MICT, Inc. (MICT) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Good morning. And welcome to the MICT first quarter 2021 financial results and corporate update conference call. At this time, all participants are in a listen-only mode. . After today's presentation, there will be an opportunity to ask questions. . Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also be recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through May 25, 2021. I would now like to turn the conference call over to Scott Gordon, President of CORE IR, the company's Investor Relations firm. Sire, please go ahead.
Scott Gordon: Thank you Jamie. Good morning everyone and thank you for joining us for the MICT first quarter 2021 financial results and corporate update conference call. Joining us today from MICT are Darren Mercer, Chief Executive Officer of MICT and Moran Amran, Controller for MICT. During this call, management will be making forward-looking statements including statements that address MICT's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in MICT's most recently filed periodic reports on Form 10-K and Form 10-Q and Form 8-K filed with the SEC today and MICT's press release that accompanies this call, particularly precautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today May 24, 2021. Except as required by law, MICT disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Darren Mercer, Chief Executive Officer of the MICT. Darren, please go to ahead.
Darren Mercer: Thank you Scott. Good morning and thank you for joining us on the call and on the webcast today. If we can turn to the presentation, please and go straight to slide three. It's been a strong quarter for the company and we have achieved a great deal in a very short amount of time. In terms of licenses, we achieved regulatory approval from the Hong Kong SFC, which will enable us to initiate trading on our stock trading app, which is in the late phase of testing. We acquired a Chinese nationwide broker license in the insurance space, which will facilitate rapid growth in our insurance business in China. The acquisition enables us to offer B2C products direct to customers, enables us to move into higher margin insurance products and the building of our database each month provides a strong foundation for us to become a B2C player. In the second quarter, we expect to launch our B2B2C platform and we expect this to further performance in terms of volume and margin. From a technological standpoint, we have also made remarkable progress. As I just indicated, we launched our B2C insurance platform during this quarter and we have moved our stock trading platform into the final stages of testing with the expectation of an anticipated soft launch in late June with a larger rollout to occur in July.
Operator: Ladies and gentlemen, it appears we have some technical difficulty with the speaker line. We do ask that you remain patient while we attempt to reconnect that line. Thank you for your patience.
Darren Mercer: Okay. Thank you everybody. Apologies. Technical glitch there. When I left my presentation, we were about to start slide seven. Perhaps we can get that up, please. Turning to this slide, our commodities trading business, which rounds out our fintech offering in China and Southeast Asia, will provide our customers with a complete suite of financial products. Our relationship with Shanghai Petroleum and Natural Gas Trading Center, whose customers account for approximately 20% of China's oil and gas trading, will provide us with easier access to commodities traders, acting as a strategic third-party partner to the exchange's clients to provide trade execution, margin financing and trade clearing capabilities. Working as a key partner with some of China's largest commodity exchanges affords us the opportunity to make major inroads in this multi-hundred billion dollar marketplace. We are hopeful to generate meaningful sales and commission revenue through our platform early in the second half of 2021. I would like now to take a moment to discuss the Micronet business, which has had some impressive successes over the course of the first quarter. Perhaps we can turn to the next slide, please. While Micronet's core business is now in our fintech offering, our investments in Micronet has shown promise during the quarter. First, we reported a fourth quarter 2020 order for the SmartCam products for $300,000. And during the first quarter of 2021, we saw additional traction with a significant follow-on order for one of the world's largest telematics service providers for 5,000 SmartCam units valued at $1.5 million, with a recent additional order for an additional $900,000.
Moran Amran: Thank you Darren. Revenue in the first quarter was $8.9 million versus zero in the year ago period. The increase in Q1 was a result of the insurance division, which was launched in late December. Gross profit in Q1 was $1.9 million versus zero in the year ago period. R&D expense in Q1 were $231,000 versus zero in the year ago period. Selling and marketing expense in Q1 was $1 million versus zero in the third quarter of 2020. General and administrative expenses were $4.6 million in Q1 versus $770,000 in the prior year period. The operating loss in Q1 was $4.8 million versus a loss of $770,000 in the prior year period. Net loss attributed to MICT in the first quarter was $4.5 million versus a loss of $1.6 million in the prior year period The increase in the operating loss and in the net loss was a result of higher operating expense associated with the company launch into the China fintech market. Back to you, Darren.
