iHuman Inc. (IH) Earnings Call Transcript & Summary

Welcome to the Deutsche Bank Depositary Receipts Virtual Investor Conferences, dbVIC. I'm Zafar Aziz, from the Deutsche Bank team. I'm pleased to announce that our next presentation will be from iHuman. Before I introduce our speaker, a few points to note. Please submit your questions in the questions box. Also, all of today's presentations will be recorded and can be accessed by the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome iHuman, which trades on the NYC using the symbol IH.

Thank you. Thank you, moderator. Hello, everybody. Good morning or good evening. Thank you so much for joining us today. And my name is Justin, and I am the Investor Relations Director here at iHuman. So before I start, I would love to give a big thank you to Deutsche Bank. Thank you for having us at this virtual investor conference and really, really appreciate for this opportunity. So today, I will be giving a quick overview of the company and then go over some highlights about our business and financial performance. I will then talk about what we will do to boost short-term results and the position for long-term success. So let me start with our vision. To make the child upbringing experiences easier for parents and to transform intellectual development into a fun journey for children. So these guiding principles drives everything we do here at iHuman from how we build our products to how we run our company. We are proud to say that iHuman has become a leading provider of tech-powered intellectual development products in China. In the fourth quarter of 2024, we had about 25.78 million average monthly active users. So for the full year, that number was about 26.47 million. In the fourth quarter, we brought in RMB 232.7 million in revenue, and stayed profitable for the 12th consecutive quarter with a net income of RMB 26.5 million. So for the whole year 2024, revenue hit RMB 922 million, and the net income reached RMB 98.6 million. So that makes 3 straight years of profitability since we went public in 2020. It is a clear sign that we are on a healthy, sustainable growth path. Now let me take a moment to share a little bit about our journey on how we got to where we are. We were founded in early 2016 and launched our first app, iHuman Chinese by the end of the year. So the following year, we expanded our product portfolio. And in 2018, we started product commercialization and introduced a subscription model. In 2019, we achieved a big milestone and we combined our online business with majority offline business of Hongen Education. It's an entity also controlled by our founder, Michael. So this integration allowed us to offer both online and offline products for children and families. In 2020, after growing our product range and reaching more users, we went public on the New York Stock Exchange in October. It was a huge moment for us, not just financially, but also building our brand on the global stage. In 2021, we added [ STEM ] focused products to help children build essential skills like science and technology. In 2022, we officially kicked off our international expansion, launching new apps under 2 brands, the bekids and Aha World. We started expanding our reach to families outside of China. By 2023, we had made progress overseas with more product launches to meet the different needs of our global users. We started 2024 very strong with more innovations including launching AI-powered structure programs. Another big move in 2024 was acquiring IP Assets. IP Assets rights related to Cosmicrew from Kunpeng. Kunpeng is a top Chinese animation production studio. So this acquisition, it has boosted our creative abilities and it helped us to further expand our business diversification. Now let me talk about our products. First, let me start with what we offer in China. We have built self-directed apps that help with different parts of a child's early development. We now have 17 different apps, including iHuman Chinese, iHuman Pinyin, iHuman ABC, iHuman Coding and et cetera. So those apps, they cover different perspectives like language, science, reading and even fitness. So basically, everything kids need at those early learning stages. Our apps are really popular. According to Qimai, which tracks mobile app data in China. Our flagship app, iHuman Chinese, it often ranks among the top the #1 in the key category on the Apple App store. And sometimes we even have 2 or 3 out of our products in the top 5 positions in this category. According to Appfigures, an American data tracking company, it shows that iHuman Chinese has been the top grossing app in the kids category for app users in China since late 2019. So we have also picked up quite a few awards along the way, including Most Popular App of The Year. In that case, we believe parents and children, they both seem to like our product and they love what we are doing. Like I mentioned earlier, we started introducing our international products in 2022. In just 2 years we have built up a strong presence with a bunch of different apps, [ bekids ] and Aha World brands. These apps are gaining real traction. For example, Aha World had more than 538 million views across social media by the end of 2024. And it has attracted over 1.5 million followers around the world. We have also been recognized internationally. For example, we received the Silver Creator Award from YouTube and w3 Gold Award. So these honors it really, really encourage us to keep pushing forward. We're not just a digital company. We also offer physical products that provide tangible hands-on learning experiences for families