BlueCity Holdings Limited (BLCT) on Q3 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the BlueCity's Third Quarter 2021 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to , IR Manager for the company. Ms. Wu, please proceed.
Unidentified Company Representative: Thank you, Operator, and hello everyone. Welcome to BlueCity's third quarter 2021 earnings conference call. Joining us today are Mr. Baoli Ma, our Chief Executive Officer; Mr. Alfred Ying, our Chief Strategy Officer; and Mr. Junchen Sun, our Acting Chief Financial Officer. We released results earlier today. The press release is available on the company's IR Web site, as well as from newswire services. A replay of this call will also be available in a few hours on the company's IR Web site. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statement, except as required under applicable law. Please note that during today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. Our GAAP results and the reconciliation of GAAP to non-GAAP measures can be found in our earnings press release. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi. With that, let me now turn the call over to our CEO, Mr. Ma. He will speak in Chinese first, and I will then interpret his remarks in English. After that, our CFO, Mr. Ying, will take over to discuss our growth strategies. Then our Acting CFO, Mr. Sun, will provide details on our financial highlights. Please go ahead, Mr. Ma.
Baoli Ma: Thank you, and hello, everyone. Thank you all for joining our earnings conference call today. In the third quarter, we continue to our growth strategies in which our project offerings optimize operations and enhance our user experience. We also further improved in the company's revenue structure. As a result, we made multiple stage of solid progress across our strategic priorities. Total MAU of BlueCity's apps reached 7.5 million, up 19.3% year-over-year, along with 57.1% increase in our paying users, particularly our membership services and He Health maintained strong momentum, with 93.1% and 136.8% year-over-year revenue growth respectively. This result fully demonstrated that our strategies of diversifying our revenue structure, as well as creating a new growth engine for the company have started to bear fruit. During the quarter, we continued to accelerate our product innovation and optimize our operations to provide our users with a more efficient way to get connected and enjoy entertainment content. Some features have already gained popularity among our users. For example, the revenue from voice chat room, which we introduced last year, two-digit growth on a month-to-month basis. While would have introduced a great variety of offerings on the online space, we are also in initial stage of exploring how to get more offline traffic. For example, we plan to launch a feature enabling our users to post or share offline activity information. We will also aggregate information of LGBTQ-friendly offline spaces to give our users more offline spending choices. With Finka, in the third quarter, by improving we saw increases in user success rate besides Finka's full digital list we rollout last quarter, further the paying ratio of Finka's membership services to more than 30%. Meanwhile, we rollout a feature on Finka through which users can share travel blog, lifestyle stories, and the reviews of restaurants and products. It will further enrich our content offerings and provide our community members with greater spending choices, which will enable them of peoples' daily necessities. In overseas markets, we are leading on most of the Southeast Asian countries. With a strong network effect, we've begun to cut our cost marketing expenses for advertising in this quarter, and then transformed our strategic priorities on optimizing product and . Privacy is often most important for the LGBTQ community, and we are always committed to providing a safe and secure environment for our members from different cultural background and . In this quarter, we introduced a series of new features on Blued, both domestic and international versions, to user identity and privacy. The new protective measures include automatic safety and security reminder during members' personal chat, prohibiting screen captures and screen recordings during live streaming and video call. The path to market another milestone for He Health as we launched a Mr. heer, on November 5, a consumer health brand providing male personal and sexual healthcare products. Currently, Mr. heer provide six core customer-friendly products in discreet and convenient packing, and got great feedback from the community. Mr. heer plans to provide more products and services to expand our consumer base to all male customers. He Health services has also stepped closer to our goal of a 100-city express delivery services, another 30% quarter-over-quarter growth of orders in the third quarter of 2021, as HIV prevention is a vital part of our commitment to covering the needs of our overall men's health. This growth shows us just how important it is for this community. We are proud to gradually develop He Health into a comprehensive online-offline platform covering all aspects of men's health needs. And we aim to further enhance our products and services to create more values for the community. Our commitment in Corporate Social Responsibility is also proven by the charitable activities conducted this quarter on the World Mental Health Day on October 10, we collaborated with a Mexican actor Polo Morin, he's an openly gay for video to rise visibilities of different subgroup of the LGBTQ communities, we also donate it to the organizations dedicated to the well being of marginalized groups. In this quarter, because of the COVID-19 and headwinds in the macro environment, we suffer from some setbacks from our lab screening business. But I would like to emphasize that by continuously improving our products, increasing users' willingness to pay and improving our revenue structure, we are confident that we will see a robust growth in revenue as well as profit in the near future. Now, let me turn the call over to our CSO, Alfred, who will discuss about our growth strategy.
