Cloopen Group Holding Limited

Ladies and gentlemen, thank you for standing by and welcome to Klupin's fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. After prepared remarks by the management team, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference call over to your host today, Elaine Dye. Crouppen's Investor Relations. Please go ahead.

Hello, everyone, and thank you for joining Crouppen's fourth quarter and full year 2020 earnings conference call. The company's financial and operating results were issued in a press release via newswire services earlier today and are posted online. You can download the earnings press release and sign up for our distribution list by visiting our IR websites. Participants on today's call will be Mr. Changshun Sun, our founder and chief executive officer, and Mr. Stephen Lee, our chief financial officer. Stephen will provide an update on our operational performance as well as our strategic initiatives on behalf of our CEO, Mr. Sun, and then he will give you an overview of our financial performance and provide guidance for the first quarter of 2021. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before I hand it over to the management, I'd like to remind you of Crouppen's safe harbor statement in relation to today's call. Except for the historical information contained herein, certain matters discussed in the conference call are forward-looking statements. These statements are based on current trends, estimates, and projections, and therefore you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. For more information about the potential risks and uncertainties, Please refer to the company's balance with the Securities and Exchange Commission. With that, I will now turn the call over to our CFO, Steven Li.

Thank you, Yilin. Hello, everyone, and thank you for joining us today. I'm pleased to deliver today's opening remarks on behalf of our CEO, Mr. Sun. This is our first earnings call as a public company following our IPO in February this year. We are excited to speak with all of you about our financial and operating results and to update you regarding our journey to transform the enterprise communications industry in China. Many of you listening today may be new to our story, so let me spend a few moments describing our business before walking through our full year and first quarter highlights. We are a leading multi-capability cloud-based communication solution provider in China, offering a full suite of cloud-based communication solutions. Our services include Communications Platform as a Service, or CPaaS, cloud-based contact centers, or CC, and cloud-based unified communications and collaborations, also referred to as UCMC. Our CPaaS offers services similar to Twilio's, allowing enterprises to add real-time communications capabilities such as voice and messaging to their applications and systems by deploying APIs and SDKs. With our CC service, enterprises can interact with customers through different channels at a lower cost and better efficiency. Zendesk would be a U.S. comp for this type of service. Our third segment, UCNC, helps enterprises manage communications within their organizations through user interfaces. This service is similar to products offered by RingCentral in U.S. Our prime customers in China are large enterprises with a broad range of communication demands. With our comprehensive business portfolio, we are better positioned to fulfill those business demands. In 2020, we generated about 70% of our total revenues from large enterprise customers. About one-third of these customers employed more than one category of our solutions, providing us considerable cross-selling and up-selling potential. In addition, the migration of the communications industry to cloud-based solutions has only just begun in China. The penetration of cloud-based communications in China was just 2.7% in 2019, compared to roughly 10% in the U.S. The market is also very fragmented and therefore ripe for consolidation. We are confident that our recognized leadership position and comprehensive cloud-based communications solutions put us in a position to adapt to market dynamics and capitalize on the tremendous growth opportunity. I think it goes without saying that 2020 was a year that has tested all of us in one way or another. Through ingenuity, adaptability, and a great deal of hard work, our team was able to work through problems, meet challenges, and seize upon opportunities. This is evidenced by our results. We are proud that we have not only preserved through the extraordinary year, but have been able to come out even stronger. Our IPO in February this year was a testament to our hard work and recognition of our market leadership position. The IPO also raised our brand's profile significantly on the international stage. Despite the unprecedented challenges presented by the COVID-19 pandemic, We are pleased to report solid 2020 top-line growth of 18.1% year-over-year, with revenue of 767.7 million RMB, driven by a 13% expansion in the number of active customers to reach over 13,000 by the end of 2020, as compared to the number of active customers as of December 31, 2019. We are delighted to see the outstanding value proposition that our products and services deliver resonate with more and more enterprises in the marketplace. In the first quarter of 2020, we firmly executed our mission, continuing to cultivate an expanding customer base and further develop our cloud and AI-based communication services offering. Revenues in the first quarter increased significantly. to RMB 258.7 million, representing a 15.5% increase year-over-year. Next, let me provide some highlights at the business segment level. We continued to see double-digit growth in 2020 for our CPaaS segment. Revenue from CPaaS in 2020 grew by 15.9% to 400.1 million RMB, primarily due to the rapid growth of our text messaging services which saw increased demand from certain large enterprises, as well as significant increases in revenues generated from our IoT services. In the