Luokung Technology’s (LKCO) Management on Q4 2021 Results – Earnings Call Transcript

Luokung Technology Corp. (NASDAQ:LKCO) Q4 2021 Earnings Conference Call May 12, 2022 8:00 AM ET

Company Participants

Alice Zhang – Investor Relations Analyst-The Equity Group Inc.

Dongpu Zhang – President

Baomin Li – Chief Technology Officer

Jie Yu – Chief Financial Officer

Conference Call Participants

Operator

Good day, and welcome to Luokung Year-End 2021 Financial Results Call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions]

At this time, it is my pleasure to turn the floor over to Alice Zhang of The Equity Group. The floor is yours.

Alice Zhang

Thank you and good morning, everyone. Copies of the 2021 year-end financial results press release, which was issued after market close yesterday, can be found 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 products of the company and its subsidiaries.

Luokung’s actual results may differ materially from the results anticipated in this 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 on our business, as well as those risks describes from time-to-time in Luokung’s filings with the SEC, including our latest Form 6-K and subsequent reports.

Luokung specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, further development or otherwise, unless required by law. A reply of this call will be provided through a link on the Investor Relations section of our website, shortly after the conclusion.

On today’s call, Luokung’s Chairman and CEO, Mr. Xuesong Song; we like to take the opportunity to introduce Dr. Dongpu Zhang as the President of the company. And Dr. Zhang will begin the call with some opening remarks. The company’s CTO, Mr. Baomin Li will continue with discussion of the latest operational developments and CFO, Mr. Jie Yu will conclude with an overview of the financial results and outlook for 2022.

As a further note, Mr. Song will be here to address any questions our investors may have in a Q&A session. A Q&A session will follow management’s prepared remark. If any individuals will prefer to email questions, they’d like to ask during the session, feel free to email me directly azhang@equityny.com. And please specify whether you would like to have me read your name as well.

With that, I’ll turn the call over to Dr. Dongpu Zhang, President of Luokung. Please go ahead, Dr. Zhang.

Dongpu Zhang

Thank you, Alice. And thank you everyone for joining us this morning. I’m joined today by the members of Luokung’s executive team and we are excited to have the opportunity to discuss Luokung’s growth in 2021 with the investment community today. We are very pleased to have achieved a significant top line growth. We have the gross margin improvements for 2021. This includes delivering the record annual revenue of US$145 million more than seven times that of the 2020. 2021 is a year that in which we are worked to build a strong foundations for future growth. Luokung is rapidly growth company connected by the core belief that our spatial-temporal technology will increase our value position.

As society as a whole seeks to harness the intelligence that can connect cars, cities, and people, Luokung considers itself a major player in enhancing people’s daily lives and their surroundings and connections between the physical world and our digital space. We have established a leading position in the HD Maps, IoT, intelligent big data, autonomous driving and smart transportation, vehicle-road collaboration, carbon neutrality and remote sensing data service, which are the necessary building blocks of digital twins.

A digital twin is a virtual representation that serves as the real digital counterpart of a physical object or process. This is the car and the critical drawing and the architecture of Luokung. Luokung’s policy is centers around the connections between the physical world is our digital space along with three key business pillars, smart transportation, remote data sensing and others.

We saw revenue growth in all three of these areas in 2021 and are pleased to have continue to win large global customers that apply our technology and solutions into the products and the service for the purpose. We believe we have only just began to realize the potential of smart transportation and remote sensing business.

The acquisition of eMapgo, which we closed in the March of the 2021, we have the most transformative developments for Luokung’s volumes this year, since the integrating eMapgo to our operations, it has become a key driver of the Luokung’s future growth. With the positive momentum of the company, with the unique and industrial leading technology that advantage in Luokung’s existing advertising business as well with the smart transportation and the natural resource effort management service, expanding the depth and the breadth of the applications, which Luokung can establish itself as a leader.

