$斯凯(MOBI)$
Sky-mobi's (MOBI) CEO Michael Tao Song on Q1 2015 Results - Earnings Call Transcript
May. 26, 2015 11:26 AM • MOBI
Sky-mobi Limited (NASDAQ:MOBI)
Q1 2015 Results Earnings Conference Call
May 26, 2015, 08:00 AM ET
Executives
Michael Tao Song - Chairman, CEO
Fischer Xiaodong Chen - CFO
Analysts
Jun Zhang - Rosenblatt
Thomas Chong - Citigroup
Presentation
Operator
Good morning and good evening, everyone. Welcome to Sky-mobi's First Quarter 2015 Earnings Conference Call. With us today are Sky-mobi's Chairman and Chief Executive Officer, Mr. Michael Tao Song; and Mr. Fischer Xiaodong Chen, Chief Financial Officer of the Company.
Before I turn the call over to the management, may I remind all listeners that in this call, management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.
Actual results may differ from those discussed today, and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission. In addition, any projections as to the company's future performance represent management's preliminary estimates and Sky-mobi assumes no obligations to update these projections in future as the market conditions change.
To supplement its financial results presented in accordance with IFRS, management will make reference to certain non-IFRS financial measures, which the company believes provide meaningful additional information to understanding Sky-mobi's operating performance.
A table reconciling non-IFRS financial measures to the nearest IFRS equivalent can be found in the earnings press release issued earlier today.
For those of you unable to listen to the entire call, a recording will be available via webcast at the Investor Relations section of Sky-mobi's website at 网页链接
And now, it is my pleasure to turn the call over to Sky-mobi's CEO, Mr. Michael Tao Song. Please proceed, sir.
Michael Tao Song
Good morning and good evening everyone. Thank you for joining us today. We are pleased with our first quarter 2005 physical and original results which demonstrated [indiscernible] capabilities and our continued progress in growing our smartphone business.
Firstly, during this quarter our average monthly active user growth 51 percentage year-over-year to 37.7 million and our average revenue per pay user record ARPU for single player games growth 36 percentage year-over-year to RMB 10.3. This results are primarily bolstered by our few factors including our intent to understanding of [indiscernible] the Chinese mobile game market, the unique mobile game distributed environment in China, as well as our deeper insight into performance habit and behaviors of Chinese mobile gamers, or [taken] the focus on developing and interest thus introducing single player games.
The introduction of our innovative open-source mobile game platform Zimon, the popularity of our casual game published their mini game and/or expand distribution channel and trending relationships with mobile network operator both in China and overseas.
Looking ahead, we will remain continue to executing our business strategy to enrich our single player game portfolio and a pipeline targeting Chinese gamers continue to expand our base and elevate our brand in mobile gaming market.
With this, let me turn the call over to our CFO Fischer, and he will give you more details. Thank you.
Fischer Xiaodong Chen
Thank you, Michael. Good morning and good evening everyone. We're pleased with our first quarter 2015 results, which demonstrated the continued momentum of our smartphone business.
We have witnessed that over the past few years, the way that mobile game players consume game content have dramatically changed and it became increasingly clear to us that only competitors and innovative game platforms will prevail.
Realizing those key trend, we have made tremendous efforts in developing Zimon since the second half of last year to provide our content partners and integrated platform of our services.
Zimon is a highly innovative open-source mobile game platform that offers seamless integration for marketing solutions, data analytics tools and payment functions. During the first quarter of 2015, we made further advances in developing Zimon as evidenced by over 100 content providers and developers that streamline their product promotions on our Zimon platform.
In addition since we began to focus our light casual games strategy in 2013, our games published by MiYi such as Beach Buggy Racing have been well received among gamers. In the second quarter, we released Emma's World a high quality international game iOS App Store throughout the Greater China region.
In the remaining quarters of the year, we plan to introduce and license approximately 15 high quality import games localizing for our Chinese crossroad gamers including Dungeon Quest, Fantasy Adventure Board Game, Runebound, a racing shooting game and Gunslinger, a 3D shooting adventure game.
Meanwhile we have also made significant efforts in strengthening our own R&D capabilities by increasing investments to expand our product development team. We believe that as we continue to diversify our game offering on both our platforms and our third-party distribution channels, we will continue to experience improvement in our position as a game publisher.
Furthermore, we also started new strategic initiatives in order to boost profitability and expand our business growth over the long-term. Including among others the introduction ARIA Desktop to users in overseas markets, which were designed to increase productivity and improve user experience.
