Luokung Technology Corp

Q2 2021 Earnings Conference Call

11/2/2021

spk00: Ladies and gentlemen, thank you for standing by. Please continue to hold a moment. We will begin shortly. Once again, we thank you for standing by. Please continue to hold. We will begin in just a moment. Greetings and welcome to the Lokong Technology Corporation's first half 2021 financial results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Adam Pryor, Investor Relations for Luokung Technology Corporation. Thank you. You may begin.
spk01: Thank you, and good morning, everyone. And for those listening in Asia, good evening. Luokung issued its 2021 first half financial results after the close of market yesterday. You can find copies of the earnings release at the Investor Relations section of the company's website, www.luokung.com. Before we get started, I would like to note that except with respect to historical information, statements made in this conference call may constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends, the company's operations and financial results, and the business and the products of the company and its subsidiaries. Actual results from Luokung may differ materially from the results anticipated in these forward-looking statements. as a result of various risks and uncertainties underlying our forward-looking statements, including risks and uncertainties associated with COVID-19 and its impact on the economy and our business, as well as those risks described from time to time in Lowell-Kung's filings with the SEC, including our latest Form 6K and subsequent reports. Lowell-Kung specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise. In addition, a replay of this call will be provided through a link on the investor relations section of our website. I'd like to take a moment to discuss the format of today's call. The company's chairman and CEO, Mr. Xue Zicong, will begin the call with some opening remarks in Mandarin, which we will then translate into English. The remainder of the presentation will be in English, and we will translate all portions that are spoken in Mandarin into English. So please be patient as we work through it. The company's CTO, Mr. Bauman Lee, will discuss the latest operational developments, and the CFO, Mr. Jay Yu, will conclude with an overview of the financial results and provide an outlook for the remainder of the year and beyond. A Q&A session will follow management's prepared remarks. If any individuals would prefer to email questions they'd like to ask during this session, please feel free to email me directly at apryor at equityny.com. And please specify if you would like to have me read your name as well. In addition, we've received a number of questions following the issuance of 6K last night, and where possible, have integrated those into our comments today as well. With that, I'd now like to turn the call over to Mr. Song, Chairman and Chief Executive Officer of Luokung. Please go ahead, Mr. Song.
spk04: Thank you, Adam. Thank you for joining our meeting this morning. Thank you to the Luokung management team members who were with me at the phone conference today. This is Luokung's first financial report call meeting. We are also looking forward to communicating with everyone and sharing Luokung's rapid growth. Let me first review the business development of Luokung in the past six months. In the first half of 2021, we achieved huge results in terms of income growth. Luokung is a company that develops rapidly. It is surrounded by a core belief Through Luokung's time and space technology, the company's value quickly grows. Especially today, the whole society is seeking to realize intelligent cars, digital cities, and so on, with the wisdom of our human activities. Luokung will be an important part of it, and better serve our lives and spaces of life. We are in high-tech maps, smart transportation, vehicle road co-operation, V2X, Internet, smart big data, carbon neutral and natural resources data service, and rock data service, etc., have all established their leading position. This year, our acquisition of Yitutong is not only because of their leading position in the high-precision map market in China, but also because of this business, the LBS business available to Luo Kuang, Autonomous driving, smart transportation, integrated natural resources data service, and remote sensing data and GIS integrated services have brought strong co-efficiency. The depth and breadth of business services have greatly increased. It has also greatly increased the competitiveness of Luokung and strengthened our market position. In the shareholder call that was released in September, we mentioned the three business blocks of Luokung, smart transportation, carbon neutral and natural resources management, LBS smart industry service. The income growth in the first half of our year comes from all three areas, and we are very happy to continue to gain the recognition and trust of large global customers and provide them with relevant services. We are very happy to see that our revenue has achieved more than 400% growth in the last six months of June 30, 2021. Although the revenue decreased in the first half of 2020 due to the impact of the epidemic, during the epidemic, we continued to strengthen our investment in technical research and development, and actively promoted the construction of cooperative ecosystems. so that the internal core of Luokung's own business is not harmed by the epidemic. Continuous investment makes us start to get returns this year. The return is just the beginning. We will continue to increase