Amber International Holding Ltd (AMBR) Q2 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by for iClick Interactive Asia Group Limited's 2022 Second Quarter Unaudited Financial Results Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call conference call is being recorded. At this time, I'd like to turn your call over to your host, Ms. Lisa Li, Investor Relations Director, Lisa, please go ahead.

Hello, everyone, and welcome to iClick's 2022 second 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 the 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, Chairman, Chief Executive Officer and Co-Founder of iClick will first provide a high level review of the 2022 second quarter results and share his thoughts on our execution strategy going forward. Chief Financial Officer, David Zhang, will follow and give us additional insights on the financial results. We will then turn the call back to TJ for closing remarks before the call is open for Q&A. Before we continue, please know 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 US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable rule. Please also know 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 contents of 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.

Thank you, Lisa. Welcome to the call everyone. I will first share our challenges, approach and the strategies over the past quarter. And after, how we invention building our business future. Looking back to the second quarter of 2022. Because of the great resurgence of COVID-19, many cities in China experienced strict controls or even lockdown, including Shanghai and Beijing, where our main operations are located. In the meanwhile, the unpredictable macroenvironment has continued to drive conservatism on advertising spending and promotional activities. As constantly highlighted in our previous earnings, we have executed our strategy to move away from lower margin and higher risk Marketing Solution business. As a result, iClick's total revenue for the second quarter 2022 declined by 51% year-over-year, amounting to $38.1 million and revenue from Marketing Solutions decreased by 62% to $24.3 million year-over-year. Particularly, winding down our Marketing Solutions business has allowed us to redirect the resources to our Enterprise Solutions business as we remain optimistic about the enormous market potential of the digital transformation in China. We continue to invest in this segment. Therefore, our Enterprise Solutions delivered 3% year-over-year growth to $13.8 million in the second quarter, regardless of the negative impact of strict COVID-19 control measures. Now we are entering the second half of the year when the pandemic is relatively under control, but with occasional surge. We see mild trend of business recovery, yet it's highly dependent on future pandemics development and the control measures. Here, I would like to introduce our new product, Arohar, the app, that integrates AI, AR and avatar for live streaming over the metaverse platforms, as we have kept on upgrading our SaaS+X product metrics. In the quarter, we have also engaged a global home care brand, HIZERO. Through our marketing automation product, iParllay, we helped HIZERO develop automated solutions to shorten its advertising transaction cycle, while driving traffic and conversion to reach a broader target audience. In addition to our product upgrades, we were honored to receive a couple of awards. For example, Digital Marketing Influencer Technology Company of the Year and the Best Digital Marketing Tool of the Year by GOLDEN MOUSE. And our case study also gold in private domain marketing and was awarded Classic Case of Socialized Marketing by Phoenix Tree. Together, these awards highlight our capability as well as strong industry recognition for our solutions. We believe our value proposition on top tier run client remains intact in the long term. Furthermore, we expect better performance once the overall market sentiment and the client operations recover. Our healthy financial position and the cash flow should allow us to further invest in our enterprise solution business. This concludes my opening remarks. Now I would like to turn the call over to our CFO to discuss our second quarter financial result. David, please proceed.

Thank you, TJ. Hello, everyone. I will report key financial results for the second quarter of 2022 compared with the same period last year. Total revenue was $38.1 million, decreasing by 51% compared with $78 million for the second quarter of 2021. Revenue from Marketing Solutions declined 52% to $24.3 million compared with the $54.6 million for the second card of 2021, primarily due to our scale down of our Marketing Solutions business and the slowdown of the overall advertising market. Revenue from Enterprise Solutions slightly grew by 3% to $13.8 million year-over-year and accounted for historically high 36% of total revenue for the second quarter of 2022. Gross profit for the second quarter of 2022 was $9.3 million compared with $24.3 million for the second quarter of 2021. Gross profit margin decreased to 24.3% from 31.2%. Total operating expenses was $26.8 million for the second quarter of 2022 compared with the $23.4 million for the second quarter of 2021, primarily due to the additional debt acquisition as a result of unfavorable macro conditions. Operating loss was $15.5 million for the second quarter of 2022 compared with operating income of $0.9 million for the second quarter of 2021. Goodwill impairment charge of $24.9 million was recorded in the second quarter of 2022 for Marketing Solutions due to the scale down of our Marketing Solution business, which resulted in a short fall between the carrying value and the estimated fair value of this segment as of June 30, 2022. The change to goodwill in balance sheet does not affect the company's cash position. Net loss totaled $45.8 million for the second quarter of 2022 compared with net income of $0.6 million for the second quarter of 2021, primarily due to the goodwill impairment and decrease in gross profit. As of June 30th, 2022, the company has cash, cash equivalents and deposit, and restricted cash of $83.5 million compared with $88.7 million as of December 31st, 2021. Now the non-GAAP measures. Adjusted EBITDA for the second quarter of 2022 was a loss of $13.2 million compared with the income of $6.1 million for the second quarter of 2021. Adjust net loss for the second quarter of 2022 was $15 million compared with adjusted net income of $2.6 million in the second culture of 2021. For further information, please see details in the press release we issued today. Now I turn the call back over to TJ for closing remarks. Thank you.

