Earnings Call: H2 2019

Mar 17, 2020

Good evening, ladies and gentlemen. Welcome to Weimong Inc. Twenty nineteen Annual Results Conference Call. A copy of the interim results announcement can be found and downloaded from the company Investor Relations website at http:group.weimong.comenpage/relation. At this time, all lines have been placed on listen only mode and the floor will be opened for questions following today's presentation. Now I'm handing the conference over to your host today, Mr. Cao Haidong, Weimong Investor Relations Director. Haidong, please go ahead. Thank you, Lauren. Ladies and gentlemen, welcome to our twenty nineteen Annual Results Conference Call. Joining us today on the call are Mr. Sun Tao Yong, Chairman of the Board and CEO and Mr. Cao Yi, CFO and Joint Company Secretary. The call will be conducted in Chinese and English. Before we begin, I would like also to remind you that the management comments during the call will include forward looking statements that are based on our current expectations. All statements other than statements of historical facts during the conference call are forward looking statements, which are subject to a number of risks and uncertainties and may not be realized in the future or were at risk. Information about general market conditions are coming from our retail associates outside of the company. The presentation also contains some unaudited non GAAP financial measures that should be considered in addition to, but not as a substitute for measures of the company's financial performance, preparing according with IFRS. So please do take a minute to read the risk factors and non GAAP measures discussed in Weimong's 2019 annual results earnings release. I'll now turn the call over to Mr. Sun. Hello. Distinguished investors and friends, I'm Seng Hao Yong, CEO and Chairman of WeMob. And today, I would use Chinese to deliver my speech and I am the interpreter for Ms. Kishun. Welcome warmly welcome to our financial results conference call. Since we have several new friends here, so I'd like to have some minutes to introduce our company first. So Waymo is a solution providers of the smart retail and the smart commerce and we have set up the bridge connecting the merchants and the users and to have the targeted marketing and a comprehensive solution. And right now, we have set up these three clouds, e commerce cloud, marketing cloud, sales cloud and also we have our WeMot cloud platform. And our solutions is mainly helped with the Tencent and we set up this bridge connecting the merchants and the users. And about the these commerce, we would use the Mini Program and the public account. And our mission is to help with our solutions to help our merchants our merchants customers to have their digital transformation and use technology to have their commercial upgrading and this is much retelling. And specifically for our products, we have managed two core business. One is the target marketing and the other one is SaaS. And in the SaaS, have Commerce Cloud, Marketing Cloud and the Sales Cloud and also we have the Platform Cloud. And the core business in the cloud is the commerce cloud and the mainly is Phase two, the e commerce retailing, the restaurants and takeaway and localized and the hotels. And our marketing cloud is to display the creative products for our customers and also to provide the digital CDP for our customers. And the sales cloud is to provide a comprehensive sales solution for our customers. The targeted marketing is to use the mobile and the Internet advertisement platform such as the Tencent, Kuaishou and TikTok to provide these solutions for our customers to have a targeted marketing. And now we come down to the highlights of our 2019 financial year. Our total revenue for the year ended at December 3039 reached more than RMB $14,400,000,000.0 and up by 66%. And also our EBITDA has reached slightly from RMB 170,000,000. And worth noting is that our staff increased by 46.1%, reached RMB $510,000,000. And under this not so good background in the 2019, our gross profit of the targeted marketing field has realized the 100% of increase reached to million. And our very remarkable increase of SaaS due to the increase of our merchants and also they are up and these especially in this monthly tolling and our brand users have reached more than 200 and also we have an increase I think it is more than 125,000. And our smart restaurants and smart F and B also have reached more than 4,600 and it's much more than the e commerce department. And also in the beginning of this year, we have acquired Yasuo CRM. I think that there will be a large market potential in the smart FNB. And I think we have specific noted about the market and also the strategic operation. So I will not go down in detail this time. And now let's get to the specific business. First of all, we'd like to introduce those one solution comprehensive one stop comprehensive solution and what is different from the others. And we know that there's a keyword this year is about this private domain traffic. And we can see that on the left is the centralized public domain traffic and on the right is the private one. And we can see on the left, there are many pain points in this system of decentralized style. For example, there is not to diversify the traffic source and also the merchants cannot control the data of their users and they cannot reach their users very efficiently. And also there remains a very high cost and high commission by the platform and so that it increased the acquisition cost. And also especially during the coronavirus period of time that this high commission is really very painful for the merchants. And from our side, we are decentralized style and so that we can connect to the merchants and the users. And also we the merchants can have the data of their users. And also in the later stage, we only charge the technical support fees. So that the cost is very low and also