the investment in research and development, the integration of products, and the construction of ecology, so that the return becomes even greater and lasts for a long time. In the first half of this year, The first to return to us is the LBS service business. The services around the personal market are always the first to get hot. This part of the business growth has led to a significant growth in our overall income. In the field of smart transportation and carbon neutral rock data service, we also got a very good growth compared to the same period last year. But in the overall business income ratio of the company, it is still small. I believe that the investment and return of this part of the business will be actively presented in the next few seasons. The first six months of 2021 were not without challenges for Luokung. We finally successfully resolved the BOD issue. However, due to the special situation of the additional legal and consulting costs required by the company during this period, It has also had some impact on our income during this period. For Luokung, so far, this is a year of rich results. In the remaining time in 2021, our focus will continue to focus on accelerating growth and improving our income. The management is reviewing the third quarter business operation status, which ended on September 30th. The management team will actively synchronize with the market with important business data such as quarterly income and other important business data, so that everyone can better understand the quarterly operation situation of the company. There is only two months left until the end of the company's fiscal year in 2021. I am optimistic that when the fiscal year ends in 2021, we can achieve a milestone of $100 million in fiscal year income. Adam, please. Thank you.
spk01: Thank you, Mr. Chairman, and thank you everyone for joining us this morning, including the members of Luocom's executive team who are here on the call with me today. This is our first earnings call. We are excited to have this opportunity to discuss Luokung's rapid growth within the investment community. I would like to begin this call with an update on business developments over the first six months of 2021. We made considerable progress in the first half in terms of top-line growth. Luokung is a rapidly growing company connected by the core belief that our spatial, temporal technology will increase the company's value proposition. Our society as a whole seeks to harness the intelligence that can enact cars, cities, and people, Luokung considers itself a major player in enhancing daily lives and people's surroundings. We have established a leading position in HD maps, Internet of Things, intelligent big data, autonomous driving, vehicle road collaboration, carbon neutrality, and remote sensing data services. When we acquired EMapGo this year, we did so not only because of their leading position in China's HD mapping market, but also because of the synergy this business brings to Lowell College's existing location-based services, or LDS, business, as well as our autonomous driving smart transportation business. This has greatly increased the depth and breadth of business services. All of this has strengthened Lowell College's competitive and market position. In my recent shareholder letter, we noted the three pillars of Lowell College's business. smart transportation, remote data sensing, and LBS. We derive our revenues from the growth in all three of these areas and are pleased to have continued to win large global customers that license our technology for these purposes. To that end, we were pleased to see our revenues grow by over 400% during the six months ended June 30th, 2021. While our bottom line was impacted by the pandemic in the first half of 2020, we continued to invest in R&D and partnership expansion. Because of these investments, we were able to achieve this record revenue growth this year, which is only the beginning of the long-term benefits we anticipate. In the first half of the year, we saw substantial growth in our LBS service business, which is a reflection of the market potential for services targeting customers and is a primary driving force behind our overall revenue growth. In the field of smart transportation and carbon neutral remote sensing data services, we also have achieved growth in the prior year period, Although this business currently contributes a relatively small portion of the company's overall revenue, we anticipate this line of business will see continuing growth for the coming quarters. The first six months of 2021 were not without challenges. From a regulatory perspective, we endured and ultimately were successful in resolving Luokung's designation as a communist China military company by the U.S. Department of Defense. However, this particular concern did have some impact on our bottom line for the period due to added legal and consulting expenses that were necessary to defend the company during this time. With those challenges behind us, it's been a productive year thus far. For the remainder of 2021, our focus will continue to be on accelerating growth from all sources and in all ways with improvements to our top line. Furthermore, Based on internal projections and the outstanding results we achieved in the revenue growth in the first half, we believe that we will achieve revenue of 100 million, an incredible milestone for our company, which for the full year ended 2021. With that, I'd now like to turn the call over to Mr. Bauman Lee, our CTO, for more detailed discussion of our operation. Mr. Lee, please go ahead.