Chung-Chieh Ying: Thank you, Mr. Ma and thank you everyone for joining our call today. As Mr. Ma just mentioned, our business stays on the right track towards our long-term goal. This quarter, as we continue to focus on customizing our product portfolio and diversifying our revenue stream, we're pleased to increase, pleased to see increased revenue contribution from our membership services and health related products and services, the revenue from membership and He Health as a percentage of total revenue was 13% and 8% respectively, comparing with 6% and 3% in the same period of last year. Furthermore, in addition to pursuing our top line growth, we are still in the process to reassess our business model in order to balance between revenue growth and profitability. In the third quarter of 2021, we implemented measures for cost control to improve our operating efficiency. For example, our overseas that was heightened as the promotion expenses decreased 25.4% on a sequential basis, as we targeted to our overseas business on to countries and regions with higher ROI and organically acquired users through means such as activities. We're looking for long-term sustainable growth in the future and see considerable potential for increased monetization as our product and the service offering continue to grow. Looking ahead, we will remain committed to executing our growth strategies with a focus on reaching our product offering and optimizing our services. We will also stay to our mission with continued efforts of raising awareness of health and HIV prevention. In the quarter, we discontinued operation of LESDO, which contribute less than 1% of our total revenue in the past quarters. Lesbian users, we have differently from male users with a lower willingness to pay for online social networking services. Going forward, we will continue to focus on growing our core business to serve the well-being of the LGBTQ community. We believe we are on the right directions towards our next stage of growth with the soundness of our strategies and the strong execution. Now, let me turn the call to our active CFO, Junchen Sun, who will provide any details on all financial performance.
Junchen Sun: Thank you, Alfred. Now, let me go through our financial highlights for the quarter. Before I go into details, please note that, our numbers presented i.e. in renminbi and for the third quarter of 2021 unless dated otherwise. All percentage changes are on a year-over-year basis unless otherwise specified. Some detailed analysis is content in our earnings press release, which is available on IR website. Our total revenue for Q3 RMB217 million, strong 9.3% year-over-year and driven primarily by the decrease in our revenue from live streaming services. In this quarter, our total MAU has grown 19.3% to RMB7.5 million with a strong growth of 57.1% from our total paying users to reach 776,000. However, the decrease in ARTPU for live streaming services across the overload reduction in our total revenues. Revenue from overseas operations contributed 13.1% to total revenue and slightly increased from 9.7% in the same period last year. Note fully, we also accomplished meaningful progress in diversifying our revenue streams with encouraging year-over-year revenue growth from membership services and He Health this quarter. Revenue from live streaming services was RMB194.2 million representing a year-over-year decrease of 23.9%. The decrease was primarily due to the decrease in the average revenue per paying user for live streaming services as a result of the headwinds in the talent show live streaming industry in China. Revenue from a membership services was RMB35.1 million up 93.1 year-over-year. The increase was primarily due to the significant increase in the number of paying users benefited from diverse membership services on the company's apps. Revenue from advertising was RMB13.6 million up 34.2% with the increase primarily due to our continuous efforts we are attracting more advertisers, with diverse advertising and maximum solutions as well as improved advertising efficiency. Revenue from motion debt sales of He Health reached RMB22.8 million up in a 136.8%. Risk by He Health achieved stronger momentum in the coming quarters as the company devoted more resources to expand our health-related offerings. Now, moving to our cost; cost of revenue decreased by 8.3% to RMB184.9 million; the decrease was primarily due to the decrease of revenue sharing costs, along with the decreased revenue of live streaming services, and partly offset by the increased cost of products connected with the growth of He Health sales and the increase of stock cost. The gross profit was RMB85.1 million down 11.4%. The gross margin was 31.5% remains light with 32.3% from the same period of last year. We strive to further accelerate revenue contribution from our membership services to achieve overall margin improvement. We now as revenue sharing and commission costs are still the key components in our cost of revenue. We remain committed to actively explore solutions, to reduce revenue sharing percentage and implement a more sustainable model for our last streaming services. Operating expenses were RMB116.7 million, and down 33.2% year-over-year. Sales and marketing expenses were RMB56.9 million, and down 1.9%. The decrease was mainly due to the decrease of share-based compensation expenses, and partially by the increased advertising and promotion expenses and staff costs. Technology and development expenses were RMB66.2 million, up 31.6%. The increase was mainly due to the increased staff cost in the technology-related department and to the and the bandwidth cost, of which was partially offset by the decrease of share-based compensation expenses. G&A expenses were RMB31.6 million, and down 76.1%. The decrease was mainly due to the decrease of share-based compensation expenses, and partially offset by the increased staff cost. This quarter, we had impairment of goodwill and intangible assets of RMB6.0 million, which was due to the termination of Lesdo-related business. Net loss was RMB73.8 million, compared with the net loss of RMB137.8 million in the same period last year. Adjusted net loss was RMB62.2 million, compared with adjusted net income of RMB7.3 million in the same quarter last year. As of September 30, 2021, we had cash and cash equivalents and a term deposit of RMB370.9 million, compared with RMB611.8 million as of December 31, 2020. And now moving to our guidance, given the increasing uncertainty in the talent show live streaming industry, we are not providing specific revenue guidance for the full-year 2021. And that concludes our prepared remarks. Let's now open the call for the questions. Operator, please go ahead.