they can control the data of their users. So our merchants become more and more satisfied with our solution. So we can see that it has already become a mainstream carrier and also the file in The U. S. In China and especially after this virus broke out, we can see that there will be more and more importance attached to the private domain traffic and also the data has become more and more important and this will all transfer to the decentralized private domain such as the Mini Program. And I think that there will be a huge market there. And specifically about our SaaS products, we mainly include those e commerce and the retailing, restaurant takeaway, localized and the marketing. And also our core focus is on the e commerce and also about the retail, retail is more about this chain stores and it seems that they exist as the form of the store. So our charging model is divided by the source and also the technical software. And also there is up is also higher than the e commerce. And we can see the merchants number is increasing very remarkably as well as it's up in 2019 and also our attrition rate is very low. And about our targeted marketing and we mainly in the like the decorating, furnishing and also the fabric and also the wedding. And we can see that the business is quite even among all those segments. And we can see the expenditures of our advertisers is increasing fairly notably. Means that their budget is increasing and also purchasing is increasing. Also our remarkable results cannot do without the help of Tencent. For example, their help in the Mini Program, their WeChat Pay and the Smart Retailing and also Tencent Cloud. And about the outlook in the future, we're still focused on the core of our digital transformation and to take this as our core strategy to provide the cloud service, especially to increase the portion of our sales cloud and the service cloud. And in the e commerce cloud, we will still focus on the e commerce and we think that we have the advantages, very notable advantages in our the numbers of our merchants and also looking at the proportion of the smart retelling would become much higher in the e commerce and this commerce cloud. Therefore, as also we would carry out the strong cooperation with our enterprises in the up and downstream for this chain. And we think that the e commerce and the retailing will be a much good picture. And about the restaurant takeaway, we still have a we will remain this strategic position. And since as I have said that in the beginning of this year, we have acquired Zuo CRM and also we have invested in Shangyou, this comprehensive solution providers to include all the service link such as the ordering and the delivery and also the menu. So that's our I think that's our main differentiation is the decentralization so that we could have a more private domain data and traffic and to improve our services for the customers. And in the future, we think that we would improve our liquidity capabilities of our customers. You can see that in our SaaS and also the targeted marketing business, we have already improved their up and we think that in the future the strategic focus will be increased their liquidity capabilities. And in the future, we would have more cooperation with those decentralized platforms. Tencent will remain our main partner and also we will reach out to Kuaishou, Baidu and TikTok and the other platforms. And also we would improve the cooperation on our cloud platform and to attract more third party developers to cooperate with our merchants. And recently we have serviced many large customers and we think that the in the future we would have could have some more space for that. And from the end of the last year and to the beginning of this year, we have many movements in the investments and the acquisition. So that in the future, we would have more strategic outlay for the industrial acquisition and investment. And now we will turn Okay. The call over to our CFO, Thank you. This is Tao Yi, CFO of the company. Next part is financial highlights. The past 2019 has seen an increasing headwind in the macro economy. Nevertheless, we delivered a strong performance. Total revenue was RMB1.4 billion, 66% year over year growth. Revenue from both segments increased significantly and contributed to the total revenue growth. In terms of revenue dollar amounts, SaaS represents 35% and Target Marketing represents 65% in 2019. In terms of number of paying merchants, our core business SaaS represents 70% and target marketing represents 30%. The trend of improving operating efficiency continues in 2019 as a percentage of operating expenses as of revenue further decreased to 9%. In 2019, we booked a profit of million, excluding one off items like fair value change of preferred shares before the IPO listing, share based compensations and listing expenses, the adjusted net profit is $77,000,000 representing 52% year over year growth rate. In addition to the strong financial performance, the financial position of the group is solid. By the 2019, total assets is billion, net asset is RMB2 billion dollars and total cash and cash equivalent plus term deposit amounts to $1,300,000,000 Next is a detailed revenue page. As we can see, revenue grew from $865,000,000 to RMB1.4 billion in 2019 with a year over year growth rate of 66%. Revenue grew at both segments. SaaS revenue grew 46% from RMB347 million in 2018 to RMB $5.00 7,000,000 in 2019. And target marketing revenue grew 80% from RMB $518,000,000 to RMB $930,000,000. Although revenue mix slightly changed year over year in favor of target marketing, in terms of paying merchants mix, SaaS remained relatively stable around 70%. One of the highlights in 2019 is surging SaaS revenue growth. After launching various products in 2018 targeting at offline markets, we have seen strong growth in new segments, which bring more momentum in revenue growth. The year over year growth rate of SaaS revenue has been accelerated to 46% in 2019. Among them, Commerce Cloud represent 80% of SaaS revenue with a year over year growth rate over 50%. Number of paying merchants grew by 23% from 64,695 to 79,546 in 2019. And the ARPU increased by 19% from RMB 5,365 to RMB6373 in 2019. The momentum we've seen in the first half in the ARPU growth rate has continued and accelerated, indicating the achievement we have been made in exploring offering offline markets with more medium to large size merchants with a scalable pricing policy. 