Additionally, leveraging our role as an integrated platform with other major Chinese carriers, we aim to become one of the first commerce the third-party mobile data solution provider that sources data from the mobile operators and structures data utilization program and packages with our CP customers to incentivize the end data users to consume data. We are excited about the opportunities in these areas ahead and we look forward to our progress in the coming quarters.
Now I would like to share a few financial highlights with you. Our total revenue for the third quarter of 2015 increased by over 81% year-over-year to RMB233 million.
Our revenue from smartphone business increased by 151% over year-over-year to over RMB219 million and smartphone revenue as a percentage of our total revenue reached a historical high of 94%. And our single player games continued to gain broad popularity among gamers with revenue from the category increasing by 144% year-over-year to RMB195 million.
Next let me talk about our first quarter 2015 financial results in more detail. Before I start, I would like to clarify that all the financial numbers we're presenting today are in RMB amounts and comparisons are quarter-over-quarter unless otherwise noted.
During the quarter, our total revenue increased by 13.8% to RMB233 million from RMB204.7 million in the previous quarter. The increase was largely driven by the continued strong growth of our smartphone business.
Revenue from our smartphone business increased by 20.8% to RMB219.3 million from RMB181.6 million in previous quarter. Smartphone revenue accounted for 94.1% of our total revenue in the first quarter, a new record high for us.
The increase was mainly attributable to our increasing efforts in publishing single player games both over the mobile platform and through third-party distribution channels.
Breaking down our revenue into three categories, revenue from single player games, revenue from multi-player games and other revenues. Revenue from single player games increased 24.7% over quarter-over-quarter to RMB194.9 million.
ARPU for single player games increased to RMB10.3 from RMB10 in the previous quarter. Revenue from multi-player games was RMB22.8 million compared to RMB23.3 million in the previous quarter. ARPU for multi-player games was RMB159.6 as compared to RMB175.8 in the previous quarter. Other revenues was RMB15.3 million as compared to RMB25.1 million in the previous quarter.
Total non-IFRS cost of revenue was RMB184.9 million as compared to RMB162.9 million in the previous quarter. Non-IFRS cost associated with payments to industry participants was RMB178.8 million as compared to $155.3 million in the previous quarter. The increase was primarily due to the increased channel cost which grew largely in line with revenue.
Non-IFRS direct cost decreased to RMB6.1 million from RMB7.6 million in the previous quarter. Non-IFRS direct cost included salaries and benefits, depreciation, office expenses and utilities directly related to the operation of Maopao application stores for smartphones and feature phones. The decrease in non-IFRS direct cost was attributable to a decrease in our employee related expenses as a result of headcount restructuring.
Non-IFRS gross profit increased 15.2% to RMB48.1 million from RMB41.7 million in the previous quarter. Non-IFRS gross margin increased to 20.6% from 20.4% in the previous quarter.
Total non-IFRS operating expenses was RMB35.2 million as compared to RMB32.8 million in the previous quarter. The increase in total non-IFRS operating expenses was mainly due to the increased marketing and promotion expenses to promote a multi-platform and product, as well as expansion of our product development team to support the expansion of our smartphone business.
Non-IFRS profit from operations increased 44.5% to RMB12.9 million from RMB9 million in the previous quarter. Non-IFRS net profit was RMB20 million as compared to RMB20.2 million in the previous quarter. Non-IFRS basic and diluted earnings per common share were RMB0.09 and RMB0.09 respectively, which represents the equivalent of RMB0.71 and RMB0.71 per ADS respectively.
We continue to strengthen cost control to maximize cash flow from our feature phone operation, while allocating more resources to our smartphone business. As of March 31 2015, we had cash and cash equivalents, term deposits, and investment at fair values through profit or loss of RMB533.5 million.
Going forward, we will continue to maintain a strong cash balance partially from our feature phone segment which will enable us to continue to invest strategically in the development of the smartphone business.
In addition, we also announced today that we will be expanding our existing repurchase program in which we may repurchase up to US$20 million of our ADS for another 12 months to May 25, 2016.
Turning to our business outlook, since the second quarter of 2015, each of the three mobile operators in China, China Mobile, China Unicom and China Telecom has implemented various measures aimed to address subscriber complaints on unsatisfactory payment experience and enhance their payment system security including but not limited to temporarily suspending certain billing and payment channels and introducing an additional mandatory payment verification step to the payment process.
While these measures strengthened the payment system security and partially addressed subscriber complaints, they have discouraged mobile subscribers from purchasing mobile content from mobile application providers, including Sky-mobi, resulting in lost revenue of these mobile application providers.
