Earnings Call
CLPS Inc (CLPS)
Earnings Call Transcript - CLPS Q1 2021
Operator, Operator
Hello, everyone. Welcome to the First Half of Fiscal Year 2021 Earnings Conference Call for CLPS Incorporation. Please note that today’s conference is being recorded. At this time, I would like to turn the call over to Mr. Rhon Galicha from 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. CLPS Incorporation announced its first half of fiscal year 2021 financial results earlier this morning. An earnings release is now available on the company’s IR website at www.ir.clpsglobal.com. Before we continue, please note that our discussions 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, uncertainties, assumptions and other factors that could affect our financial results is included in our Form 20-F filed with the U.S. Securities and Exchange Commission and other documents filed with the U.S. SEC. In that respect, I would like to read the following disclaimer applicable to such statements. Certain of the statements made in our discussion today are forward-looking statements within the meaning and protections of Section 27A of the Securities Act of 1933 as amended and Section 20E 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 future results, performance or achievements expressed or implied by such forward-looking statements. All such statements attributable to us are expressly qualified in their entirety with this cautionary notice, including, without limitation, those risks and uncertainties related to the company’s financial and operational performance in the first half of fiscal 2021. Its expectations of the company’s future performance, its preliminary outlook and guidance offered in this discussion as well as the risks and uncertainties described in the company’s most recently filed SEC reports and filings. Such reports are available upon request from the company or from the Securities and Exchange Commission, including through the SEC’s Internet website at www.sec.gov. 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 days on which any such statements otherwise are made. All information provided today is of the date of this call, and CLPS 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 earlier today. Now allow me to introduce the management team present at the call. Mr. Raymond Lin, Chief Executive Officer and Director of CLPS, will start off the call with a review of recent company developments and operating results; followed by Ms. Rui Yang, Chief Financial Officer of CLPS, 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’ll open up the call for a Q&A session. Mr. Li Li, the company’s Chief Operating Officer; and Mr. Wilson Wong, Executive Vice President of CLPS, 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. Okay. Thank you, Rhon. Thank you, operator. Thank you all for joining the call today. I’m very happy to be here with you and everyone. The past year has been very challenging on many levels, and the COVID-19 pandemic has changed many things for everyone. As I said before, COVID-19 will change our life everywhere. Okay. Anyway, I hope you and your family are safe and happy. And here, I want to say thank you to my team, Henry, Rita, Wilson, Jenson and my IR team and the staff, and thank you for supporting our business during this strong growth. Thank you. You are doing a great job. Okay. Now I’m pleased to announce that our core business strategy has been specifically implemented, as reflected in the financial results for the first half of fiscal year 2021, which we showed early this morning. Our revenue increased by 37% due to the continued demand for our IT services. As we enhanced our operating efficiency, the operating income significantly increased by 214%. The net income also increased by 115%, which results in US$0.3 basic and diluted earnings per share as compared with US$0.17 basic and diluted earnings per share for the same period last year. During this period, we have been aggressive in the implementation of our global expansion strategy, which contributed to this growth. It was reflected by the significant 54% increase in revenue generated outside Mainland China. In our core business, we generated more partnerships during the past periods. First, we established a partnership agreement with a lease company in China. This company specializes in the loan management system in the banking area in the Chinese market. The partnership aims to explore global market opportunities as well. Second, we also opened an IT service agreement with the largest car associations in China. Lastly, our presence in the automotive industry deepened with a partnership with one of the largest automobile manufacturers in Shanghai and China. We utilized big data technology in this project to be applied in driver lessons, new energy costs and navigation systems. Regarding our investments, we diversified our business growth. We ventured into robotics technology to penetrate the chip industry. We also invested in Guangdong Zhichuang company to explore our business opportunities in the telecom industry and social media frameworks. Furthermore, we acquired the remaining 20% ownership stake in Ridik Singapore and established Singapore as our Southeast Asia headquarters. As a wholly-owned subsidiary, Ridik Singapore will enable us to fully integrate our business in Southeast Asia, which will further advance our global expansion. About training, we have been and will always focus on developing and maintaining the talent supply chain. To meet the demand for our global clients, we expanded our technical and business training overseas, including in Singapore and Hong Kong. Upon completion of the training, qualified IT talent has been employed on our projects in the banking IT department and some in the insurance company IT department. Some of them have already joined our clients. For the IT training, I’m very proud to tell you that for the past 15 years, CLPS has trained over a thousand talents, who are now distributed all over the world. They work in different financial institutions and jobs, making significant contributions. I’m really, really happy about that. Here, I want to tell them, "Hey, guys, I love you all very much. I’m very proud of you." Looking forward, we will continue to provide high-quality IT services to our clients. We are committed to advancing digital transformations among our clients to improve their productivity and efficiency. Additionally, we will continue to invest in new businesses, new products, and new technologies. We will also continue to provide high-end training in technology and business based on our clients’ requirements. Our business and streamlined growth strategy will put us on a firm footing to reach our business goals for the remainder of fiscal year 2021 and beyond. Now I would like to turn the call over to our CFO, Rui Yang. She will discuss our financial results for the first half of fiscal year 2021 in more detail. Rui, please go ahead.