Thank you, David. We remain optimistic about the prospects for recovery in China's economy over the long term as COVID-19 control management recedes. The huge digitalization market opportunity remains intact and iClick will remain at forefront. We will continue to implement important innovations and strive for enhancements to our offerings that drive additional value for our customers. As always, I wish to acknowledge and thank our client partners, shareholders, and all our others stakeholders for your continued support and all our iClickers who have been essential in our success. Our management, clear strategy, clean focus on the market opportunities and prudent investment will guide us through this challenging period and establish a promising future for iClick. Thank you all for participating in today's conference call and for your continued support. This concludes our remarks and we will now open for questions. Operator, please go ahead .

[Operator Instructions]. And our first question today comes from Colin Liu from China Renaissance.

[Foreign Language] I just have one question. We all know that the second quarter results across both lines were severely impacted by COVID lockdowns and the COVID negative impacts on the macro economy. So, I wonder what's the progress of our recovery, particularly in July and August, if any color of recovery from this two months can be shared with us, that would be really helpful.

[Foreign Language] If we look at the July and August, we're only like one to two months past the second quarter. So over the past few months, we've seen some changes. The long-term changes still depends on the control measures in place, as well as the industrial regulation. And over the past two months, we've seen some recovery in our ES and MS businesses. For the ES business, the customers' long-term demand for digitalization as well as the SaaS products and the services are still there. Take Shanghai as an example, after this round of pandemic resurgence, customers have started to resume discussions. So, we think that the demand is still there, but just postponed and put off to the following quarters. And also because due to – because of the lockdown in Q2, internal communication, we think the customers' companies was stopped or delayed. And since the company's organizational structure usually is very complicated, so it takes time for the customers' company to resume their operation, resume their discussion. Therefore, long term demand, as I've mentioned, for ES business is there, but just delayed. Still MS business, we've seen some recovery of customer demand. In Q2, some customers' budgets were severely affected by the lockdown and also the logistics was also interrupted. Therefore, some customers had to stop the ad spend, but now we've seen some recovery. So, it still take time for the demand to recover to normal level.

Our next question comes from Nelson Cheung from Citi.

[Foreign Language] I have two questions. The first question is about Marketing Solutions. Just wonder management can provide more color in terms of industry verticals, like which vertical is recovering faster and be more resilient compared to other sectors. And my second question is related to the Enterprise Solutions, just wonder management can talk about more color about the current client base for the ES business, including the retention, the paying willingness and the outlook into the fourth quarter?

[Foreign Language] Hello. This is TJ. I will take your first question about Marketing Solutions business. And as to the second question about the Enterprise Solutions business, I believe David will be in a better position to answer that. Okay, as to the Marketing Solutions business industry verticals, since early this year, we have started to scale down the Marketing Solutions business, in particular, those very competitive industries like gaming. And over the past two quarters, we have strategically winding down our businesses in these industries so as to redirect our resources to Enterprise Solutions business as well as those part of our Marketing Solutions businesses that have high synergy with ES businesses, such as consumables. In spite of the weakness in the macro economy, we think about consumables still have room to survive and grow. And we've also seen recovery in their advertising budget over the past one to two months. As to other industries, for example, education, we can see that their advertising spending has fallen off the cliff and I don't think it will recover this year. And other industries, they're also out of our radar now.

[Foreign Language] Okay, this is David. Let me take your second question about the ES business. In the second quarter, 410 ES customers contributed to our revenue. Compared with Q1, there was a mild increase about a dozen of customers. And in Q2 due to the strict lockdown in Shanghai, our businesses were severely affected. Most of our ES revenue come from our Shanghai subsidiaries. Further, as TJ has made it clear, that we've directed our resources to ensure that ES businesses can continue to grow. So, we've seen a mild growth of the ES business in the second quarter and our revenue has also increased slightly by 2%. [Foreign Language] As to paying willingness, we don't see any changes. It just started during the Shanghai lockdown, some customers delay their payments. But as long as the lockdown was lifted, they've honored their payment. As we've mentioned, the demand for digitalization services is very strong, but since the economy is weak, so customers have become more price sensitive. So we will try our best to provide more valuable services for our customers.

Our next question comes from Thomas Chong from Jefferies.

[Foreign Language] I have two questions. My first question is about our Enterprise Solutions. So how do macro headwinds impact the pace in ramping up the Enterprise Solutions and updates about our strategies in near, medium and long term. And my second question is about the competitive landscape in Enterprise Solutions and are there any updates about the cooperation with Baozun?