2019 was not a good year for the advertising industry. Yet despite all the headwind, we have doubled the size of our target marketing gross billing to RMB5.3 billion and achieved the revenue growth of 80% to RMB930 million in 2019. The strong growth in gross billings were mainly driven by both the increase in the number of advertisers and the average spend per advertisers. Number of advertisers increased 19% from 28,000 to 34,000 and average spend increased 77% from RMB87000 to RMB155000. Our target marketing revenue consists of gross billing recognized in both net and gross method among the total of 5,300,000,000.0 gross billing, 73,000,000 gross billing were booked revenue by gross method and the revenue so booked is 71,000,000. The remaining gross billing of billion is booked revenue using net method and the revenue so booked is million. The proportion of revenue under gross method increased slightly to 62% in 2019. Next page, the overall gross margin decreased from 60% in 2018 to 56% in 2019, mainly as a result of increased proportion of revenue from Target Marketing. SaaS gross margin decreased from 85% to 81% as we invested heavily in R and D efforts and launched a number of Commerce Cloud products in offline verticals in the past two years, enhanced cost of the increase in the amortization of capitalized R and D expenditure in the cost of revenue in the current year. We will continue to invest in R and D to strengthen our product leadership, which will impact our gross margin in the short run, but we expect the growing revenue will gradually absorb the costs and rebalance the gross margin around 80% in the long run. Target marketing gross margin went down slightly from 43% to 42% mainly due to the increased proportion of revenue under gross metrics. We continue to see the trend of improving operating efficiency. Operating expenses as a percentage of revenue further decreased from 63% to 56% in 2019 after excluding the one off listing and other expenses. The sales and distribution expenses increased from RMB450 million to RMB695 million in 2019, mainly due to increase sales and marketing staff costs by million, contract acquisition costs by RMB47 million and rental and property expenses by million or in line with our business expansion. The general and administrative expenses increased from $94,000,000 to $105,000,000 in 2019, mainly attributable to increased R and D efforts. So with a strong growth in top line and improving operating efficiency, we were able to make a profit in we were able to continue to make profit in 2019. The total net profit for 2019 is $311,000,000. Excluding the fair value change of preferred shares of $298,000,000, one time listing and related expenses RMB 41,000,000 and other non GAAP items, the adjusted net profit is RMB77 million, over 50 increase year over year. So with that, that concludes the financial highlight part. Next part, we will move into Q and A. Thank you, management. We will now begin our question and answer session. Our first question is Benny from Fidelity. Please go ahead. Hello, Ta. Hello, Mr. Shi. I have two questions. The first one is, just now you mentioned that the smart retail has a very large time. May I know what how large the time is? And how does it compare to current penetration? If that succeed, how high the expected growth can be achieved in the coming three to five years? This is my first question. Okay. All right. So my answer is that in the first is in the Chinese market, we probably would have more than 5,000 brand partners and that is for brand and for those long tail customers maybe will probably more than the 100,000 and also all those are happy demand for digital transformation and they have their budgets about 200,000 to 1,000,000 and so we think that the per customer's budget would be at around averagely 300,000. Therefore in the and also and we have the per app is about the 200 to 300,000. Therefore, this and and we can multiply it by the 5,000 brands and you can you can you can figure out. And also I think that for those small and medium market it will be more. And and also all of this we would charge for the for the subscription. And we think that after we reach these customers and then they would have more demand for us and our relationship or our ties would have become closer and right now we have realized 100% of the purchase and we think that they have the need to purchase more store and there will be more potential market for them. And also we can maybe we can have some more opportunities in the cross sell for example the advertisements launch, advertisements reach to our customers and then it will increase our charge and then when our tie become closer maybe we can have the opportunities in the live streaming on our platform so that we can have much more commission and so all in all that's in our trends the transcription is about maybe 1.5 to 3,000,000,000 of users and then after the transcription we can have advertisement and also the traffic transaction and then it could become more opportunity for our business and then it will have a larger market And then so in for this smart retailing, we think that we have more than 44 we have a 44,000,000 of the volume and it's reached within only one year because we only started from the end of last year. So we think that in the next three to five years, the growth rate would have a double that. And right now the penetration rate is not so high, but we started only