Earnings Call Transcript - CLPS Q4 2020

Operator, Operator

Hello, everyone, and welcome to the second half and full year fiscal 2020 earnings conference calls for Scalps and Corporations. Please note that today's conference is being recorded at this time. I'd like to turn the call over to Mr. Rhon Galicha, CLPS Investor Relations for opening remarks and introductions. Please go ahead.

Rhon Galicha, Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us on today's call. CLB incorporation analysis, second half and full year fiscal 2013 financial results. Yesterday's earnings release is now available on the company's website. Before we continue, please note that our discussion today may include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. As such, our results may be materially different from the views expressed today. Further information regarding these risks, certain assumptions, and other factors that could affect our financial results is included in our Form 10-K filed with the U.S. Securities and Exchange Commission and other documents filed with the SEC. In that respect, I would like to read the following disclaimer applicable to such statements. The statements made in this discussion are forward-looking statements within the meaning and protections of Section 27 of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to the company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors which may be beyond the company's control and which may cause the actual results, performance, capital ownership, or achievements of the company to be materially different from the future results, performance, or achievements expressed or implied by such forward-looking statements. Also, statements attributable to us are expressed qualified in their entirety by the cautionary note, including without limitation, those risks and uncertainties related to the company's financial and operational performance in the second half and full year of fiscal 2020. Its expectations of the company's future performance, its preliminary outlook and guidance offered in this presentation, as well as the risks and uncertainties describing the company's most recently filed SEC reports are available upon request from the company or from the SEC, including through the Internet website at www.forward-looking.com. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date hereof, or after the respective dates on which any such statements otherwise are made. All information provided today is as of the date of this call, as the company does not undertake any obligation to update any forward-looking statements except as required under applicable law. With respect to any non-GAAP measures discussed during today's call, the company reconciliation information related to those measures can be found in the earnings release issued yesterday. Now, allow me to introduce the management team on the call today. Mr. Raymond Lin, Chief Executive Officer and Director of CBS, will start off the call with a review of recent company developments and operating results, followed by Rui Yang, Acting Chief Financial Officer of CLB, who will discuss financial results in more detail. Please note that all lines have been placed on mute to prevent background noise. Following management's prepared remarks, we will open up the call for a Q&A session. Mr. Henry Lee, the company's Chief Operating Officer, and Mr. Wilson Nual, Executive Vice President of CBS, will also join the Q&A session. With that said, I would now like to turn the call over to Raymond. Raymond, please go ahead.

Raymond Lin, CEO

Yes, hello. Thank you, Rhon. Hello, everyone. I want to say thank you for being here on today's call. We are pleased to have you join us for a discussion of our second half and full year results to conclude our results for 2020 with a solid overview of our new intellectual property feeding into increased revenue. We surpassed our guidance with a lovely 7.7% increase in our revenue for the year 2020 with our close relationships and additional international and domestic clients as a result of the implementation of our global expansion strategy. This continues to be a priority for our central growth strategy. We further expanded our footprint in the Southeast Asia region with the acquisition of Ridick, a Singapore-based service company, which we integrated along with InfoGet into Singapore. In addition, we have established a California office in the U.S. market to support our business needs. The OF is just one of our core competencies that has established and caters to the increasing demand for credit card services in the financial industry. The revenue from our overseas business increased by 158.5% to $10.6 million for the year ending June 30. We are committed to our Research and Development Centre, which enables digital transformation for ourselves and our clients. We have test pilots on cutting-edge technologies, including cloud migration, robotic process automation, data analytics, and machine learning. This year, we pushed our globally competitive business for the industry with cooperation and investment. Our partnership with established financial companies in China naturally benefits us. Our cutting-edge innovation and research funded in financial technologies is vital for our future. In terms of strategic investments, we have less than a 10% ownership stake in Sinjin Watch, a robotic company, and one notable software technology company. Our talented team continues to play a pivotal role in our society through our talent training program, focusing on conducting thousands of training hours to develop our talent and retrain our human capital. We are also cooperating with the Technological and Higher Education Institute of Hong Kong to boost its grade program in information technology, aiming to maintain a sustainable pool of new recruits and young talent. However, with the COVID-19 pandemic, job losses continue to pose a threat. With reference to our fiscal 2020 financial outlook, we surpassed our target sales goal, increasing by 37.7% and achieving profitable net income. Additionally, we have enhanced support for our clients in the healthcare industry and remain well-equipped to meet the challenges during this time. We continue to make long-term investments to support our continued growth. We remain optimistic about our future as we aim to expand our global footprint and market share, focus on digital transformation, and create value for our shareholders. Now, I will turn the call over to our Acting CFO, Rui Yang, who will discuss our financial results.

