Earnings Call Transcript - AEHL Q2 2024

Operator, Operator

Good morning, and good day. Welcome to the Antelope Enterprise Holdings First Half 2024 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to David Rudnick of Precept Investor Relations. Please go ahead.

David Rudnick, Investor Relations

Thank you, Drew. Good morning ladies and gentlemen and good evening to those of you who are joining us from China. Welcome to Antelope Enterprise Holdings First Half 2024 Earnings Conference Call. With us today are Antelope Enterprise's Chairman and Chief Executive Officer, Mr. Will Zhang; and his Chief Financial Officer, Mr. Edmund Hen. Before I turn the call over to Mr. Zhang, I would like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties and include, among others those regarding revenue, operating expenses, other income and expense, taxes and future business outlook. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements. The company claims the Safe Harbor protections for such forward-looking statements as contemplated under the Private Securities Litigation Reform Act of 1995. Please refer to the documents filed with the Company with the SEC. Specifically, the most recent reports on Forms 20-F and 6-K, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. We assume no obligation to update any forward-looking statements or information, which speak as of their respective dates. And now it's my pleasure to turn the call over to Antelope Enterprise's Chairman and CEO, Mr. Will Zhang, and Antelope Enterprise's CFO, Mr. Edmund Hen. Antelope Enterprise's translator will be translating for CEO, Will Zhang. Mr. Zhang, you may proceed.

Will Zhang, CEO

Thank you, David. On behalf of the company, I would like to welcome everyone to our first half 2024 earnings conference call. Revenue for the livestreaming e-commerce business segment was $43.4 million for the six months, which is slightly lower than the $44.6 million recorded for the same period in 2023. This minor decline was attributed to the loss of a few major clients and a shift in business strategy aimed at acquiring a larger number of mid-tier clients to reduce the risk associated with relying on major clients. In the first half of 2024, we had engagements with more than 70 clients, an increase of nearly 20 clients compared to the first half of 2023. Our majority-owned KylinCloud subsidiary offers comprehensive livestreaming marketing and broadcasting services to consumer brand companies by aligning their products with suitable hosts and influencers. We see a significant market opportunity ahead and are confident that we have the necessary resources, infrastructure, and team culture to drive sustained growth in the B2C ecosystem. In a key strategic move, we recently announced our plans to enter the energy sector in the third quarter of 2024, launching this business in Texas to address the rapidly growing needs of the computing power industry. We believe our entry into the energy supply sector is timely to meet the anticipated high demand for energy driven by these sectors. Now, I would like to hand the call over to the company's Chief Financial Officer, Mr. Edmund Hen, who will provide a more detailed overview of the company's first half earnings results. Thank you.