Darren Mercer: Thank you Moran. As I hope you can clearly see, MICT is well-positioned to see significant impacts from the emerging Chinese fintech market. Our insurance business has just begun and we are already seeing significant revenue and expect to see this increase as from our original B2B services and expand our reach directly toward the insurance customer themselves through the emerging B2B2C and B2C offerings. We are poised to launch a well-planned innovative stock trading platform driven by a targeted marketing strategy and our already significant investments in our software development, acquisition of Huapei and our highly experienced management team. We also expect to launch our commodities and futures trading platform shortly thereafter, which is supported through our unique relationship with a major focus in the Chinese oil and gas industry. We have an extremely strong balance sheet with $123 million in cash which will enable us to execute on our growth strategy, providing both the insurance division and stock trading division significant resources to support their current respective growth plans and support margin trading that will result in larger profit opportunities. We are just getting started and we could not be more excited about the future of MICT. We thank you for your continued support and we look forward to sharing our progress with you as it develops.
Scott Gordon: Thank you Darren. The company received many questions from investors for today's call and we thank you for your interest, feedback and continued support of shareholders. Many of these questions were repetitive. And so on today's call, we will be addressing the most frequently asked questions. Additionally, the company has received a number of questions that are seeking information about the things not disclosed by the company or are forward-looking as well a number of questions regarding share price fluctuations and trading activities of its shares. As a matter of policy and regulatory compliance, the company does not offer interim operational or financial update, forward-looking guidance or capital market strategies or comments on the performance of its shares in the market. With that, the first question is, for what reason did you do the recent fundraising and how do you believe it was in the shareholders' interest?
Darren Mercer: Thank you. I think the short answer to that is growth capital. The more long-winded answer is, I think we have to really look at what we create as a business. And bear in mind, the enormity of the opportunity we have created is not just one but three huge fintech markets within China and Southeast Asia and we have to consider our cash requirements. If we look at the three fintech businesses, our insurance business is already at pace and benefiting from access to additional working capital or growth capital to fuel additional growth which is required. Additionally, with the stock trading platform, we secured one of the most highly lucrative financial service licenses in China and Hong Kong and we now have the opportunity to launch and compete with our peers in what is a very exciting vertical itself. As I mentioned in a slide presentation, margin financing is going to be critical for that drive. And this fundraise enables and empowers us to be able to offer it on to our underlying clients. And as we also said, that itself is going to be a huge contributor, we believe, to the profitability of that division. And of course, for the commodities trading, our blue chip clients will also require leveraging facilities. And so, again, this will also, we believe, be a lucrative area for us. I guess by raising the capital that have, we can focus on the growth of all of our three fintech businesses rather than having to choose one and starve one or more of needed growth capital.
Scott Gordon: Thank you Darren. The next question. What is the company's current cash burn? Were the funds raised to accommodate that burn? And do you anticipate that burn changing in near future?
Darren Mercer: That's a good question. As I have just said in the previous answer, the cash was not raised for cash burn. The cash was raised for growth capital. And if we could you look at what our cash position was at the end of Q4 2020, we had around $20 million in cash in the bank and since then we have raised a further $114 million which, when you take cost out, comes down to around $104 million. So, bearing in mind that we have also completed two acquisitions during the quarter, we funded research and development, pre-launch costs and so on and so forth, you can see the our cash burn is actually rather small. As I said in the previous answer, our funds are primarily for growth capital to enable us offer leveraging facilities to our underlying clients.
Scott Gordon: Thank you. What was the operating profit or loss of the insurance business for Q1? And do you expect it to deliver profit in Q2 and beyond?
Darren Mercer: Okay. First of all, I think I should say that I am not allowed to give forward-looking statements. So I am not really going to comment on when we believe this will become profitable or now. But what I can say is that the loss of that division was around $300,000. And as I have said in the announcements today, that business is continuing to grow and continuing to please us very, very much. And particularly as we move towards the B2C and B2B2C products with much higher margin, they will clearly contribute more gross profit. So that's the only way I am permitted answer that question.
Scott Gordon: Thank you. Why are you so confident that your stock trading app will be able to achieve the likes of Futu and UP Fintech?