and organizations. We have got smart devices like iHuman Reading Pen, iHuman Writing Pen, which can be used together with our apps. We also sell building blocks, toys and books that can help develop children's problem-solving skills. Besides what we do for individual families, we also serve over 10,000 kindergartens and institutions in nearly 400 cities across China with structured learning courseware. A big part of our mission is to help as many kids as possible, help them learn in a fun and effective way. Last but not least, another product portfolio is Kunpeng, our animation production studio. Kunpeng is where we bring high-quality creative stories to life. So the team there combines great storytelling talent with top-tier 3D animation tech. Their flagship project, Cosmicrew, this animated series has been a huge hit. It's aired on China Central Television and has accumulated over 10 billion views across major streaming platforms. The Cosmicrew movie has also been released in multiple major countries and received great feedback. On top of that, Kunpeng produced tons of merchandise, IP derivatives, like toys, books and stationery. So which helps these IP characters to reach even more kids in their daily life. And in October 2024, Kunpeng launched a brand-new animated series called Rainbow Crew, which quickly become a top children's show on platforms like Tencent Video, [ ITE ] and YouTube -- Youku. We are super proud the creative work coming out of that team. Now let's talk about how we make money. And our main source of revenue comes from our apps, and most of them run on a subscription model. And the parents can choose different plans, monthly, quarterly or yearly. So this setup gives families, which is our users the flexibility. And at the same time, it brings in steady recurring income for our business. Besides that, we also sell physical products, things like smart devices, toys, books and structured courseware for kindergartens and institutions. So those are sold through both online and offline distribution and they are transaction-based sales. And other our animation studio Kunpeng, we earn money from things like licensing deals, selling merchandise, selling broadcasting rights for our animated series and also the back office performance of our animated movies. In that case, our revenue streams are pretty diverse, that help us stay strong financially and continue to grow. So at iHuman, we really care about making a positive impact, not just for our users, but for society as well. For example, we have donated money and resources to schools in remote parts of China, like Yunnan and Guizhou. The goal is to make sure kids in those areas also get access to good learning tools. We have also collaborated with multiple charitable organizations on public welfare campaigns, further supporting the healthy growth and the development of young children. And internally, we run team-building activities, offer solid benefits and provide plenty of training opportunities for our employees. We believe happy, well-supported employees make a huge difference in how good we can serve our customers. Now let's share a few reasons why we think iHuman is a great investment opportunity. First, we are in a huge and growing market. As you can see, about 1/4 -- it is 1/4 of the world's population is under the age of 14. So that's a huge population. In China alone, there are about 237 million children in this age group. On top of that, we are expanding globally, reaching more families in Europe, North America, Southeast Asia and beyond. Second, we are reading some really favorable trends. More and more parents understand how important early childhood development is. So they are willing to invest in high-quality tools for their kids. And at the same time, there is a growing focus on [ holistic ] education, not just academics, but also the creativity, physical activity, problem solving and more. We are also seeing a new generation of parents, Generation Z, who are super tech savvy and that they are very open to new learning methods. So that fits perfectly with what we offer. And of course, as education types keeps advancing, there's always room to create smarter, more innovative products that keep up with families' changing needs. Another big reason we are confident about the future is our strength in both content and technology. We have worked closely with kindergartens and institutions for years, which give us a deep understanding of what children really need. So the content we create is not just for fun, it is also educational and it really works. On the technology side, we are constantly pushing boundaries. We have built our own 3D engine to make the learning experiences more engaging, and we have added AI and AR technology to make it even more interactive and personalized. We also use big data to recommend the right content to each user, helping kids learn in a way that suits them the best. So recently, we fully integrated the DeepSeek AI model into our core products, combining our in-house AI expertise with the best third-party solutions, we believe we're able to provide a dynamic learning experience that adapt to each child. So here's the highlight. So in 2019, Apple's CEO, Tim Cook, visited our company during his China trip. That really put us on the spotlight and showed a great global interest in our works. Another thing that sets us apart is we provide a one-stop solution across different age groups and categories. So we have created products that cover children from pre-school all the way to early teenage years. And across all key areas like thinking, language, reading, creativity, problem-solving