As we are currently mainly relying on China Mobile, China Unicom and China Telecom for billing and payment collection, we expect that our results of operation starting from the second quarter of 2015 should be materially and adversely affected by these new policies. We are assessing and we will continue to assess the impact of these new policies and their implications on its business.
In addition, we are in the process of expanding our overseas operations launching a series of new smartphone games on both iOS and Android platforms and growing our mobile data solution business in the coming months. We believe these initiatives will partially offset the impact of these recent policy changes by the three mobile major mobile carriers.
With that, we'd like to open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Jun Zhang from Rosenblatt. Please ask your question.
Jun Zhang
Good morning Michael and Fischer. Thanks for taking my question and congrats on the strong Q1. So I have a couple of questions, I will ask in Chinese first and I’ll translate into English.
[Foreign Language] So my first question is it seems that you largely beat your previously Q1 guidance, could you give us more colors on your business plans in Q1 and what's your the cash level per share by the end of Q1? What do we expect that the cash level going forward? Thanks.
Fischer Xiaodong Chen
Thank you, Jun. This is Fischer, I'll answer the question for Michael. As we stated, it's fairly clearly in the [indiscernible] and also via the transcript, our major source of growth in Q1 was once again from the smartphone business, publishing business.
As you can see, the revenue on absolute basis on smartphone publishing business increased very strongly from the $181.6 million in Q4 to $219.3 million in Q1 this year. So that was the major source of growth.
Turning to you second question, we had a positive operating cash flow of RMB18 million over the quarter, which largely was corresponding to the profitability number that we generated over the quarter.
Going forward, we expect to maintain a slightly high cash balance on our balance sheet. Does that answer your question?
Jun Zhang
Yes sure. Thanks. My second question, you talked about there is a Chinese operator speeding policy affect your business temporarily, could you talk about how long do you expect this policy affect your core business? Thanks.
Fischer Xiaodong Chen
Hi Jun. Thanks for the question again. We're actually having multiple developments over the Q2 this year on the policy development front. It appears to us that the developments are currently - on the tightening side, it's getting increasingly tightened over the quarter.
So it's actually making us very difficult to project our financial and operating results into Q2. And also it's kind of difficult to make any projection into Q3 for our results.
We're actually watching very closely the development of the policy at the three major carriers, and we will continue to assess that over the rest of the quarter. So that's all we can say at the moment.
Jun Zhang
Okay, thanks. And also I know this that you launched your new integrate mobile game publishing platform, with regard to Zimon. Could you give us more details about this new platform and what's your advantage compared with other mobile game publishing platforms. Thanks.
Fischer Xiaodong Chen
Thank you, Jun. The key purpose of Zimon as a platform is to integrate the smaller platform players in China to be a larger platform so that these small platform players can actually have access to the small piece or medium size piece and likewise vise versa.
So with that, we are helping actually people from both ends to streamline the business development and increase revenues for both the 3Gs and the smart platform players. So that's essentially how it works. That answers your question.
Jun Zhang
Okay, yes. And could you also talk about we noticed that you have a lot of earning investments in the various mobile content developers and also a lot of platform companies and we all know that the Chinese domestic capital market is pretty hot this phase and we're seeing a lot of M&A activities in Chinese mobile Internet space and what’s your plan to increase the return to the investor through either monetizing those earning investments or other options? Thanks.
Fischer Xiaodong Chen
Okay thanks again. Yes in addition to our core business we have historically been very focused on investing in startup Internet and gaming companies at slightly early stage for example as we stage with the minority shareholding.
Some of our portfolio companies in this category have been having fairly strong operating and financial performance since last year. We are aware that some of them are taking initiatives to seek public listing on China’s new introduced junior board in Beijing or as some people may call it December toward the end of this year and early or the first half of 2016.
We’re actually being cautiously optimistic about the return profile of these investment considering the strong momentum and generally quite rich valuation of the Asia markets. So that as we are not the majority shareholder in most of these investing companies, we’re not really managing the process in this regard. Did I answer your question?
Jun Zhang
Yeah, thanks and yeah my last question about your partnership with the China operators, we noticed there’s new policy that the Chinese government encourage operator to lower the data rates for the 4G starting in the mid of May and could you talk about what’s your latest updates on the partnership with the China operators and also your Morphine mobile data traffic management apps? Thanks.
Fischer Xiaodong Chen
Okay Jun. So first of all Morphine have been traditionally very strong with entering into partnership with various physical stores, the three operators at both provincial and also city levels in China.