Darren Mercer: Okay. So I think two things, I should say. So Futu is the darling of the industry, the $20 billion-dollar market cap NASDAQ company that's in stock trading. And UP is often known as Tiger, for those who don't know by official name. Some really good questions. So I think a couple of things. As we said in the presentation, there are really three main components to what we think will provide a basis for a successful stock trading business. Interesting before I carry on, a lot of this was upon in Futu's results conferences results presentation last week. And those three areas really are, first is regulatory. And as I said in the presentation, the importance of a Hong Kong license is the comfort and security it gives to the underlying user. In Southeast Asia, without doubt Hong Kong is regarded as a premier of the stock exchange marketplaces. And when your customers are giving you large amounts of their money and trading large amounts of their money with you, it's important that feel their is protected. And that Hong Kong license is critical. Futu has a Hong Kong license. UP Fintech hasn't got one. I think it has licenses in New Zealand. And you have to ask them, why that's the case. But it really gives us a significant advantage for customer acquisition. Secondly, I think it's important to have an innovative and a robust technology, your own proprietarial platform. So many different reasons. And again, this contrasts with many of those in the marketplace. Futu has its own enterprise stock trade platform. People like use interactive brokers. We think that's a weakness. And we think the benefits of our own platform really all there because of firstly, we can have the flexibility to create a product that we believe will best suite our customers and change it as and when we believe the need arises and you don't get that if you white label a product. Secondly we don't, in owning your proprietary platform, you keep all of the margin yourself. You are not giving it away to a third-party provider. And I think the often forgotten one is the importance of data, as I said in the presentation a moment ago. The minute you start sharing all of the information about your underlying clients with your third-party provider, you lose control of that data. And data, we think, is going to be very important, not just in this business but throughout the group through the insurance and through the commodities trading business. And our ability to cross pollinate and use that data, we think, is going to help drive significant shareholder value. The third area and this goes back to the fund raises and why we did this is. And one of main reasons we did it in the first place. Having a great app is one thing. Having license is another. But if you cannot provide a full range of services to your underlying customers in what is a he competitive landscape, you are going to find it very hard to make the progress that you hope or wish for. With that fund raise, with $123 million on the balance sheet, we now have that ability to offer significant margin finance book. One of the things we need to remember is being regulated from strictly regulated in this premium market in Hong Kong, we can only ourselves leverage five times the level of our cash on the balance sheet. And so clearly, the more cash we have, the more we can leverage. And as I have said several times today, it's going to be a very important profitable part of the business.
Scott Gordon: Thank you. When do you expect the stock trading app to launch? And what can you tell us about the launch plan?
Darren Mercer: Okay. I think we said earlier today that we are launching, there will be a soft launch at the end of June with a full rollout in July. As for the exciting plans we have got, I would rather keep our powder dry and not share them with my competitors, if that's all right. But what I will say is, we are very excited by the product itself, very excited. We are very excited about the developments we have made and we are very excited about the launch that we are about to embark upon.
Scott Gordon: Thank you. What services are you planning to provide with regard to commodities trading and futures? And do you plan to expand to other commodities after oil and gas?
Darren Mercer: Okay. So in terms of how we service the trading center clients, which includes some of China's largest oil and gas companies like Sinopec or China Oil and Gas as well as many government departments and bureaus, state-owned companies, large corporations who provide execution service very similar to what we do in stock trading. And what we do is, we access the leading commodity exchanges, one in Shandong and the futures exchange in Dalian in return for commissions on those trades and fees should we provide margin finance. And that's something we are very open to, because again in this market it's also very profitable and the underlying clients here are very blue chip indeed. Are we looking at other areas. Yes, we are. But I really can't disclose more than that at this stage. Needless to say, China's commodity markets are amongst the largest in the world.
Scott Gordon: Thank you. Can you tell us a little bit more about your financial performance regarding non-GAAP loss for Q1 2021 after stripping out one-off cost and adding back Micronet's losses?
Darren Mercer: Okay. I will better get my calculator. The non-gap loss after adjustments for amortization and intangible assets and expenses relating to settlement agreements was $3.4 million for the quarter which after stripping out Micronet's losses of $800,000, nets down to $2.6 million. And this, after taking into account, all of our R&D costs as well as pre-launch and launch cost of our development businesses.
Scott Gordon: Thank you. Regarding shareholder dilution as a result of the two Q1 fund raises, the share price fell back significantly after the second raise. What can you say to reassure investors on these points?
Darren Mercer: Yes. It's a question I am often asked. And dilution, I think, is the most, sometimes a misunderstood or a misused word. And I am a strong believer that if will deliver the business and in the way that we expect to and we deliver the growth that we are expecting to, that will out in shareholder value. And I have to say, I also agree with those investment experts who say that any percentage you hold in is largely irrelevant. What is far more important is about the stake. As I often tell people, I would rather be an owner of 1% of Apple than 100% of owner of nearly other company in the world. When we have finished creating very amazing opportunities in the fintech space and they have required growth capital, I have said it several times today, in reality shareholder value hasn't been diluted at all. In fact, I would argues, quite the contrary. The slide I showed today on where were we this time last year, where were we in Q1 2020 where we had $2 million of loan outstanding, $46.4 million of preference shares outstanding and only $3 million in the bank and only 37% or 34% stake in Micronet. Look at where are today, $123 million in the back and insurance divisions just been a great quarter and is growing and pleasing all of us immeasurably, our stock trading platform is about to come online and is now funded to be able to go and deliver upon its promise and the commodities exchange, which is perhaps the unsung hero of the three as well and is seeing a positive impact on shareholder value. I would argue the two fundraises we did have added significant accretion to shareholder value. They may not have shown in the share price today. But share prices are volatile. And as I keep saying, as we deliver on our business plans and we deliver to what we believe in, then the share price will right itself in the end.
