Luokung Technology Corp

NASDAQ:LKCO

Earnings Call Transcript 2021-Q2

[Operator]

Greetings. And welcome to the Luokung Technology Corporation's First Half 2021 Financial Results. At this time all participants are in listen only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] 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.

[Adam Prior, IR]

Thank you. And good morning everyone. And for those listening in Asia, good evening. The 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 at 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 statement 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 statement 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 and locums filings with the SEC, including our latest form 6-K and subsequent reports. Luokung will come specifically disclaims any obligation to update or revise any forward-looking statement 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 Song will begin the call with some opening remarks from 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. Baomin Li will discuss the latest operating state - operational developments. And the CFO Mr. Jie Yu will conclude with an overview of the financial results and provide an outlook for the remainder of the year and beyond.

The Q&A session will follow management's prepared remarks. If any individuals would prefer to email questions they'd like to ask during the session. Please feel free to email me directly at [e-mail] Please specify if you'd like to have me read your name as well. In addition, we received a number of questions following the issuance of 6-K last night where possible have integrated those into our comments today as well.

With that, I'd now like to turn the call over to Mr. Chairman and Chief Executive Officer of Luokung. Please go ahead, Mr. Song.

[Xuesong Song, Chairman and CEO]

[Non-English] Adam, please. Thank you.

[Adam Prior, IR]

Thank you, Mr. Chairman. And thank you everyone for joining us this morning including the members of Luokung'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 and portable technology will increase the company's value proposition. And society as a whole seeks to harness the intelligence that can connect cars, cities and people, Luokung considers itself a major player in enhancing daily lives and people 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 synergies this business brings to Luokong's existing location-based services for LBS business, as well as autonomous driving smart transportation business.

This is greatly increased the depth and breadth of business services. All of this has strengthen Luokong's competitive market position. In my recent shareholder letter, we noted the three pillars of Luokung's business, smart transportation, remote data sensing and LBS. We derive our revenues from the growth in all 3 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 30, 2021. While our bottom line was impacted by the pandemic in the first half of 2020, we continue 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 as a primary driving force behind overall revenue growth. In the field of smart transportation and carbon neutral remote, sensing data services, we also have achieved growth in the year-over-year - in the prior year period, excuse me. Although this business currently contributes a relatively small portion of the company's overall revenue, we anticipate this line of business will be continuing growth for the coming quarters.

The first 6 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 adding 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 always 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 for the full year ended 2021.

With that, I'd now like to turn the call over to Mr. Baomin Li, our CTO for more detailed discussion of our operation. Mr. Li, please go ahead.

[Baomin Li, CTO]

Thank you, Chairman. Before I begin, I'd like to note the Luokung's results for the first half of 2021 include only about three and a half months of contributions from the eMapgo business as the acquisition closed in mid-March 2021.

We have successfully merged eMapgo operation with that of Luokung. 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 doing. During the Q&A session, and happy to discuss the specifics of our LBS business to whatever extent investors would like. But in the interim, I would like to highlight some of the recent partnerships we have find 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 this development is that the first pillar of our business smart transportation, continues to be the fastest the growth segment of our business due to continued advancement in autonomous driving.

In June 2021, Luokung announced that eMapgo signed an agreement with the Geely Automobile Research Institute, whereby eMapgo 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, eMapgo signed 2 agreements, the first cooperation agreement with Microsoft to launch autonomous driving services for automakers and the second, an agreement to provide autonomous driving-based services for Zenseact, a wholly owned subsidiary of Volvo Cars the autonomous driving of the Swedish multinational manufacturing company. The continued licensing of our LBS 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 reclamation 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 the 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 eMapgo signed an agreement to be the technical service provider for the management of market and the 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 Luokung's first new client win in the telecommunications industry since we launched our internet LBS B2B business. Data has been a crucial but sensitive topic for Luokung. As a data service provider, Luokung has made it a priority to operate its business, while maintaining compliance with all applicable laws and regulations. We are also using technology core 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 clients' long-term trust in Luokung. 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 Jie Yu, our CFO for brief review of financials and our outlook for the year. Jie?

[Jie Yu, CFO]

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 June 30, 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 the growth in the software and the service business and eMapgo business.

Our operating costs increased during the period as a result of two main factors. The first being certain traffic acquisition cost, traffic acquisition costs may vary depending on scale, target audience and the geography of traffic. The second sector was an unusual amount of legal and accounting consulting fees directly related to services rendered to defend the company against the designation by The U.S. Department of Defense during the 6 months ended in 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, Luokung'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 eMapgo transaction.

As the Chairman noted that eMapgo is a critical component of what we are trying to build at Luokung. Not only to maintain eMapgo's leading position in the mapping market, but how it served to accelerate the growth of our other businesses. It is part of growth engine that helps us greatly 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 risked capital at this time are the following. First, we want Luokung to be in a position to take advantage of M&A consideration as they present themselves. Be mindful of whether these opportunities would help to improve our market leading position in technology, we are doing so with a thorough understanding of this cost of capital.