Operator: Yes, thank you. Our first question is from the line of Laura Champine of Loop Capital. Please go ahead, your line is open.
Laura Champine: Good morning, thank you for taking my question. Could you outline for us what the key factors are that are negatively impacting the live streaming business, and give us a sense of when you think that business might return to growth? Thank you.
Chung-Chieh Ying: Hi, Laura, this is Alfred. Yes, for the live streaming business in China, it's become way more competitive, especially some companies, they actually give the live stream a high revenue share. And these high revenue shares might cause a different or severe competition in the market. What we are doing is that we are implementing several measures to improve our live streaming business. For example, we helped some less well-known live streamers, give them some training to help them to attract more audiences. Also, we will introduce or develop some features such as gamification features to keep users engaged. We expect to see some more concrete result in early 2022.
Laura Champine: And just as a follow-on question, you mentioned that the market has gotten competitive for performers, but I think in your prepared comments you also mentioned you think you can raise the cut that BlueCity takes. How would that work?
Chung-Chieh Ying: We try to introduce more the product offering, try to increase the content for the live streaming. And as I mentioned earlier, so, we will try to help those less well-known live streamer to give them some training and help them to attract more audience. And also, because for those live streamer doing the live streaming with the Blued app, the -- because of our user, they have a stronger stickiness in our products. So, we think that due to this nature of our users we will be able to improve the live stream business over the next few months.
Laura Champine: Got it. Thank you.
Operator: Thank you. Our next question is from the line of Tim Moore of Zacks Small Capital Research. Please go ahead.
Tim Moore: Yes, thank you. Your press release mentioned progress on he Health. And I know you mentioned that six products have been launched for Mr. heer. I was just wondering maybe if you can provide us with more color and details on how you're building that awareness and getting it out there. And also, how you're kind of maybe going to open it up to all males, all men?
Chung-Chieh Ying: Okay. We actually are planning quite a few marketing activities to increase the awareness of the brand. Right now, we increased the awareness of the brand within -- mainly within always Blued app products. We also have the plan to open the third-party online store to sell the products. I think in the near-term, the sales from the customers through our Blued app will be more than enough to generate significant revenue. But in the mid to long-term, we will try to sell the products to customers outside of the Blued users.
Tim Moore: Good, good. The other question I had was what are your plans to do with your net cash, it looks like you have something the equivalent of $58 million, it's 65% of your market capitalization. Do you have any plans to spend that or do more acquisitions or reinvest anything?
Chung-Chieh Ying: We still focus on our core business. For our cash positions, although it is quite enough for our operations for the next -- at least for the next three years, we won't use the cash for other purpose other than the core business, because, as we mentioned earlier, we have the He Health business, and we just launched the new brand, and we need cash to expand our operations. So, for our cash position, that will be mainly used for our core business.
Tim Moore: Great, thank you. And is there -- lastly, are there any new features or benefits that you think that you are adding to live stream, besides training some of the less experienced live streamer, that would maybe make you more competitive in the space against some of the peers that are offering higher revenue shares? I'm just wondering if you're putting anything in there that's really going to make you more differentiated.
Chung-Chieh Ying: One example is the related features, for example like PK among the live streamers, that is the one, and then some features that if the user the first time to buy a pipe service, we might have some discount for that to try to attract more users to pay for the service to pay for the live streaming services.
Tim Moore: Great, thank you. And that is it for my questions.
Operator: Thank you. Our next question is from the line of of First Choice Group Incorporated. Please go ahead.