last year and right now the coronavirus break out and we think that it's probably is also a blessing in the disguise because it could accelerate the transformation of digitalization and we think that in the future we could have a 30% to 40% of our market share. Okay. Right. So about the incident by the end in the February, and this is the mainly probably about the access management is not so well developed and for the hackers and also the network penetration. So that you have to improve the internal control and the management and also to have a specific and a more clear division of the technical access and also so that in order to avoid the instance happen again. And also the second reason is that previously right now we are moving all those core data and the devices onto our cloud because previously we have the mixed cloud. Our external external servers are in our cloud while the core servers are in Tencent and but right now we want to integrate them together and right now we have to move the 30% onto the integrated cloud and within one month we would transfer all the data onto the integrated cloud and so that the with the help of the Tencent they can guarantee the data self security and also we have the several backups in the four cities like Beijing, Nanjing and Hangzhou and also we have the multiple cloud backup. We also have the third party cloud to make sure that the data is very secure. So in this way that I am very I think I can guarantee you that in the digital and the data security, no partners or no platform has the investment as big as WeMot and also has as specific as ours and we think that the investment into this data security would increase by 10%, but it is a must to invest and it can guarantee our data security. Next question is Li Dong Hai, Chongqing, Goxin. Please go ahead. Okay. Please go ahead. Okay. So about the influence of the incidents on the ordering and the acquisition of our key KOL and right now we're seeing that there's almost no influence or bad impact on the current core customers and they also have to recover their business more or less. And we think that after the coronavirus and the incidents probably there will be some suspicious of our credit and of our reputation. But we know that the KOLs those who have signed the contract and who are pending the signage is increased to five to six times and it is much higher than the peak in the December. And right now we have many larger KOLs level, let's say SKA level, they are pending the signing the contract with us. And by now probably because those are large customers, they probably have needed to have more capability to support them. And also we probably cannot meet their customized demand right now. But we think that we are improving and we think the incidence has no impact on our KOL. About our medium and small customers, the competition is very fierce. So the question is whether there is the specific about the attrition rate. And our answer is that because we cannot know the attrition rates without the data of the renewing of the contract, but we based on the feedback and also the after sale information, our medium and small customers are quite satisfied with us and including those damage claim. And in the January and February, probably we don't have much new latest or new medium and small customers, but we're seeing that in March we have seen the breakout and it's kind of the revenge breakout. So we think that in the we are quite confident in the future. About the advertisement. Right now, I don't think that it is the right time because maybe later we could have more business like the sales force in Chinese market and as there are more types of the cloud and we can put out into the market then that maybe we will have this business model. But right now I don't think it is the right time. Maybe after we have more than 300,000 to 500,000 of the paid merchants then we can have this model. Okay. That's all my questions. Thank you. Next question is Cici Tang, Zidec Securities. Please go ahead. Okay. And we think that we have the structure of SaaS and cloud and we think that our commerce cloud is our core and it's quite mature. And later we will do in this integration and the major direction is about to be e commerce and retailing and also the restaurant to take away and it probably have some overlapping with our commerce because we all have this public management and also like the live streaming and we think that we have the retailing, we have the KA of the key accounts more than 7,500 and also in the digital and the e restaurant, we also want to improve our KA and since that we have acquired Yazuo and they have more than 40 customers and we think that we can improve our reach to the not only of the membership, but also we can increase the business in the cashier and the ordering and the takeaway delivery so that we can have a very comprehensive service for our customers. And also it is also their pinpoint, they're seeing that they have many service providers, but they are not connected together. So we could just resolve this pain points for them. We can connect those service for them to have a one stop shop for them. And also we can have more opportunities in the hotels since we have cooperated with the Changmingiao. So the main focus is in the middle and higher end markets, but we have already have the arrangements for the lower end market. But this is the coronavirus we don't have a very good start this year, but we think that things will become better later and also we can improve the beauty industry later. This year we think that we can focus more on the sales cloud because previously we only have the sales push like the business cards to have this kinds of management tool. And right now we can improve this and also enlarge the service. We can include the business cards management tool and we can have the calling center, we can have the acquisition of the customers for them. So this has a comprehensive CRM