spk05: Thank you, Chairman. Before I begin, I'd like to note that Lokong's result for the first half of 2021 include only about three and a half months of contributions from the EMF Go business as the acquisition closed in mid-March 2021. We have successfully merged EMF Go's operation with that of Lokong. We are pleased to realize the synergies between the two entities. However, as the chairman noted, This business is only part of what we are building. During the Q&A session, I'm happy to discuss the specifics of our RVS business to whatever extent investors would like. But in the interim, I would like to highlight some of the recent partnerships we have signed with large multinational companies. Over the past few months, Luokung has initiated or deepened its relationships with leading industry players. The common element to each of these developments is that the first pillar of our business, smart transportation, continues to be the fattest growth segment of our business due to continued advancement in autonomous driving. In June 2021, Luokung announced that EMAP Go signed an agreement with the Geely Automobile Research Institute, whereby eMASGO will provide autonomous driving simulation testing services for Geely. Completion of this initial phase occurred during the third quarter of 2021. The company anticipates that there will be additional opportunities to work with Geely in the future. In September 2021, eMASGO signed two agreements. The first, a cooperation agreement with Microsoft to launch autonomous driving services for automakers. And the second, an agreement to provide autonomous driving data services for Synthiac, a wholly owned subsidiary of Volvo Cars, the autonomous driving of the Swedish multinational manufacturing company. The continued licensing of our RBS technology is resulting in automobiles and connected IoT devices creating greater efficiency. This leads to the second pillar of our business, which is carbon neutrality. I think that investors in the United States classify this as ESG. but this is really just inherent in what our technology provides. We developed spatial recognition that improves the efficiency of our licensing customers. And as a result, transportation becomes safer with fewer emissions and smart cities become more sensitive to its power needs. Finally, we need to note that the largest component of our revenue at the moment is in LBS. The market here is huge. The way that it works is that with the strict adherence to privacy, we provide location and spatial data for a wide variety of B2B applications. In September 2021, we announced that EMF Go signed an agreement to be the technical service provider for the management of market and service information for China Mobile Group, Heilongjiang Corporation Limited, or Heilongjiang Mobile, the Heilongjiang Division for China Mobile, the leading telecommunications provider in mainland China. Heilongjiang Mobile is Luofang's first new client win in the telecommunications industry. since we launched our internet RBS B2B business. Data has been a crucial but sensitive topic for Lokon. As a data service provider, Lokon has made it a priority to our previous business while maintaining compliance with all applicable laws and regulations. We are also using technological innovations including blockchain to ensure data security, integrity, and the compliance of data services while protecting the data rights of our clients. This is the source of confidence and the reason behind our client's long-term trust in Lokon. Overall, we could not be more pleased with the platform we are building and the progress that we are making. With that, I will turn the call over to Jay Yu, our CFO, for brief review of financials and our outlook for the year.