Edmund Hen, CFO

Thank you, Mr. Zhang. I’ll now move on to a more detailed discussion of our financial results for the six months ending June 30, 2024. Revenue for the six months ended June 30, 2024, was $43.5 million, a decrease of $1.1 million or 2.6% from $44.6 million for the same period of 2023. The decrease in revenue was due to the loss of a few of the livestreaming business major clients in the current period. This propelled a change in business strategy to focus on securing a larger number of mid-tier clients to mitigate the risk associated with an over concentration of major clients. In the first half of 2024, we had business engagements with more than 70 clients which represented an increase of nearly 20 clients compared to the same period in 2023. Gross profit for the six months ended June 30, 2024 was $3.5 million, a decrease of $3.3 million or 46.7% as compared to $6.8 million for the same period of 2023. The decrease in gross profit was due to the decrease in revenue and an increase in the cost of goods sold in the current period. For the first half of 2024, gross profit margin was 8% for the livestreaming ecommerce business as compared to a gross profit margin of 15.3% for the first half of 2023. Selling and distribution expenses for the six months ended June 30, 2024 were $3.1 million, a decrease of $4 million or 55.9% as compared to $7.1 million for the same period of 2023. The decrease in selling and distribution expenses was due to decreased advertising and promotion expenses of $3.5 million and decreased commission expenses of $0.5 million. Administrative expenses for the six months ended June 30, 2024 were $6.9 million, an increase of $1.3 million or 22.8% as compared to $5.6 million for the same period of 2023. The increase in administrative expenses was due to an increase in stock compensation expense of $0.8 million and a $0.5 million increase in professional service expenses. Loss from continuing operations before taxation for the six months ended June 30, 2024 was $6.5 million, an increase of $1.1 million or 19.3% as compared to a loss from continuing operations before taxation of $5.5 million for the same period of 2023. The increase was due to the decrease in gross profit in the current period as compared to the same period of 2023, as well as an increase in administrative expenses, which was partly offset by a decrease in selling and distribution expenses. Loss per basic share and fully diluted share from continuing operations for the six months ended June 30, 2024 were $0.96 as compared to loss per basic and fully diluted share of $3.38 for the same period of 2023. Turning to our balance sheet. As of June 30, 2024, we had $2.3 million in cash and cash equivalents, an increase of $1.8 million or 333.2% compared to $0.6 million as of December 31, 2023. As of June 30, 2024, working capital was $5.8 million and the current ratio was 2.6 times. Shareholders' equity as of June 30, 2024, was $18 million, an increase of $3.6 million or 25.2% as compared to $14.4 million as of December 31, 2023. Moving to our business outlook. We own a majority position of a livestreaming e-commerce business, Hainan Kylin Cloud Services Technology Company Limited, and aim to launch an energy supply business in the third quarter of 2024. Kylin Cloud’s SaaS systems platform strategically matches hosts and influencers to consumer brand products, which results in increased sales for those companies. In the last few years, livestreaming e-commerce has comprised an ever-increasing percentage of China's e-commerce sales, which we expect to continue in the years ahead, spurred by a consumer ecosystem that includes a young demographic and their high usage rate of mobile devices. We believe that Kylin Cloud is unique in the livestreaming space since it utilizes advanced analytics that match hosts and influencers to consumer brand products, which facilitates unique content for higher conversion rates as compared to traditional e-commerce. In the current period, the business strategy of the livestreaming business was modified to focus on securing a larger number of mid-tier clients to mitigate the risk associated with an over-concentration of major clients. Since some of these new clients are still in the beginning stages of collaboration and their business volume has just started to grow, it will take time for the new mid-tier clients to develop and increase their sales volume. In the first half of 2024, the livestreaming business had business engagements with more than 70 clients, which represented an increase of nearly 20 clients compared to the same period in 2023. In an important strategic development for the company, we recently announced plans to enter the energy field through the production of electricity using natural gas generators in Texas. This electricity would then be transmitted directly to rapidly growing computing sectors, which require high amounts of energy. Compared to conventional methods, this method eliminates intermediary steps like transmission to the power grid and processing by public utilities, which will result in lower energy losses and higher efficiency. Given the strong market demand, the company believes it has a runway for significant growth in the near future. The business outlook reflects the company's current and preliminary views and is based on the information currently available to us which are subject to change and are subject to risks and uncertainties, as well as risks and uncertainties identified in the company’s public filings.

Operator, Operator

We will now begin the question-and-answer session. The first question comes from Steve Silver with Argus Research. Please go ahead.

Steve Silver, Analyst

Thanks operator. And thank you for taking my questions. I was hoping you could provide some color about how the company made the strategic decision to enter the energy supply field.

Unidentified Company Representative, Company Representative

Thank you for the questions.

Will Zhang, CEO

Let me begin by saying that the US Energy Information projects that electricity demand in the United States will increase to record highs in 2024 and 2025, largely driven by demand from large scale computing facilities. The IEA also stated that global data center electricity demand is expected to double from 2022 to 2026, with AI significantly contributing to this increase. Data centers support various operations, including financial transactions, social media, and government functions, and training AI models requires substantial energy. The IEA predicts that in two years, data centers could consume the same amount of energy as Sweden or Germany. Data centers require a continuous and stable energy supply to function. We believe we are entering this market at the perfect time to offer a cost-effective and stable method of supplying electricity to data centers and companies in need of computing power.

Steve Silver, Analyst

Okay. That’s helpful. Thank you so much. And one follow-up. You've mentioned being cost-effective in your model. Is there any detail you can provide about the business model in terms of how it is supposed to be cost-effective and designed to be a stable source of energy for your customers?

Unidentified Company Representative, Company Representative

All right. Thank you so much.

Will Zhang, CEO

We are situated near the natural gas production site, which allows us to reduce transportation costs and avoid expenses related to compression, transportation, and storage. We are also strategically located near our customers to further decrease transportation costs. This enables us to provide electricity to our customers in a very cost-effective manner. We closely monitor the natural gas market and believe we have a solid strategy for determining the best timing to secure natural gas for our operations. Currently, we have four generators that convert natural gas into electricity, and we plan to launch this business in the fourth quarter of this year.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to David Rudnick for any closing remarks.

David Rudnick, Investor Relations

Thank you, Drew. On behalf of the entire Antelope Enterprise management team, we'd like to thank all of you for your interest and participation on this call. This concludes Antelope Enterprise's first half 2024 earnings call. Thank you very much.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.