also we also incur extra marketing events globally right now, because we are trying to also sell these solutions to different customer.And you can see that we have the initial success. We had companies like Vector, like Thailand VGI, all because of these marketing efforts, and we'll be able to secure some of the local partnership and some sectors like reseller agreements or contracts with these in different regions as well. So I think these investments upfront will be paid off in a relative long term. And right now these structures is relatively stable right now I would say, going into the second half and also into the 2020, I think that would be relatively stable. But we do incur a little bit more in terms of the sales and marketing at this moment.

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

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.

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