iHuman Inc. (IH) Earnings Call Transcript & Summary

Hello, and welcome to the Deutsche Bank Depositary Receipts Virtual Investor Conference, dbVIC. I'm Zafar Aziz from the Deutsche Bank team. I'm pleased to announce that our next presentation will be from iHuman Inc. from China. Before I introduce our speaker, a few points to note. Please submit the question in the question box to the right of the slides. Also, all of today's presentations will be recorded and can be accessed via the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome Justin Zhang, Investor Relations Director of iHuman, which trades on the NYC under the symbol IH. Over to you, Justin.

Thank you, moderator. Good evening or good morning, everybody. Thank you for joining us today. My name is Justin. I am the Investor Relations Director of iHuman. Before I start, I would love to say thank you, thank you to Deutsche Bank for inviting us to this virtual investor conference. Today, I will provide an overview of the company, followed by investment highlights and financial highlights. I will then conclude by going over the strategies we will take to improve our near-term performance and position iHuman for sustainable and long-term success. iHuman is a leading provider of tech-powered intellectual development products in China. We offer a one-stop solution of high-quality tools and resources that support the [ all-around ] development of children. The key to our success is our premium content and advanced technological capabilities. As you can see from this slide, in the first quarter of 2024, the average total monthly active users of our online products reached a record high of 26.38 million, which was an increase of 25.1% year-over-year. Our revenues were RMB 235 million. And we achieved our [ ninth ] consecutive quarter of profitability. In the last 2 years, we have received multiple major industry awards domestically and internationally, which you can see from the purple box on the right side of the slide. We believe this acknowledgment represents a strong testament to he excellence of our products and boost market awareness of our brands. Our products are very, very popular. According to Qimai, a data tracking company in China, from September 10, 2024 to September 16, 2024, our flagship app, iHuman Chinese, was ranked #1 among apps in the children's category in Apple's App Store in China. Very often, 2 or 3 out of the top 5 apps in the children's category are our products. And according to Appfigures, the American data tracking company, iHuman Chinese has occupied the #1 app under top grossing ranking in the kids category of the Apple App Store in China among [ iPad ] users, from October 2, 2019 to September 16, 2024. Now let me introduce our business model. Our products cover different perspectives that match the needs of children and the parents, including Chinese, [ Logical Thinking ], Pinyin, ABC, Coding, Arts and more. As shown in yellow, they are our online self-directed apps under the brand of iHuman. We monetize our online products by charging for time-based subscriptions including monthly, quarterly and annual plans as well as for content-based subscriptions. Parents can choose from different options based on their needs. As shown in purple, we offer high-quality materials and smart devices, including Smart Reading Pen, Smart Writing Pen, Logic Pal, Interactive Storyteller and others that can be used in different scenarios. For our offline business, we monetize by selling materials and smart devices. Moreover we established our international facing brand, bekids and AHA World. We have already launched several apps under the new brands in the past years. We monetize them the same way we charge for iHuman online apps. Bekids series and Aha World series aim to promote the well-rounded development of children through step-focused products. Next, let me go through our journey. Many of you already knew that iHuman was founded in early 2016, and we started developing our smart digital online products. Our first online interactive app, iHuman Chinese, it was released at the end of the same year. In the fourth quarter of 2017, we launched iHuman Books. In 2018, we began commercialization of iHuman Chinese with time-based and content-based subscriptions. We also launched iHuman Magic Thinking and iHuman Stories at the same year. In the fourth quarter of 2019, we merged our online operations with majority offline business of Hongen Education, which was also controlled by our Chairman, Michael. Through this, we are now able to offer an integrated portfolio of online and offline products. Meanwhile, we successfully launched iHuman Pinyin the same year. In 2020, we launched a new product, iHuman ABC in March. We also completed our IPO on the New York Stock Exchange in October. This was a significant milestone for us. In 2021, we launched another 2 products, iHumanpedia in August and iHuman Kids Workout in December. In the first half year of 2022, we launched a few products, including iHuman Coding, iHuman Reading, iHuman Fun Idioms, iHuman Little Artists, iHuman Readers, iHuman Writing and iHuman Fantastic Friends. Meanwhile, in 2022, we have officially launched our bekids series apps, like bekids Coding, bekids Coloring, bekids Science, bekids Reading, bekids Puzzles and bekids Academy. At the end of the 2022, we launched a brand-new app named Aha World. And at the beginning of the year 2023, we officially released another app, Gogo Mini World, which was previously known as Gogo Town when it first launched. This year, we released another new app, bekids Library. And in June, we launched a brand new product iHuman Smart Coder. Internationally, we also expanded the Aha World brand with Aha Makeover. Going forward, we will continue to