spk02: Jay. Thank you. Thank you all for joining us. I will quickly review the financial statement and welcome each of you to review both our press release as well as our Form 6-K, which was filed with SEC yesterday afternoon. which has additional data available for all investors to review. For the six months ended in June 2021, revenue increased to $37.8 million compared to $7.3 million for the same period of last year. The increase was primarily as a result of $24.5 million in increased revenue contribution from the LBS business as well as growth in the software and the service business and in the code business. Our operating cost increased during the period as a result of two main factors. The first being certain traffic acquisition cost. Traffic acquisition cost may vary depending on scale, target audience, and the geography of traffic. The second factor was annual amount of legal and the consulting fee directly related to service rendered to defend the company against the designation by the U.S. Department of Defense during the six months ended June 30, 2021. I'd now like to discuss the current status of our balance sheet as well as our capital deployment strategy. As of June 30, 2021, Lokon's cash balance was 14.5 million. As we detailed in our cash flow statement, the majority of our capital from the first half of the year, including the capital raised in February, we devoted to the closing of the E-NetGo transaction. As the chairman noted that eMapGo is a critical component of what we are trying to build at Loquan. Not only to maintain eMapGo's leading position in the mapping market, but how it serves to accelerate the growth of our other businesses. It is part of a growth engine that helps us greatly in attaining new customers while positioning the company to be the principal beneficiary of the shift to autonomous driving. In September, we complete the closing of 32.8 million registered direct offering. The primary consideration for why we raised capital at that time are the following. First, we want Wukong to be in a position to take advantage of M&A consideration as they present themselves, being mindful of whether These opportunities would help to improve our market-leading position in technology. We are doing so with a strong understanding of this cost of capital. By that, I mean that any new transactions we pursue must have a return characteristic that is far superior to where we raised capital over time. We know what we want Wacom to be, and having a solid balance sheet is a critical component of this. Second, it is the support of our growth. We expect to generate at least 100 million US dollars in revenue based on our current projection in 2021. This includes a second half of the year that integrates a full six months of revenue from EMAP Go, as well as continued growth in our LBS business. Going forward, we expect to issue more regular updates on financial metrics including sales and margin progression to provide greater visibility into our business. As management, we believe that it is our responsibility to provide transparent and open communication to shareholders and to operate our business in an honest and proactive manner. Our goal is to release regular updates on our activities, just like what is expected of a public company and to listen to feedback our shareholders provided. To that end, the company is expecting to provide a press release on its revenue over the first nine months within the next months after audit review. We think this will serve as a catalyst for investors to follow in the coming weeks. With that all put, let's open up for question place.
spk00: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. I'll now turn the call over to Mr. Pryor.
spk01: Thank you, Melissa. I appreciate it. At the beginning of the call, we received a number of different questions related to the company's operations, and specifically I'll ask one to management while we wait for parties to queue up by pressing star 1. So, Jay, I'll refer to you. We received a question relating to how long do you think the capital raised during 2021 will provide the company with working capital for its operation?
spk02: Oh, thanks. Thanks, Adam. As we mentioned in the presentation, we used the majority of the financing in February to close the acquisition of EMAP-GO. The purpose of the recent financing is not for daily operation, but to provide a strong cash position in order to achieve our business plan and development. From the current business daily operations perspective, actually, there is no need to raise additional capital to last the operation. However, we do require additional capital and are planning to use the cash effectively to strengthen the company's competitive advantage and gain more market shares, especially in smart transportation. Thanks, Adam.
spk00: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. We'll pause a moment to allow for questions.
spk01: I have another from the Internet audience that I'll pose to UJ and Bauman as well, and then we'll take a question as they queue up after this. Actually, I see that an individual has queued up. Please, operator, let's take their questions.
spk00: Thank you. Our question comes from the line of Max Bousquet, private investor. Please proceed with your question.
spk03: Hi, guys. First and foremost, I would like to say thank you on behalf of all the shareholders for making this call. I know it's not easy since you're not a native English speaker like myself. My question is as follows. What is the current status of the DASI Aogen loan at this point in time? I remember it was delayed and in the last interview with Joyce, the CEO mentioned it was still underway and not completely closed. So what's the current status of that as of now?
spk02: Okay, thank you. I just want to confirm the question. Did you mention Geli or which company?
spk03: No, for now, well, I would like to know both, but it was the Dacia Ogin loan first.
spk02: Oh, the Geli? Okay. Yes, and that's... Oh, okay, I'm sorry. I'm sorry.
spk03: No, no, it's fine. But yes, Both BLE and... Okay.