[Foreign Language] This is TJ. I will take two of your questions. So, the first question is about the strategy of the ES business. While the macro environment has been affecting our economic conditions and we found out that a lot of factors are out of our control, for example, the macro headwinds and the poor performance of the capital market which has led to the closure of financial channels for us. Therefore, the management has shifted our focus to redistribute resources, so that we can ensure the further development of Enterprise Solutions business because we are confident about the prospect of ES business. We think that the long term demand of enterprises for digitalization is there and we are optimistic about the prospect of the Enterprise Solutions business. So we must redirect resources and invest in its future deployments. And as to – and also strategic wise, we will also control the cash flow as well as the operating risk and we will do a better job in controlling the input and output of our businesses. [Foreign Language] Okay, let me take your second question about the competitive landscape in the ES business, which is related to the first question also to our long-term strategy. Well, we think that the digitalization of China's economy as well as Chinese businesses are still at its early stage and different players have different business models and targeted different customer bases. And we think that in the next three to five years, this will still be a blue sea market. Therefore, it is critical for companies to establish leading position in this time window. And for us, our advantages are, first, we have accumulated a large number of quality customers from our MS business. And the second, we have adopted SaaS+X model, which provides both products and services to our customers because we think that these kind of model will increase the stickiness of medium to larger size customers by meeting their long-term demands. And the second thing about the competitive landscape is that ES business or the ES market actually is a 2B market, unlike a 2C market, which is a winner takes all market. So, in the ES segment, there will be companies like [indiscernible]. There will also be companies' cloud IT departments, like some cloud IT departments of giant companies. So, as long as the digitalization market in China is big enough, I think our company will grow to a large scale. And the third thing about the competitive landscape is every company has its DNA. It's not easy to simply copying others. For example, some companies are good at F&B business, but for us, since we've started, we have been accumulating large and medium sized customers or targeting large and medium sized customers. Therefore, our way of thinking, our organizational structure are actually geared towards the large and medium sized companies. Therefore, we think that we have our place in this market segment. And since we started to enter the ES segment in 2019, the first industry we've chosen is consumables. And up until now, consumables remain the most important customer base for us. And we think that it is the right choice, in particular given in this market environment because even when the economy is weak, consumables are still in an inelastic demand of our customers. So, as long as we continue to improve our services, this business will be sustainable and we will have a big room to develop. [Foreign Language] The third question is about cooperation with Baozun. We have made various available explorations with Baozun and we've come to some solutions, which have been validated or implemented by our customers. And the both of us have also introduced customers to each other. Just that some customers, they don't want us to promote it. So we didn't make a fuss about it. And having said that, our cooperation with Baozun hasn't generated big revenues. And a lot of reasons for that. The first is the pandemic and the second is the challenges facing Chinese ADR companies currently. Both of us are Chinese ADR companies. So we have been really affected by the recent developments. And in the future, I think we're going to further explore better ways of cooperating with each other. All in all, we have made some progress in solutions, into the recommendation as well as customer validation. And we've also already started talking with Tencent about a cooperation, but it's just that there's some suspension due to the various reasons. And so, in the future, when things go back to normal, both of our companies, well, we can talk about how to better cooperate with each other

[Operator Instructions]. Our next question comes from Brian Kinstlinger from Alliance Global Partners.

[indiscernible] for Brian. Could you just talk about really quickly how the pace has changed for new mini app integrations in your Enterprise Solutions over the second quarter and thus far in the third quarter compared to the beginning of 2022 and even the second half of 2021?

Can you repeat your question?

Can you talk about how the pace has changed for the new mini app integrations for your Enterprise Solutions over the second quarter and thus far in the third quarter compared to the beginning of 2022 and even the second half of 2021? [Foreign Language]

[Foreign Language] Hi, Brian, this is a TJ. I believe your question about the pace of mini app integration of Enterprise Solutions business is related to our WeChat ecosystem. As to the specific data, I would like to ask David to provide you with that data, but I can give you some overall picture. Compared with the same period of last year, we're seeing the ES business and the WeChat ecosystem slightly increasing, or at least stabilizing. And you can see that compared with the Q1, I believe there was also some [indiscernible]. Due to the impact of the pandemic, due to the impact of lockdown in Q2, and our businesses were severely impacted, yet we've accumulated a lot of customer demands in Q1. And at that time, we didn't have enough resources to deliver to customers. So in Q2, we have started to deliver to customers through remote working. And this has shown that there is a strong customer demand for ES businesses in the WeChat ecosystem. And in Q2, our colleagues couldn't go out to pitch to new customers. And of our customers, they were also suffered some internal communication issues, but still we delivered. And as to the July and August, now we've seen that the pandemic was put under control. So, our colleagues can go out to find new opportunities now. So I believe that, in the following quarters, the ES business will recover steadily.

[Foreign Language] Okay, this is David. Let me add a few points. In the second quarter, ES customer base has increased compared with the first quarter this year or the second half of 2021, although the ARPU has dropped. And the ARPU dropped in the second quarter this year due to two reasons. First is the strict control measures and the second is the poor macroeconomic conditions. And the second reason is, though, there are some new ES customers, yet they didn't contribute substantially to our revenue in second quarter. I believe their contribution has been delayed. And overall speaking, the growth momentum of the ES business hasn't changed dramatically, thanks to our SaaS+X model. And you can see that our customer number, if you look at from the customer number perspective, the retention rate is about 60% because some customers, when they come in, they may find our solution is not very valuable for them. So, they will leave, but all the retained customers are long term high quality customers.

Ladies and gentlemen, with no further questions, I'd like to turn the floor back over to Lisa for closing remarks.

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.

This concludes the conference call. You may now disconnect your lines. Thank you and have a great day.