refine our products' content and introduce innovative apps. Now let me talk about our competitive landscape. As shown in the first row, our products cover different perspectives that match the needs of children and parents. When compared with major competitors in the market, we are the only company to deploy 3D graphics, and we are also far ahead in terms of AI/AR functions, fun content and interactive features. Next, I will go through our 5 investment highlights. And I will talk about how we differentiate from our peers. I would like to start by talking about branding. We are the leading provider of tech-powered intellectual development products in China, and we have a very, very strong brand recognition. So for tech-powered intellectual development products in China, the key of success is to provide a highly interactive and immersive experiences for children. Our Chairman and Founder, Dr. Michael Chi, founded both Hongen Education and the Perfect World games over 20 years ago and achieved great success with both companies. When Michael founded Hongen Education in 1996, its first product was Genesis, which was a truly phenomenal product. It taught Chinese households how to use computer. Many primary schools even voluntarily included in their instructing materials. Hongen's product have hugely influenced the '70s , '80s and '90s generation, who are now becoming parents. Their loyalty to the Hongen brand, which is iHuman now, will further drive them to purchase our products for their children. One thing I would like to mention here when Tim Cook, the CEO of Apple, visited China in March 2019, we were the only company he visited. He also experienced our products and learned how to write the first character of Apple in Chinese, which is [ ping ]. Our second investment highlight is that we have proven product and content innovation capabilities. On the content side, we have reached industry and optional know-how based on more than 20 years of experience in the industry. Our R&D team include experienced experts in the children's intellectual development industry, and they have accumulated deep knowledge of children's psychology and practical experiences who served over 10,000 kindergartens across the country. They received wide acclaims from our partners. On the technology side, we have world's leading 3D technologies and a secret and proven recipe for developing original content. Our AI-driven voice recognition system, which is tailor-made for children, can accurately recognize and correct children's pronunciation. Moreover, we utilize the key point recognition and image segmentation technique based on deep learning to bring kids' artworks to life by turning it into an animation with a single snapshot. This will allow kids to interact with their artworks on the screen by dragging and dropping them into different scenarios and creating unique stories. We also utilize big data analysis system to continuously upgrade our products. We collect over 200 million data points of anonymous user behavior every single day and conduct a [ thorough ] analysis of the massive data on each of our products. Based on this, we continue to upgrade our products on a weekly or biweekly basis and use the insights to guide our new product development and enhance our user experiences. The third investment highlight is that we are one of the very few in the industry that has integrated online and offline capabilities. Everybody knows that our business features our online apps. While at the same time, we have also have an offline business that has been operating successfully for more than 20 years. In this way, our online and offline business help us achieve significant synergies and complement each other in all areas, including research and development, sales and marketing and so on. We also offer a full lineup of offline Smart Reading Pen, Smart Writing Pen, Interactive Storyteller and others that can be matched perfectly with our online app in terms of artistic style, content, IP and so on. This has effectively formed a close loop and elevating user stickiness. The fourth investment highlight is we have a scalable business model with highly popular product offerings. So iHuman, we are a product-centric company. In fact, before the end of 2019, we hardly advertised our business or our products. When mainly rely on reputation and word-of-mouth referrals to outperform our peers in the market and maintain our top rankings in the app store. In the first quarter of 2024, our monthly active users were 26.38 million. This has given us a huge exclusive user pool. The solid foundation created by our user base is a strong driver for our long-term growth. We will continue to enrich the content of our existing products and launch new apps to gain more market share, optimize monetization efficiency and achieve a scalable growth. So in addition to sales and external parties, we have also realized significant scalability in our in-house product development. At the bottom, we have a strong centralized R&D platforms. including 3D Engine, AI/AR functions, [ our ] design resources, and the proprietary methodology for innovation. Such a strong centralized platform supports each and every studio in the development of our product at a more efficient and a much higher successful rate. Now I would like to talk about our visionary and experienced management team. First and foremost, our Founder and Chairman, Michael Chi. As the founder of both iHuman and the Perfect World, Michael has more than 25 years of experiences in both the tech-powered intellectual development products and entertainment industries. Michael is an extremely talented entrepreneur and has succeeded with each business he founded. Michael is also well known for implementing his global