Scott Gordon: Thank you. Our final question. At analyst research, it is important to help the market understand the company's potential value. When do you expect channels your first analyst research to be published? And can we expect analyst covers in the near future?
Darren Mercer: Okay. That's a very fair question. It's one that's, I guess, is with a number of shareholders often time. Honestly, I would say, that I would rather arrange analyst broker research sooner than we have. But such analysts in the U.S. are very stringent and the advise we received from many of those people who want to write about us is, they wanted to see a quarter of numbers first. They didn't really want to write on a company that had no revenues. Those conversations have already started. They are in a nascent stage. But now we have delivered our Q1 numbers. One of my tasks over the next couple of weeks is to pick up the threads with some of those analysts again and hope that we can motivate and incentivized those guys and encourage those guys to write about us. The process of what shareholders must be aware of is our process is not an immediate, three, five, 10 day fix. The great thing about research analysts in America is that they are very diligent and they go through warts and all of the business before they write. And so that can take a number of weeks. But what I can report is that those conversations have started and with the numbers now reported, we hope to make significant more progress.
Scott Gordon: Thank you Darren. Jamie, we will now open the queue for questions from participants. Please go ahead.
Operator: . Our first question today comes from Brian Kinstlinger from Alliance Global Partners. Please go ahead with your question.
Brian Kinstlinger: Hi Darren. Great quarter. Thanks for taking my question. I am curious on the stock trading platform. If you can share with us, if you are willing, given it's competitive a little bit, how you plan to acquire customers? What's the strategy to make them aware of your new app?
Darren Mercer: Brian, that's a very clear question. And I am going to be as guarded as I possibly can. I would like to answer without giving the secret of our source away, because it can become only too evident in the coming weeks and I really want to keep our competitor advantage where it is. What I will say is that this management team we have has a long track record of acquiring customers in this region of the world. We have people from the industry who know what they are doing. We have a great marketing team. And we think we have a couple of exciting marketing promotion ideas which we will see positive results from it. I don't really want to say too much publicly because, as I said, it's a very competitive marketplace. Our app is still a few weeks from launch. And I just want to ensues that we keep ahead of our competitors.
Brian Kinstlinger: Great. I understand that. And then in the insurance business, any details you can share with us? We are about two-thirds into the second quarter. You talked about it progressing in the second quarter. Can you talk about maybe the number of increases in customer accounts? Can you talk of any sense for how much stronger it appears so far the second quarter has been on a month-to-month basis is already been executed or anything to share with us about the second quarter and how it's playing out so far?
Darren Mercer: That's a very fair question. And again, I am told by my lawyers I can only answer, give information that was announced publicly today. How I can I answer it differently perhaps is to say to you that we have to remember that in the first quarter of this year we had a two, three week impasse for Chinese New Year, which is like Christmas in the west, but not a lot happens. So February was not the most active amongst scores. And yet, we still delivered a really good quarter. We don't have that interference in the second quarter. And what we also did in the first quarter was get the nationwide license. And in getting that nationwide license has allowed us to bring B2C on sooner, so we are going to get higher margin sales. It's allowed us to sign up more brokers who are coming on stream who support what we do on a B2B platform. And I think where it's left this quarter and we will much more of it next quarter has allowed us to sign up relationships with key insurance where we can get better commission rates, thereby increasing our margin as a result of that nationwide license. And then I think the final thing to add to that is we will also receive fairly shortly a launch of one of our key B2B2C platform with a major Chinese part. All of those will see, what we hope are significant increases in revenue in Q2 and beyond.
Brian Kinstlinger: Great. Thanks Darren.
Darren Mercer: Thank you Brian.
Operator: . Ladies and gentlemen, I am showing no further questions. I will conclude today's audio question-and-answer session. I now would like to floor back over to Darren Mercer for any closing remarks.
Darren Mercer: I have no closing remarks, except to thank everybody for sharing their time with us this morning and allowing us to speak to them.
Operator: And the ladies and gentlemen, with that, we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