management tool for our customers. It is a very competitive and right now some of our customers have already begin to have the internal beta test of this CRM system. Our answer is that the service industry is quite even for our part. So we don't think there'll be a very big problem. Of course, specifically some industrial will have a huge role or impact like the catering F and B and also the wedding gowns, they are not so good this year and also especially those wedding gowns, but we also have our advantage like e commerce, e education and e payment. So we think that the overall situation is that this some part is decreasing and some part is increasing. So they are complementary with each other. Therefore, we don't have much burden on our part and also we think that we should also not only focus on the speed, but also focus on the quality, like the effectiveness and the efficiency and also to have a multi channel service for our advertisers. And we have realized the increase in the for the last year and also this year, the the first season. So we think that once the advertisers exist, that has survived in our platform, then they need to increase the app. And we think that's the last year the base the base is one one hundred and fifty thousand and for this year we don't have a very exact number but we believe that it would improve more. Our next question is Yang Lin Lin from Fossil Credit. Since most of our customers are online, so the impact is not so big for us and we have already recovered all those online customers business and also about there are some huge blow to our catering and also the localized business because of the delivery hasn't been mature enough and also we are the membership model. So if they buy us online probably we don't have a very good or very sufficient statistics for them. But however, the retailing the e retailing is very good for us and maybe previously it is 80 percent of our consumers would buy in the brick and mortar store and the 10% would buy in the mini program. But right now after the coronavirus maybe almost 100% would move to our mini program. So and also you know in China the retailing is not just the e commerce and they would more prefer to do the business in the private domain, traffic domain like the mini program and also like last weekend we have done the live streaming together with and we have to help them to realize 25,000,000 of a sales volume. It is quite big. So we think that the sales I think there will be a two to three times of increase and also after the coronavirus some offline business would recover but as previously I have predicted that we probably can achieve 30% of our business in the Mini Program and after this coronavirus we think it is no longer a very big problem. About the attrition and we know that because of the SaaS business, our customers business system and also their customer relations all have a very closer ties with us and also our regular or the other customers and Okay. Our next question is from Emerson Chan from Bank of America Merrill Lynch. Okay. And for your first question, I think that's because our customers are mainly SMEs. And in 2019, we start to increase our investments into the smart retailing and the smart restaurants. So I think that the renewal rates, both the volume and also the value is a quite consistent. And because of the increase of their stores and we think that the probably the volume would the value would be larger than the volume. And about the challenges in the future, we think that the staff in China, the our target is more about the SMEs and there are many of them and very diversified. And the difficulty is that it is quite difficult to charge them or to cap service for them because they are quite cautious about this new things. And but with the economic background and also the coronavirus background, maybe we think it is more acceptable right now for them and given they changed their mindset, they have seen the advantages of SaaS in this kind of challenge time. And also with the example of the early adopters, we think that this problem would be soft in the near future. And because and also more and more customers are they prefer the success delivery and they would maybe to buy more products from the SaaS platform. So I predict that in the future one to two decades, it would be a golden period golden decade for the digital transformation, whether it is BAT, those big companies or the other small ones. And of course, as for us, Wim Hof, we don't think that for us to single, we cannot single handedly build up a digital transformation platform, but we can have more cooperation with the platform providers and Tencent and any other technical companies like we can provide application and they can build up the platform so that we will have this symbiotic relationship and to have more collaboration. And I think in the future the challenge was no longer exist there. Amazon. Next question is Yu Li, Haitong. Thank you, management, for taking my question. My question is just to do with our M and A outlook. I know we just invested in Yazuo. I was just wondering if we have any more plans for acquisition. If we do, what kind of industry or what type of companies are we looking at? About the M and A, we think that's because of the advantages and complementary relations For example, our M and A with Yazuo, we can have more help with each other and to reach a one plus one larger than two this effect and also maybe we can do more in the beauty industry. And so that I think in this year, we will have a comment arrangements or some movement in the M and A. Thank you. Now I'd like to pass back to Hai Zhong for the closing remarks. Yes. Thank you. Due to the time constraint, we now close today to the call. On behalf of Weimong's management team, would like to thank you for your participation in today's conference call. If you have further questions about Weimong, please feel free to contact us. Thank you and goodbye.