We believe that the road-to-vehicle coordination is the cornerstone of the smart travel and autonomous driving in the future. Smart cars require smart roads, which is for China is very good at the building smart roads. And we are actively developing smart solutions for both vehicles and the roads.

For vehicles, we expect our strategic to secure that eMapgo’s position as a leading HD Map provider in the field of the autonomous driving data service and the simulation service and full-cognition AI service. We, Luokung use our map as a cognition tools for the environments that around us. For roads, we are actively promoting the smart roads and service based on Luokung’s spatial-temporal digital platform, aiming to assisting that the expressway operators in managing their digital assets more securely and efficiently, and achieve the vehicle-to-road data communication.

These efforts, they are relative through our service providing for the auto car makers and the top tires of autonomous driving companies as well that the projects Luokung are implementing in the fields of smart highways, such as the Chinese Changjiu Express Highway that is a first in China that the expressway use the HD Map.

Moving from our second business pillar, natural resource asset management, although, Luokung service do not directly solve the issues of a carbon emissions. We believe that our data service can help policy makers, industrial regulators and market service participants make their better decision by providing access to zero-time situation and monitoring and data change.

As we continued – as they continue try to reduce the carbon emission and to serve as the important digital platform for carbon emission trading. We believe that Luokung has established the Chinese – China’s most powerful remote sensing data engine that integrates high resolution remote sensing data, HD Map, and the version of IoT sensor data, enabling us launch the mostly efficiency – more sensor data process service include our recent launch holographic spatial-temporal products and the data fusion service offering for the natural resource monitoring and carbon sink accounting.

We have signed several contracts for a carbon sink service in Anhui Province, China. As a LBS data service provider of the information flow management and the market service Luokung’s LBS business is powered by its integrated platforms and the capability to manage the entire life cycle of market service from planning, ordering, fulfillment and conversion, monitoring and reporting. All of this is behind our ability to grow revenue nearly 700% year-over-year, our significant R&D investments and ongoing efforts to extend our existing partnership based on have enable us to achieve this record revenue plus, which is the only beginning of Luokung’s…

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Our stakeholders and many others we have overcome with the challenge of DoD matters in the first half of 2021, which we will not be prepared with this particular concern behind us. We are pleased to have been able to put out our focus on our vision and growth of our business. In 2022, we remain fully commit to accelerating the growth and they’re improving our bottom line results, five plus months into this year, we are updating about the company’s growth potential and looking forward to sharing more development with the development community in the coming quarters.

I would like to turn the call over to Mr. Baomin Li, our CTO for more detailed discussions of our operations. Baomin, please go ahead.

Baomin Li

Thank you, Dr. Zhang. I would like to highlight some of Luokung’s recent significant operational developments. In February, 2022, Luokung announced that its operating affiliate, eMapgo, has began providing mapping services for two new Ford Motor Company vehicle models both models are equipped with Ford’s BlueCruise active driving assistant system, which supports L2 autonomous driving function as defined by SAE International.

This is the validation of eMapgo’s leading market position in providing mapping services. And we look forward to spending our partnership in the smart transportation area, not only with Ford, but other top tier automakers as well. In March, 2022, Luokung announced that our operating affiliate agreed to acquire Beijing Hongda Jiutong Technology Development Corporation, Limited, a leading big data service provider for intelligent transportation and connected vehicles in China. This is a strategic acquisition for Luokung. To take advantage of Hongda Jiutong’s vehicle data processing expertise, and hence improve our intelligent highway data management system capability and provide additional capabilities in driving assistance to improve safety and energy efficiency when combined with our HD Map services.

We are very excited about the insight Hongda Jiutong will bring to the company in the use of autonomous driving, assisted driving, intelligence transportation, and the synergy it creates with our existing products and the services. We expect to close the deal in the second quarter of 2022.

In April, 2022, Luokung announced the launch of its remote sensing holographic visual temporal portfolio of products and the services for natural resource monitoring and carbon sink accounting. The launch of the series of products and the services, and is the commercial application in a couple of country level regions enabled us to seize a greater opportunity in China’s largely untapped market of carbon neutrality and natural resource management.