Rui Yang, Acting CFO

Thank you very much. Hello, everyone, and thank you for being here for today's call. I will now provide an update on our financial performance from the reporting year. Our numbers are provided in U.S. dollar terms, and our comparisons are made on a year-over-year basis. First, I will provide an overview of the second half of fiscal 2020 results. In the second half of the fiscal year, our revenues increased by $12.7 million, offsetting a 7.2% increase to $46.8 million from $34.1 million. This increase in revenue was mainly due to an increase in revenue from I.T. Consulting Services, which accounted for $14.5 million and represented 97% of total revenue from $32 million in the prior year period. The increase was predominantly driven by demand for the company's I.T. consulting services from banks and other financial institutions, primarily from existing clients. Revenue from customized I.T. solution services did see a decrease from $1.1 million to $1 million due to declining demand from existing clients. Revenue from other services increased to $0.2 million from $0.004 million, enabled by increased revenue generated outside of Manila. Revenue generated outside of China increased by 110% to $6.3 million in the second half of fiscal year 2020 from $3 million in the prior year period. This increase demonstrates the company's successful and continuous global expansion strategy. Gross profit increased by $3.2 million, representing a 25.1% gain to $13.7 million for the year. However, gross margin in the second half of fiscal year decreased to 33.6% compared to 36.9% in the prior period. This decrease was primarily due to the increased operational costs during the pandemic. In terms of operating expense, selling and marketing expenses increased by $0.5 million to $1.7 million from $1.2 million due to rising salary expenses and new software implementation supporting the global expansion strategy. Research and development expense also saw an increase of $0.5 million from $4.9 million to $5.4 million, primarily resulting from the establishment of four new research projects and our continued efforts in big data and artificial intelligence development. As a result of these factors, operating income was $0.04 million compared to a loss of $1.8 million in the prior year period, with an operating margin of 1.0% compared to a loss of 5.2% in the prior year period. Net income stood at $0.8 million compared to a loss of $1.17 million, primarily due to the decrease in non-cash share-based compensation expense. After excluding the impact of non-cash share-based compensation expense, net income increased by 196.7% to $3.7 million from $1 million in the prior year. For the full year of fiscal 2020, we had revenues of $89.4 million, a 37.7% increase from $64.9 million, driven by I.T. Consulting Services. Gross profit increased by $7.3 million, indicating a 31.1% gain to $31.1 million compared to $23.8 million in the prior year. Gross margin decreased to 34.8% compared to 36.6%, due to increasing operational costs associated with the pandemic. Operating income was $1 million compared to a loss of $3.8 million in the prior year. As of 2020, we have cash and cash equivalents of $12.7 million, compared to $6.6 million as of June 2019. Looking ahead for fiscal year 2021, we anticipate total sales growth in the range of approximately 13% to 15% and net income growth in the range of about 15% to 20%. This concludes our prepared remarks. Operator, we are now ready for questions.

Operator, Operator

Thank you. If you wish to ask a question at this time, please signal by pressing one on your telephone keypad. A reminder, the mic function on your telephone is switched off to signal to reach our equipment again. Please press one to ask a question. We pause for just a moment to allow everyone an opportunity to ask questions. And once again, that is one if you wish to ask a question. We can now take our first question from Peter Wuv, private investor. Please go ahead.