Rui Yang, CFO
Thank you, Raymond. Thank you all for joining today’s earnings call. I will now provide an update on our financial performance from the reporting period. Please note that all numbers provided are in U.S. dollar terms and that all comparisons are made on a year-over-year basis. In the first half of fiscal 2021, our revenue increased by 37% to $58.3 million from $42.6 million. This increase in revenue was primarily due to an increase in IT consulting services, specifically, revenue from IT consulting services increased by 37.2% to $57.1 million from $41.6 million, driven by demand from existing and new clients. Revenue from customized IT solution services increased by 51.1% to $1.1 million from $0.7 million. This was primarily due to increased engagement from existing clients in banking and wealth management. Revenue from other services decreased by 25.3% to $0.2 million from $0.3 million, mainly due to decreased demand for services including headhunting. Regarding revenue by geography, revenue generated from outside Mainland China increased significantly by 53.9% to $6.6 million from $4.3 million. This reflects the company’s successful and continuous global expansion strategy. Gross profit increased by 20.2% to $18.5 million from $15.4 million. As for operating expenses, selling and marketing expenses increased by 27.7% to $1.8 million from $1.4 million. This increase was due to higher salary expenses from the hiring of new staff, enabling the implementation of the company’s global expansion strategy. As a percentage of total revenue, selling and marketing expenses decreased to 3.1% from 3.3%, primarily due to increased operational efficiency from economies of scale. Research and development expenses increased by 22.7% to $6.2 million from $5.0 million, driven by personnel-related expenses that support our ongoing R&D efforts in areas like big data, cloud computing, robotic process automation, and artificial intelligence. As a percentage of total revenues, these expenses decreased to 10.6% from 11.8% due to improved operational efficiency. General and administrative expenses decreased by 16.1% to $6.6 million from $7.9 million. As a percentage of total revenues, these expenses decreased to 11.4% from 18.6%, primarily due to improved operational efficiency and refined management. As a result of these factors, operating income increased by 213.5% to $3.9 million from $1.2 million, leading to an operating margin of 6.7% compared to 2.9% in the prior year. Total other income, net of other expenses, decreased to $1.1 million from $1.3 million. Net income increased by 114.9% to $4.9 million from $2.3 million. After excluding the impact of non-cash share-based compensation expense, non-GAAP net income increased by 91.2% to $6.4 million from $3.4 million. After excluding non-controlling interest, net income attributable to CLPS Incorporation’s shareholders in the first half of fiscal 2021 was $4.9 million or $0.3 per basic and diluted share compared to $2.4 million or $0.17 basic and diluted earnings per share in the prior year. After excluding the impact of non-cash share-based compensation expense, non-GAAP net income attributable to CLPS Incorporation’s shareholders in the first half of fiscal 2021 was $6.4 million or $0.39 per basic and diluted share compared to $3.4 million or $0.24 basic and diluted earnings per share in the prior year. As of December 31, 2020, we had cash and cash equivalents of $26 million compared to $12.7 million as of June 30, 2020. As of December 31, 2020, we had a total number of employees of 3,345, up 25% year-over-year. Looking forward for fiscal year 2021, we expect total sales growth in the range of approximately 30% to 35% compared to fiscal year 2020 financial results. The non-GAAP net income growth was adjusted to approximately 60% to 65% from the previously forecasted range of 32% to 37%. This forecast is subject to change due to the factors mentioned in our earnings release. This concludes our prepared remarks. Operator, we are now ready for questions.
Operator, Operator
Thank you. We’ll now take our first question from William Gregozeski of Greenridge Global. Please go ahead.
William Gregozeski, Analyst
Hi, great results. Can you talk about what’s driving your revenue growth and your ability to continue to win new clients?
Raymond Lin, CEO
Henry, can you help me?
Li Li, COO
I will take the question first. Okay. Okay. No problem. First off, thanks for your questions. Actually, our rapid growth and our ability to win new clients are driven by our competitive advantages. We maintain strategic engagement with well-known global clients in banking, wealth management, e-commerce, and the automotive industry. As mentioned by Rita just now, our CFO, we also have more than 3,300 world-class human capital with bilingual or multilingual capabilities, the majority of whom have undergone our professional IT training programs to ensure our success in service delivery to our clients. Additionally, our highly experienced management team maintains operational progress on technological innovation. We attract new clients through our global presence and through M&As. We continuously enhance our IT services, such as consulting and customized solutions, which are driven by our IT innovation through investments in cutting-edge technology like IPA, big data, and cloud, among others.