and et cetera. So that means families, they don't have to bounce between different platforms. So with iHuman, they can find everything in one place, which makes things more easy and more effective. We have a very dedicated and professional team with a start-up site. We have built a really solid team here at iHuman, a pool of professionals who are not just experienced, but also full of passion and energy. We think our team is our greatest asset. We invest a lot in helping people grow, and we have built a culture that values innovation, speed, communication and getting things done. We also work hard to keep the team's spirit alive, creating a workplace that is supportive and encourages collaboration. So in this fast-changing market, that kind of culture is a big advantage for us. Finally, I want to highlight our leadership team. Let's start with Founder and Chairman, Michael. He founded both iHuman and the Perfect Word, and he has been in this space for over 25 years. Michael is a real entrepreneur and everything he built has become very, very successful. Back in 1996, Michael started Hongen Education. And his first product is called the Genesis. So this product was a huge hit. It basically taught Chinese families how to use computers and it was even adopted by many primary schools. So people born in the 70s, 80s and 90s, they basically grew with it. Many of them now are parents. And so their loyalty to iHuman will further drive them to purchase products for their children. Michael also has a very strong global [ mind sight ]. For example, a lot of universal studios movies in recent years feature the Perfect World logo. Our CEO, Dr. Peng Dai who brings over 17 years of experiences from top consulting and tech companies like BCG and Lenovo. He's good at combining strategic thinking with solid execution capability. Our CFO, Weiwei Wang, who has more than 20 years' experience in finance and capital market. Weiwei is also a very, very strong female leader who represents our company on many public fronts. And our CTO, Mr. Wenbin Lu, who has over 10 years of experiences in tech development, everything from back-end system to architecture design. So together, this team give us the leadership, experience, expertise and the vision to keep growing and innovating. Now let me talk about what we have been doing lately. So first, one of our newer products, iHuman AI coding. It has already delivered some impressive results. Just a few months after its launch, some of our young users passed the block's programming Level 1 exam from the Chinese Institute of Electronics. And number two, our in-house IP, Two Cats, which uses fun comics to guide children's interest in English. It has gained traction on Red Note. In just a few months, we have gained over 240,000 followers and a nearly 700,000 saves and the likes. Our animation studio Kunpeng is also making strong progress, not just in content creation, but in turning those stories into real business results. Rainbow Crew, which launched in October 2024, it was a breakout success. We have already rolled out themed merchandise like magic wands and stickers and there's more on the way. We also launched an official Rumble Crew YouTube channel and posted clips from the series there. The feedback has been great. And we have seen a strong engagement from our international viewers. Now let's take a quick look at how we financially in the fourth quarter. Revenue came in at RMB 232 million for the quarter. And for the full year of 2024, we reached RMB 922 million. More importantly, we stayed profitable, already 12 consecutive quarters already. So that kind of consistency is something we are really proud of. Our average monthly active users were 25.78 million in the fourth quarter, showing a steady demand for our products. On the cost expenses side, in the fourth quarter, our R&D spending, excluding SBC, it was about 27% of our total revenue. Sales and marketing coming in at 23% of our total revenue. And GA, it was stable at around 10%. We want to make sure that we stay efficient. And we want to make sure that we invest in the right direction and to keep growing. Financially, we are in a great place. And at the end of 2024, we had over RMB 1 billion in cash, cash equivalents and time deposits, and we have no loans at all. So that gives us the flexibility to keep investing in innovation and to move quickly when new opportunities come up. Finally, let me talk about where we are heading now. So we got 3 key focus areas for driving growth. Domestically, we will solidify our market-leading position by optimizing and expanding our product portfolio to improve user experiences and capture new market share. We will also enhance monetization through cross-selling initiatives. Internationally, we will improve and localize our products to better fit each market. We are also working on elevating our branding through regular marketing service, targeted marketing campaigns and collaborations. Number three, we are actively looking at the collaboration opportunities within our ecosystem, and we are open to acquisitions or investments that fit our strategy and offer good synergies. With that, I would like to conclude our presentation. And I know we are short on time, and I am not able to take any questions right now. However, if you have any questions you want to know and you'd like to ask, please feel free to send an e-mail at [email protected]. Again, please feel free to send us an e-mail at [email protected]. I'll be very happy to answer all of your questions. Thanks again for joining us today, and thank you so much for listening. Thank you.