first quarter of 2020, revenue for CPaaS was 130.5 million RMB. Our cloud-based CC segment was the standout performer in 2020, seeing revenues increase by 41.2%, to 245.1 million RMB, driven by a significant increase in customer numbers. That performance could have been even stronger if it wasn't for shrinking of the business by certain medium or small enterprises customers who were affected by the COVID-19 outbreak. We saw some of this unwind in the first quarter of 2020, where the CC revenues upped 74% year-on-year to 19 million RMB driven by the release of underserved demands during the COVID-19 outbreak in the first half of 2020. COVID-19 solutions had a more difficult year with revenues decreasing 3.9% to RMB 118.3 million in 2020 and decreasing 9.5% year-over-year in the first quarter of 2020 to RMB 36.5 million. These declines primarily came as a result of delayed project delivery due to the COVID-19 outbreak. As we move ahead in 2021, we have seen our business accelerate significantly in the first quarter, benefiting from the broad-based economic recovery being experienced by China. We have successfully acquired new large enterprise customers with the numbers in the teens, and our dollar-based net customer retention rate has bounced back to above 100% in the beginning of 2021. Internationally, we have registered significant growth from our Japan business, as well as made progress with market entry in Southeast Asia, most recently opening our first office in Southeast Asia. In March, we entered into a definitive agreement to acquire Elite CRM, a leading customer relationship management software provider. We see substantial synergies in terms of product portfolio and customer base from this acquisition. CRM software adds to our capabilities in serving large enterprise clients, and it helps us to solidify our position as a comprehensive solution provider. In terms of customer base, Elite CRM has built up an impressive customer portfolio, particularly in TMT and insurance. which will complement our historically strong position with financial service sector. Once the transaction is closed, we expect Elite CRM to immediately make a positive contribution to our bottom line. In a segment right before consolidation, the added financial firepower that came with our IPO gives us a great foundation on which the next stage of the company's growth can be built. We will continue to explore other opportunities to strengthening our company through M&A selectively as the year progresses. This concludes Mr. Sun's prepared remarks. I will now provide a brief overview of our financial results for the first quarter of 2020. All comparisons are year over year and all numbers are in RMB unless otherwise noted. Our revenues reached 258.7 million RMB in the first quarter of 2020, increasing 15.5%. The increase was mainly driven by very strong performance from our cloud-based contact center solutions business, which saw revenues increase 74% year over year to 91.5 million RMB, primarily due to an increase in the number of customers, as I mentioned earlier. Cost of revenues increased by 19.2% to 158 million RMB, which was due to increased cost of revenues from CPAS solutions as our expanding customer base drove an increase in taxing costs and an increase in cost of revenue from CC solutions, primarily as a result of our increased business scale, as well as increased infrastructure and equipment costs as we continued to ramp up project delivery. Gross profit was 100.7 million RMB, 10.2% higher than the fourth quarter of 2019. Now let's look at our expenses. In the fourth quarter, operating expenses were 180.4 million RMB, representing a 30% increase from 138.8 million RMB in the fourth quarter of 2019. R&D expenses increased by 5.8% to 52.5 million RMB, primarily due to an increase in technology service expenses paid to the third-party outsourcing service providers for the development of certain non-core features and functions in cloud-based UCMC solutions, partially offset by a decrease in the R&D staff expense as a result of a reduction in social insurance contributions due to favorable impact from government relief policies during the COVID-19 outbreak. Selling and marketing expenses increased by 29.4% to 60.7 million RMB, mainly due to increasing staff expenses and the increase in spending on online advertising campaigns and marketing services as the company continues to scale its business and reach a wider customer base. G&A expenses increased by 59.2% to 67.1 million RMB. The increase was primarily due to costs incurred preparing for the company's IPO and the increase in share-based compensation expenses. We also saw an increase in our doubtful account provision in the period. Net loss for the first quarter of 2020 was 305.4 million RMB, compared with 53.9 million RMB in the first quarter of 2019, with the increase primarily driven by 240.1 million RMB of non-cash items, including change in fair value of world reliability of RMB 224.8 million and the share-based compensation of RMB 15.4 million. basic and diluted net loss per share was 37.65 RMB in the first quarter of 2020. As of December 31st, 2020, the company had 296.6 million RMB of cash and cash equivalents. For more of our 2020 full-year financial results, please refer to our earnings press release for further details. Looking forward to 2021, We believe we are well-positioned as a company to take advantage of pent-up demand from enterprise activities delayed in 2020 and to capture expanding cloud communication services deployment opportunities, the positive impacts of which we have already begun to witness in the first quarter of 2021. For the first quarter of 2021, Klopin currently expects revenues to be between 192 million RMB to 197 million RMB, which would represent an increase of 45% to 48.8% year-over-year. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimates of market and operating conditions and customer demand. which are all subject to substantial uncertainty. With that, I'd like to open up the call to questions. Operator, please.