So Morphine has made it’s further progress in expanding it’s partnership relationship with these stores by the end of Q1 we estimate that Morphine has already in relationship with established relationship with roughly 80,000 physical stores in China, so it’s really, really gaining traction on this front.
And also Morphine has started the mobile data service providing services whereby the company is actually sourcing mobile data from the three operators and then structures with the CP customers various very intelligent and smart packages and programs on the data front to incentivise the end user to maximize the data usage.
We have at this Morphine level made very good progress on this front and we hope that towards the year the second half of the year the results and the financial performance will be more meaningful to back to the overall revenue development of the group. Does that answer your question?
Jun Zhang
Yes, thanks, that’s all my question. Thanks all.
Operator
Thank you. [Operator Instructions] Your next question comes from the line of Thomas Chong from Citigroup.
Thomas Chong
Hi, thanks for taking my questions. I have a couple of questions relating to the Telco policies. So firstly, is there any guidance about what happens if there are low tension Telco’s policies any color about the revenue guidance for the second quarter?
And secondly, how should we think about for your revenue comment from Telco’s and non-Telco’s in the first quarter? And thirdly, are there any color about this affect more on the single player or the multi-player games? Thanks.
Fischer Xiaodong Chen
Hi Thomas, hi, it’s Fischer. Can I clarify the first part of your first question, did you – you were asking for two source of guidance’s over the first guidance you are asking.
Thomas Chong
The first – the revenue guidance if they allow changes in the Telco policies, so on a apple-to-apple basis any color about the revenue growth rate for the second quarter?
Fischer Xiaodong Chen
Actually as I said earlier over this call, the policy has been really being tightened and today actually we would see something new from the Telco. So with that, it’s getting increasingly difficult for us to make any projection as far as our top line growth or revenue number in Q2. So it’s very, very difficult to make any predictions on this front.
Okay. Your second question is related to the - our revenue mix between the Telco and non-Telco. Roughly over the first quarter, the revenue that we generated from these - directly from these three Telco's was approximately 90%, and with the 10% from various service providers - other service providers.
And your third question was regarding the mix between the single and multiplayer games. I guess going into the second quarter or going forward if I understand the question correctly here, we expect the single and multiplayer games to continue to be in the similar mix to the mix that we had in the first quarter in the next two quarters. That answers your question?
Thomas Chong
Yes thanks.
Fischer Xiaodong Chen
Thank you.
Operator
Thank you. Your next question comes from the line of [Peter Zhang] [ph] from Huatai Asset Management. Please ask your question.
Unidentified Analyst
Hello, I just wonder because of the telecom Major Mayhem, can we just switch to some other payment systems such as [audit payers] [ph] or some other to solve this problem and Major Mayhem we make in the near future?
Fischer Xiaodong Chen
So the question was whether it's possible for us not to use the three Telcos and -
Unidentified Analyst
Yes just to switch - maybe just for the second quarter versus third quarter or we can't?
Fischer Xiaodong Chen
Yes, just to answer your question directly, we can definitely work out other alternatives to channel revenue through the non-mobile carriers, for example from other service providers. However, the payment efficiency in our belief if we were to do that through other parties, would be even lower than the efficiency of doing that through the three major mobile operators.
So we are really being hopeful that the situation can get stabilized over the quarter or hopefully in the third quarter of the year to make the whole industry landscape healthier. That answers your question?
Unidentified Analyst
Partly, because as I know the telecom also charge very high percent of management fee compared with some sort of building payment channel such as add or pay. So I mean at this stage, maybe its much better for us to diversify our billion payment shares instead of – to have it only telecom just my personal appeal?
Fischer Xiaodong Chen
Thank you for sharing the view and the insight. Actually according to our in-house study in our research actually even though we consider the relatively high revenues sharing from the three mobile operated parts, the efficiency doing that through the third party mobile service providers would be roughly five to 10 times worse than doing through the mobile operators, which will basically mean that the revenue savings would be insignificant or even counterproductive. Does it answer your question?
Unidentified Analyst
Yes. Thank you.
Operator
Thank you. With no further questions, I would like to turn the call back to the management for closing remarks. Please proceed.
Michael Tao Song
Thank you all for you interest in Sky-mobi. We are excited about the smartphone business momentum and we believe that we are fairly uniquely positioned to execute our strategy even given the short term turbulence that we experience in the market.
So with that, I want to thank everybody for joining the conference call today. And wish everybody well for the week. Thank you.
Operator
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.