The new portfolio of offerings covers areas like carbon sequestration, forestry, agriculture, and other fuels. And Luokung anticipates expanding its range of services for various application scenarios, such as carbon emissions, environmental protection, water conservancy, disaster emergency management, and much more in 2022.

In May, 2022, Luokung announced that its operating affiliate, Beijing BotAiot Intelligent Corporation, Limited has signed a service contract to provide Research Institute of Highway, Ministry of Transportation is the electronic blockchain data and certificate storage platform services.

We are very pleased to announce the corporation with the Highway Research Institute, which is a leader in the integrating strategic research and industrial developments related to highway transportation. Luokung has been actively promoting the application of blockchain technology in various fields of spatial-temporal big data. And this contract marks the beginning of our commercial services in the fields of highway transportation.

We anticipate strengthen our relationships and expanding our scope of blockchain services with more enterprises and institution partners that recognize our competitiveness in high transportation. Our business is centered around our proprietary technologies and expertise in HD Maps and the multi-source intelligent spatial-temporal big data, which is further supported by the long-term relationships we have established with reputable global partners and customers.

While we remain committed to investing in technology improvements and the products extensions to solidify our leadership positions in key technology areas, our partnership base is critical to our growth and we continue striving to establish new relationships. While depend in existing corporations with players in the right spectrum of industries. Overall, we are proud of what we are building here at Luokung and I’m very pleased with the progress we have made.

With that, I will turn the call over to our CFO, Jie Yu for a brief review of the financials and our outlook for the year. Jie, please.

Jie Yu

Thank you, Baomin. Thank you all for joining us. I will quickly review the financial statements and encourage each of you to review both our press release and Form 20-F which will be filed with the SEC later. For the year ended December 31, 2021, we recognized total revenue of $145.1 million, compared to $18.3 million in the prior year. The increase was primarily a result of $113.5 million in increased revenue contribution from the LBS business, as well as substantial growth in the software and the service business and the smart transportation business.

Our cost of revenue increased to $129 million, which was proportionate increase to total revenue during the period and was primarily attributable to traffic acquisition cost related to the LBS business. We were able to achieve higher gross profit margin of 11.1% compared to 4.3% for the year 2020, which was primarily driven by value-added service and improved contribution from the software and service and the smart transportation business that tend to have higher margins.

Operating expense increased to $81.7 million compared to $41 million, mainly due to increased expenses, salaries, and the share-based compensation for additional personnel in the R&D department, salaries and additional marketing personnel, as well as promotional and marketing expense.

Moving to the balance sheet. As of December 31, 2021, Luokung’s cash balance was $16.4 million, compared to $0.07 million as of the December 31, 2020. The net proceed released from the issuance of our shares in 2021, primarily due to closing the eMapgo transaction and general corporate purpose of day-to-day operation. eMapgo has been critical in opening up various opportunities for the company’s three key business pillar, smart transportation, natural resource asset management and LBS and smart industry service.

We are very, very pleased to have more than exceeded our goal of generating $100 million in revenue in 2021, beating this projection by 45.1%. We are now focused on 2022 and beyond. Further stressing our competitive advantage and streamlining our business to improve bottom line results. Having established a solid foundation for further growth in 2021, our goal is to continue growing the existing business, which including LBS and smart industry service, smart transportation, and natural resource asset management.

As I mentioned, our gross profit margin increased to 11.1% in 2021, which reach the continuous optimization of our self-developed LBS intelligent advertisement platform in 2021, we expect gross profit margin will improve over time as we offer the value-added services. As the company continued to diversify its value streams with increased contribution from smart transportation, from natural resource asset management, which tend to be higher margin business.