vision to every business he founded. For example, in recent years, for a lot of movies produced by Universal Studios, you can see our Perfect World's logo up there. Second, for our CEO, Dr. Peng Dai, who has more than 16 years of experiences at international consulting firms and the large-type companies. such as Boston Consulting Group and Lenovo. He has both strategic vision and solid execution capabilities. Our CFO, Weiwei Wang, who has over 20 years of experience in finance, investments and capital markets; and our CTO, Mr. Wenbin Lu, who has over a decade of experiences in all aspects of R&D, including both front-end and back-end technology development and architecture design. Moving on, I would like to talk about our recent developments. We have done lots of updates on the current. So, for example, for the domestic apps introduced the challenge of new module for human Magic Thinking. It is a new AI-powered feature focusing on number literacy by using advanced AI algorithms to adjust the difficulty of questions according to user's level. We also launched the full-year course iHuman Smart Coder. It is developed and designed by iHuman's stellar team that was led by graduates from [ Tsinghua ] University. So for our international apps, we recently expanded Aha World brand with Aha Makeover. It is a DIY, do-it-yourself, fashion design app. It offers young children a dynamic platform to unlock their creativity through personalized virtual styling experiences. Moreover, we rolled out bekids Library, the adapted version of iHuman Readers, a comprehensive English reading app that we that we cooperated and co-promoted with Oxford University Press. Moving forward, we will continue to refine and introduce more innovative apps and content. Acquisition. We are very glad to announce our new addition to our iHuman family portfolio, the Cosmicrew IP-related assets from Kunpeng. Kunpeng is an animation studio, which is focusing on bringing high-quality and creative entertainment to children and families around the world. Kunpeng combines a talented team with advanced 3D animation technology to produce original content that resonates globally. Its flagship project, Cosmicrew animated series, has been a top performer on China central television and amassed over 10 billion views across major China streaming platforms. The Cosmicrew movie was also highly rated in the industry, and it has been released in multiple countries. In addition, Cosmicrew also offer a range of IP derivatives such as toys, book and stationery, which further extends the reach and impact of its beloved characters and stories. Now let's talk about our financial highlights in the first quarter. Our total revenue in Q1 in the first quarter were RMB 235 million. And for the year of 2023, our total revenue reached a little over RMB 1 billion. Our gross profit and gross margin remained solid. Gross profit was RMB 168.1 million, and the gross margin is 71.5%. Average total MAU, monthly active users, reached a record high of 26.38 million in the first quarter, an increase of 25.1% from the same quarter last year. For the net profit, we also achieved our ninth consecutive quarter of profitability. Moving on to operating expenses. As an R&D-driven company, we have always focused on research and development to maintain our core competitive advantage. In the first quarter of 2024, our R&D expenses were RMB 67.92 million. And on the marketing front, excluding SBC, our sales marketing expenses stay at a reasonable level, accounting for around 23% of the total revenue in this quarter. And we will plan to maintain our sales marketing expenses with a reasonable range going forward. As for GA, general and administrative, expenses, excluding SBC, our GA remained at a relatively stable level of around 11%. In addition, we maintained a very strong balance sheet and healthy operating cash flow, with cash and cash equivalents exceeding RMB 1 billion. This provide us means and flexibilities to invest in technological and product innovation and pursue attractive opportunities to propel our continued growth. Now I would like to talk about our growth strategies. First, we will continue to solidify our product-leading position and provide one-stop solution to meet the different needs of parents. At the same time, further expand and diversify our portfolio, improve cross-selling opportunities and form a closed loop between online and offline products to elevate user stickiness. Second, replicate our domestic success in China to the global market. We will continue to launch the series -- a series of localized childhood apps to fulfill the increasing demand from overseas users. Third, bring more diversified experiences and values to users through new smart devices and integrate digital and physical experiences. Fourth, we will focus on our 3 Cs, which is customer, community and commercialization; to aim to enhance user communication management and build private traffic tools to expand our user base. In addition to organic growth, we will also selectively pursue strategic investments, acquisitions and partnership opportunities to complement our existing offerings and accelerate our long-term growth. Our last slide, I'd like to talk about our vision, to make the child upbringing experiences easier for parents and to transform intellectual development into a fun journey for children. With that, I would like to conclude our presentation. If there are any questions you have, please send an e-mail to [email protected]. I guess due to the time constraint, I may not answer any questions right now. But again, if there are any questions you have, please send to [email protected]. I will be very, very happy to answer all of your questions. Again, thank you so much for listening. Thank you.