William Gregozeski, Analyst
Okay. Great. And then over the last few years, you’ve continued to grow in China, but also expand in the rest of Asia and the U.S. Do you have a target mix of where you want to be at for those different regions by the end of this fiscal year or even next fiscal year?
Rui Yang, CFO
Okay. Thanks a lot for your question. For the forecast of revenue distribution by geography, although we have been aggressive in becoming more visible in the overseas market financially and operationally, our business in Mainland China continues to significantly contribute to our growth. However, our global expansion strategy has been effectively implemented. For the first half of fiscal 2021, the revenue generated outside Mainland China has significantly increased by 53.9% to $6.6 million or 11.4% of total revenue compared to 10.1% in the prior year period. Going forward, we expect revenue generated from outside Mainland China, including from the U.S., to approximate 12% for the whole year of fiscal 2021 and 13% for fiscal 2022. Please note that this is a preliminary view and may be subject to change. Thank you.
William Gregozeski, Analyst
Okay. Great. And then last question, do you have any specific brands you can disclose about the cash you raised or even generally how you’re planning to use it to further your growth?
Li Li, COO
Okay.
Rui Yang, CFO
Raymond, can you answer this question?
Raymond Lin, CEO
Yes. Yes. Can you repeat the question, sorry?
William Gregozeski, Analyst
Yes. Do you have any specific plans for the cash you just raised or even just generally how you can use it to further growth?
Wilson Wong, Executive Vice President
Yes. Let me take the question, Mr. Raymond.
Raymond Lin, CEO
Yes. Okay.
Wilson Wong, Executive Vice President
Regarding the capital that we raised, we will align it with our global expansion strategies and work closely with our well-known global clients, as well as our management, e-commerce, and automotive investment clients. Additionally, we will invest, as Raymond mentioned, in the training of IT talent. Furthermore, we will expand outside of Mainland China, as Rita has mentioned, pursuing our global expansion in international markets. I am based in Singapore, and with the recent acquisition of the remaining 20% stake in Ridik, we will be positioned to penetrate the IT services market in neighboring countries within the Southeast Asia and Asia Pacific regions. Moreover, we also plan to grow our business in the U.S. market. As you are aware, we just secured two new contracts from existing clients based in the U.S. Moving forward, we are keen to develop our business and exposure further in the U.S. market. Thus, the capital we raised is a lever that we intend to concentrate on and invest in international markets.
William Gregozeski, Analyst
Okay. Great. Thank you.
Rui Yang, CFO
In addition, for this direct offering, we have successfully closed a $16 million worth of registered direct offering priced at $6 per share on March 3, 2021.
Operator, Operator
Thank you. Now, we will take our next question from Melissa Hu. Please go ahead.
Unidentified Analyst, Analyst
Congratulations on your new contracts from clients in the U.S. However, I would like to know if you can disclose the name of this client. That’s all my question.
Raymond Lin, CEO
Okay. Can I answer your question? Thank you for your questions. Due to the confidentiality agreement between CLPS and the client, we are only able to disclose certain information, such as what we mentioned in the press release, to protect our long-term business relationship with them. This approach enables our continued growth. Additionally, our U.S. counsel has thoroughly reviewed the contents of the contract and the press release to ensure our compliance with the terms and conditions. We are aggressively pursuing our global expansion strategy, looking forward to further business opportunities from overseas markets, with a significant priority to communicate any important revenue news about our company to our shareholders.
Operator, Operator
Thank you. We’ll now take our next question, please go ahead.
Unidentified Analyst, Analyst
Okay. Congratulations on your outstanding financial performance. However, your market has spread outside Mainland China. What’s the strategy behind the global expansion?
Raymond Lin, CEO
Wilson, can you help me with this question, please? Wilson?
Wilson Wong, Executive Vice President
Regarding our global strategies outside Mainland China, we have acquired Ridik entirely in Singapore. Being based in Singapore, I can attest that there is a strong demand for our IT services in Singapore and beyond. With the acquisition of the remaining 20% stake in Ridik, we are positioned to penetrate the IT services market and focus our development investments in neighboring Southeast Asian countries. Meanwhile, we are also expanding our business in the U.S., as mentioned earlier; we have secured two new customer contracts from our existing clients, who are based in the U.S. This will provide new opportunities to enhance our business and presence in the U.S. market. Lastly, we believe our global expansion strategy is fundamentally sound, effective, and is beginning to reflect positively in our financials, as highlighted by our CFO. Thank you.
Operator, Operator
Thank you. We’ll now take our next question.
Unidentified Analyst, Analyst
Hello, management team. Thank you for taking my question. My question is, how is your business affected by the COVID-19 pandemic?