By that I mean that any new transaction to be pursued must have a return characteristic that is far superior to where we risk capital over time. We know what we want Luokung to be and having a solid balance sheet is a critical component of this.

Second, is the support of our growth. We expect to generate at least $100 million in revenue based on our current projection in 2021. This includes a second half of the year that integrates full 6 months of revenue from eMapgo as well as continue to 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 a 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 we expect as a public company and to listen to feedback our shareholders provided.

To that end, the company is expected to provide a press release on its revenue over the first 9 months within the next month after auditor review. We think this will serve as a catalyst for investors to follow in the coming weeks.

With that operator, let's open up for question please.

[Operator]

Thank you. At this time, I'll be conducting a question-and-answer session. [Operator Instructions] I'll now turn the call over to Mr. Pryor.

[Adam Prior, IR]

Thank you, Melissa. Appreciate it. At the beginning of the call, we received a number of different questions related to the company's operations. [Operator Instructions].

So Jie, I'll refer to you. We received a question relating to how long do you think the capital raise during 2021 will provide the company with working capital for its operation?

[Jie Yu, CFO]

Thanks, Adam. As we mentioned in the presentation, we used the majority of the financing in February to close the acquisition of eMapgo. 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 - across 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 again, more market shares, especially in smart transportation. Thanks, Adam.

[Operator]

Thank you. [Operator Instructions]

[Adam Prior, IR]

I have another from the internet audience that I will pose to you, Jie and Baomin as well. And then we'll take a question as they queue up after this.

One actually, I see that an individual has queued up. Please, operator and let's take their question.

[Operator]

Thank you. Our question comes from the line of Matt Puskat [ph], private investor. Please proceed with your question.

[Unidentified Analyst]

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 Heilongjiang [ph] at this point in time? I remember it was delayed. And in the last interview with Xue, the CEO mentioned it was still underway and not completely closed. So what's the current status of that as of now?

[Adam Prior, IR]

Okay, thank you. I just want to confirm the question is you mentioned Geely or which company?

[Unidentified Analyst]

No, for now - well, I would like to know both but it was the Heilongjiang first.

[Adam Prior, IR]

Geely? Okay. Yes. And that's - okay. I'm sorry. I'm sorry.

[Unidentified Analyst]

Both.

[Adam Prior, IR]

Okay. Sorry for interrupting. And, we have always maintained a good business relationship with Geely. And we are still in negotiation with them about the extension of the investment. But unfortunately, I'm sorry. I'm not able to share any further information at this moment.

And also for [Indiscernible] you mentioned I know, this has been for a while. And, however, we have informed them if they are building 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.

[Unidentified Analyst]

Thanks.

[Operator]

Thank you. [Operator Instructions].

[Adam Prior, IR]

Ask the question. Then an individual investor posed over email. When do you expect the company to break even or turn towards profitability? Jie, complete that.

[Jie Yu, CFO]

Okay, yes. Thank you. I think I got to take this question. Our company is a very much accelerated growth phase. As we continued 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.

However, it would cost us more to catch up in the future. And our goal is to create good value for our shareholders, and stakeholders long-term. But we are going to provide regular updates on our progress to the investment communities as we move forward.

[Operator]

Thank you. [Operator Instructions]

[Adam Prior, IR]

We have several online and a number on the dial in. But I'll ask another question as we through this. Mr. Li, I'll pose this to you. I've received a number of questions related to what's the growth prospects in 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 and Mr. Li.

[Baomin Li, CTO]

Thank you, Adam. The effect all major lines are for business to grow substantially. We expect the LBS business will grow at a faster rate in terms of revenue. Because everyone know, China is a huge market and we already built a good momentum in building our LBS business. As 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 topic 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 blue ocean and we can take advantage of the opportunity there. Thank you, Adam.

[Operator]

Thank you. Ladies and gentlemen, we have a follow up question from the line of Max Gusgave [ph], private investor. Please proceed with your question.

[Unidentified Analyst]

Yes. I have another question. Is there anything else you can - any details you can share with us about the recent partnership of eMapgo and global automakers and the European foreign suppliers? Is there anything on that that you can share with us at this point in time, please? Thank you.

[Jie Yu, CFO]

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 its potential. And we are providing data services and testing - and simulation services with them. And it will be 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 if appropriate to share. Thank you.

[Unidentified Analyst]

Thanks.

[Operator]

Thank you [Operator Instructions].

[Adam Prior, IR]

Thank you, Melissa. I think at this time, we can turn it back to management for closing remarks.

[Jie Yu, CFO]

Thank you. Thank you, Adam. Thank you again for joining us. In closing Luokung has overcome a challenge first half of the years. But we believe we will be well positioned to carry out our growth strategy. The company will continue working toward becoming the leading spatial temporal intelligent Big Data Service Company and for a world of interactive location-based data service in HD map in China. We are confident that our continued investment in R&D and improve diversity in employee structure we are only strength our core competitors 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 we want you to reach out to us with any additional questions. Thank you again. And good bye, everyone.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.