We anticipate improving our margin portfolio and create more favorable revenue mix. With the addition of more than 500 new staff, we have built a very strong team in taking our R&D effort to a higher level. The addition to Hongda Jiutong also adds some positive momentum in both enhancing our technology areas and advancing the industrial implementation of our smart transportation business. In 2022, we anticipate the R&D investment at a percentage of total revenue to remain stable as that of 2021.

Over the past years, we have had a great pleasure to communicate with our valued investors in various forms including webinars, we host to introduce our latest business development of the company. And we’ll look forward to continue this dialogue with the investment community. Our goal is to provide more transparent and regular updates on our activity, just like expected to be a public company.

We thank our shareholders for their ongoing support and confidence in Luokung and welcome the opportunity to speak with more of you as we move forward in the journey ahead. With that, operator, let’s open up for questions. Thank you. Operator?

Question-and-Answer Session

Operator

Thank you, Mr. Yu. The floor is now open for questions. [Operator Instructions] And Ms. Zhang, I’ll hand the floor over to you while we’re waiting for questions to queue up.

Alice Zhang

Yes, sure. Thank you. Appreciate it. At the beginning of the call, we received a number of different questions related to the company’s operations. Specifically, I would like to ask to post the questions to management while we wait for questions to queue up. So the first question I received is this, will the acquisition of Hongda Jiutong result in any revenues because we know that this is announced as a strategic acquisition. What does that mean exactly? And that’s my question.

Baomin Li

Thank you. Hongda Jiutong is a strategic acquisition. It not only provides key technologies to us, it brings the existing business to us as well. So in terms of technology advantages to Luokung, it brings mainly two parts. Why is the data collection capabilities, another is the AI algorithms. We are confident that this acquisition will strengthen our HD Maps services and give us a competitive advantage in other areas like assisted driving vehicle-to-road collaboration among others.

In 2022, we expect Hongda Jiutong to bring revenue based on existing business. And with the synergy that brings, we anticipate much more growth in other areas due to the Hongda Jiutong’s integration versus fully integrated with Luokung. So this acquisition will feel additional resource – revenue growth in the near-term. We continue to explore various potential M&A opportunities and we will bring – which will bring additional value to our business and to our technology portfolio.

Alice Zhang

Thank you, Mr. Li. My second question would be, what’s Luokung gross prospects for the natural resource asset management and the smart transportation business. And how much of a percentage do they currently contribute to the total revenues right now? And how much of a contribution percentage do you expect for these two business lines for the year 2022?

Dongpu Zhang

Thank you. And Luokung’s core product is the software and service. So that make us a very special feature that when you finish the developments of the software and the platform such as we focus on the resource asset management and also the remote sensing products. And when this is finished and the delivery product – software product and service for the customers that the pending parts is finished when the purpose will go higher and higher that is why we spend a lot of resources first in the development of all the platforms.

And there still will be very little adjustments there. These software when we finish the project and the cost will drop significantly and the profit will go higher and higher and with the time pass, I think the profit rate will go even higher. And we will balance this profit with our development and then for the new features and another upgrade of the old platform and software. So I think for the profits which will around that maybe 6% or – 60% to 70%. And that is the mainly software in the resource assets management.

Alice Zhang

Okay, great. Thank you, Dr. Zhang. And that’s all of the questions we get. I’ll turn to call back to you for live Q&A session.

Operator

Thank you, Ms. Zhang. [Operator Instructions] And there appear to be no questions at this time. So I would now like to turn the call back over to Mr. Jie Yu for closing remarks.

Jie Yu

Thank you again for joining us. And we believe Luokung is well positioned to carry out its growth strategy and we tend to maintain our leading position as a spatial-temporary intelligent big data service company and provider of interactive location-based services and HD Maps in China. We are confident that we help gather the best team with expert from all major business lines to strengthen our core competency and that our growing partnership base will empower the company and its customer to achieve success in the future. We appreciate your time and interest in the company and inviting to reach out to us with any additional questions. Thank you again.

Operator

This does conclude today’s conference. We thank you again for your participation. You may disconnect your lines at this time and have a great day.

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