Li Li, COO
Okay.
Raymond Lin, CEO
Henry, can you help to answer?
Li Li, COO
Yes. Sure. Sure. I would like to take the question. Thanks for your questions. Although we have been aggressive in becoming more visible in the overseas market, financially and operationally, our business in Mainland China continues to contribute significantly to our growth. Regarding the COVID-19 pandemic, Mainland China has quickly recovered, and the impact on CLPS and the industry has been minimal. In fact, the technology market has been in demand since the pandemic began as more businesses and products shift towards online solutions. Globally speaking, to ensure the safety of our employees, we have encouraged some to work from home, as per our clients' guidance. Thank you.
Operator, Operator
Thank you. We'll now take our next question from Louise Wang. Please go ahead.
Unidentified Analyst, Analyst
Thank you, operator. First, congratulations on the strong financial performance. My question is, could you provide more insight into the economies of scale? How does it enhance your operating efficiency? Thank you.
Rui Yang, CFO
Okay. Thank you for your question.
Raymond Lin, CEO
Rita...
Rui Yang, CFO
Yes, I will answer this question, Raymond.
Raymond Lin, CEO
Yes. Go ahead.
Rui Yang, CFO
As we expand our business and our top-line revenue increases, we need to hire more employees to support our growing operations, as reflected in our returns. On the other hand, with our extensive experience in IT services, our growing staff can meet increasing demand from our clients, as demonstrated by decreased expenses as a percentage of total revenue ratio. Consequently, we generate a better bottom line, which ultimately provides more value to our shareholders. That’s all. Thank you.
Operator, Operator
Thank you. We’ll now take our next question. Please go ahead.
Unidentified Analyst, Analyst
Hi, everybody. My question is, what’s the reason for the adjusted non-GAAP net income forecast?
Rui Yang, CFO
Okay. I will take this question. Thanks for your question. We adjusted our non-GAAP net income forecast for fiscal year 2021 to 60% to 65% from the previous range of 32% to 37% due to strong demand for IT services from our growing network of clients and enhanced operational efficiency. Yes. That’s all. Thank you.
Operator, Operator
Thank you. We’ll now take our next question from Alice Zhang, please go ahead.
Unidentified Analyst, Analyst
Yes. I have a question for the CFO. How do you recognize your revenue?
Rui Yang, CFO
Thank you. Thanks a lot for your question. For time and expense basis contracts, the company is reimbursed for actual hours incurred at a pre-negotiated hourly billing rate, while revenues from fixed price contracts, such as solution contracts, require us to perform services for system design, planning, and integration based on customer requirements, which demands significant production and customization. This customization period is generally less than one year. Upon delivery of the services, customer acceptance is typically required. Similarly, the company is generally obligated to provide post-customer support for a period ranging from three months to one year following the delivery of the customized application. Yes. That’s all for your question. Thank you.
Operator, Operator
Thank you. We’ll now take our next question from Casey Lee. Please go ahead.
Unidentified Analyst, Analyst
Thank you. My question is for the COO. What’s your edge among your competitors? Thank you.
Raymond Lin, CEO
Hello, Henry, your question is for you.
Li Li, COO
Thanks. I’d like to take the question. Thanks for your question. CLPS has been in the industry for 15 years. We believe that our expertise in providing high-quality IT services is a significant advantage among our competitors. Furthermore, our focus on major clients in international companies within the financial and technology sectors gives us a competitive edge. Thank you.
Operator, Operator
Thank you. We'll now take our next question. Please go ahead.
Unidentified Analyst, Analyst
I have a question for the CFO. How is your revenue outside Mainland China trending during these periods?
Rui Yang, CFO
Okay. Thanks for your question. The revenue generated outside Mainland China has significantly increased by 53.9% to $6.6 million, thanks to our successful implementation of our continuous global expansion strategy. The increase in revenue generated outside Mainland China comes from Hong Kong, Singapore, India, Japan, and Malaysia. That’s all. Thank you.
Operator, Operator
Thank you. There are no further questions at this time. I would like to turn the conference back over to Mr. Galicha for any additional or closing remarks. Thank you.
Rhon Galicha, Investor Relations
Raymond, please go ahead for the closing remarks.
Raymond Lin, CEO
Yes. Okay. Thank you, Rhon. Thank you, operator. Thank you to our investors. Thank you for your questions. And thank you again for joining us on today’s call. We appreciate your ongoing support and look forward to updating you on our progress in the weeks and months ahead. Have a good day, everybody. Thank you very much.
Li Li, COO
Bye-bye.
Wilson Wong, Executive Vice President
Bye.
Raymond Lin, CEO
Thank you.
Operator, Operator
Ladies and gentlemen, this concludes today’s call. Thank you for your participation. You may now disconnect.