Unidentified Analyst: Hi, good evening. Thanks for taking my question. I will quickly translate for myself, my first question that is the company's gross margin was under pressure in Q3. What initiatives are you doing to improve it? And my second question is regarding your plan and expectations for the newly launched brand next year, also the sales growth of He Health would continuously to be strong in Q3, what is the company's expectation for the sales contribution from He Health next year? Thank you and I have a follow-up later, thank you.
Chung-Chieh Ying: Okay. For the improvement of the margin, what we are trying to do is that the first we will increase the revenue contributions from our high margins of business, for example, the membership services and health related business with the better revenue structures, we expect to be together better . That is the first point. The second point is that for our overseas business, we also implement the expense control. As we mentioned earlier, the advertising and promotional expenses was down nearly 25% on a sequential basis, and we will continue to do so over the next few quarters. So, you will see a much better operating efficiency, especially in year 2022, that's second. The third point is that we will also try to improve our technology related expenses especially related to the bandwidth and we already see the high expenses related to tech. But some of the tax benefits are pretty much one-off. So, going forward especially next year, we will see a better expense saving in the tech area. So, with all these, we think we will have a better margins and probably have a better OP margin as well. Okay, when we started He Health's business spec in 2019. We already got quite business, meaning that, a lot of time we already plan prior to do the OEM business, the so-called the consumer print business. So, can you see He Health's business actually was developing step-by-step, stage-by-stages. So, for the first stage you'll receive online medication business. The second stage is that, we launched Mr. heer the consumer brands, and Mr. heer -- the reason we launched Mr. heer consumer brand that, we know our users' needs very well, and we know that there will be a strong demand from our users for these kinds of consumer products. So, that's why we decided to launch the Mr. heer's brand. And during the initial stage, the brand has six products. For the second stage next year, we will try to expand the product line of Mr. heer, because we see that this -- will get a very good popularity among our users. We think that Mr. heer product should have quite a significant contribution to the He Health's business in the future Okay, as you already see that we have a strong sales growth from the membership business and also found strong sales growth from health related business with better revenue structures. We expect to see better margins in the future. And also -- although right now, the live streaming basis is the biggest revenue contributor, but we are not positioned ourselves as live streaming company. So, in year 2022, you will be able to see much more better revenue structures, because we will try to develop the reliable business. And for the live streaming business, we will try to -- as I mentioned earlier, we will try to develop more features even probably we will develop some ecommerce related business along with our live streaming business. So, that is one area we are considering. So, we are still the company which are dedicated to the circle of lifetime to provide the lifetime service to offer our users, this mission has not been changed. Thank you. Thank you. I have a follow-up. Regarding the global market would you please share more color performance of your overseas market in terms of the total revenue and may you all as a metric. Any update or change with your strategies on overseas expansion? Thank you. Okay, for our overseas business, MAU for overseas business was RMB2.94 million, it's almost RMB3 million MAU versus RMB2.6 million in the same period last year. So, the year-on-year growth for the MAU was 10.5% year-on-year. And also for the sales contributions as you can see from our release, overseas business accounted for 13.1%, 13.1% in the third quarter this year versus 9.7% in the same period last year. So if you do the calculations the overseas sales revenue was roughly RMB35 million versus RMB28.7 million same period last year. So, the year-on-year sales growth was 23%. So, as you can see that our overseas business continue to grow in the third quarter this year, even we already implement some measures to up the cost and our expense control. So, as far as the future strategy is concerned for overseas business, what we will do is that we will continue to implement the cost measures and cost control measures and expense control measures and the MAU growth will more rely on the so called organic growth. That is the first one, the second one is that we will try to enhance our monetization for our overseas business. And we will try to because for especially for our live streaming business overseas, right now our overseas live streaming business is more social network oriented and in the future probably will be transformed to the so called the Talent Show oriented. We believe in this way this will bring in more sales revenue for overseas business next year. So, our target -- internal target for overseas business next year is to try to have this business to become profitable at here. Another additional information for MAU, MAU overseas accounted for 43.8% of total MAU, so meaning that MAU maybe is concerned overseas business already a very significant part of our business.
Unidentified Analyst: Great, I have no more questions. Thank you.
Operator: Thank you. Ladies and gentlemen, we have now reached the end of our question-and-answer session. Now I'd like to hand the conference back to the management for closing remarks. Please continue.
Junchen Sun: Thank you, Operator. And thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.
Operator: Thank you. And this concludes today's conference call. Thank you for participating. You now all disconnect.