spk02: Okay, okay. Sorry for the interruption. And, you know, we have always maintained a good business relationship with Galley and we are still in negotiation with them about the extension of their investment. But unfortunately, I'm sorry, I'm not able to share any further information at this moment. And also, for that you mentioned, I know this has been for a while. However, we have informed them if they are willing to close this deal, it has to be done within this year. Of course, we've been negotiating some new terms. If there are any new terms, we will make a timely announcement. Thank you.
spk00: Thank you. Once again, if you'd like to ask a question, please press star 1 on your telephone keypad.
spk01: I'll ask a question that an individual investor posed over email. When do you expect the company to break even or turn towards profitability? Jay, I'll pose that to you.
spk02: Okay, yeah, yes, yes, thank you. I think I'm going to take this question. Our company is very much in an accelerated growth phase. As we continue to expand our respective business, we anticipate our financial performance will improve over time. We could break even when we postponed our investment in R&D and other related areas. it would cost us more to catch up in the future. And our goal is to create good value for our shareholders and stakeholders in the long term. But we are going to provide regular updates on our progress to the investment community as we move forward.
spk00: Thank you. Once again, if you'd like to ask a question, please press star one on your telephone keypad.
spk01: We have several online and a number on the dial-in, but I'll ask another question as we throw this. Mr. Lee, I'll pose this to you. I've received a number of questions relating to what's the growth prospects and the various pillars that Luokung operates in. So of the three pillars we mentioned today and in the shareholder letter, what are the growth prospects for each line of business from LBS to autonomous driving and the like? So I'll pose that to you, Mr. Lee.
spk05: Thank you, Adam. We expect all major lines of our business to grow substantially. We expect the LBS business will grow at a faster rate in terms of revenue. because everyone know and China is a huge market and we already built a good momentum in building our RBS business. There's more automakers entering the massive production of L2 or L3 level autonomous driving vehicles. We are very optimistic about our growth in the autonomous driving field, especially in simulation and test services. Smart transportation is another growth area in which we see great potential, particularly from some potential government clients. Carbon neutrality is one of the hottest topics around the globe right now and is much more so in China. As a comprehensive spatial temporal data service provider, we are uniquely positioned to serve different application needs more efficiently in this area. we anticipate accelerated growth in this area because it's a blue ocean and we can take advantage of the opportunity there. Thank you, Adam.
spk00: Thank you. Ladies and gentlemen, we have a follow-up question from the line of Max Busquet, private investor. Please proceed with your question.
spk03: Yes, I have another question. Is there anything else you can, any details you can share with us about the recent partnership of IMAPGO and the global automakers and the European power suppliers? Is there anything on that that you can share with us at this point in time, please? Thank you.
spk05: Thank you. I'd like to offer a little bit more detail on the execution of the cooperation with international automakers. And we have made very productive progress in offering the simulation test and HD map integration is in the process. So everyone knows autonomous driving will be a long road ahead and there is a lot of technical obstacles to overcome to realize this potential. And we are providing data services and testing and simulation services with them. And it will be a very long and fruitful cooperation for the long term. And we are not only serving our current customer, we are in talks with a number of different customers as well. But we will make appropriate updates once things materialize and it's appropriate to share. Thank you. Thanks.
spk00: Thank you. Ladies and gentlemen, as a final reminder, it is star one to ask a question. We'll pause a moment to allow for other questions.
spk01: Thank you, Melissa. I think at this time we can turn it back to management for closing remarks.
spk02: Thank you. Thank you, Adam. Thank you again for joining us. In closing, Loquang has overcome a challenge for the first half of the year, but we believe we remain well positioned to carry out our growth strategy. The company will continue working toward becoming the leading special temporal intelligent big data service company and provide interactive location-based service and HEMAP in China. We are confident that our continued investment in R&D and improved diversity in employee structure will only strengthen our core competencies and that our growing partnership base will empower the company and its customers to achieve success in the future. We really appreciate your time and interest in the company. and invite you to reach out to us with any additional questions. Thank you again, and good day, everyone.
spk00: Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-