Earnings Transcript for BHAT - Q4 Fiscal Year 2019

Operator: Hello, ladies and gentlemen, thank you for standing by for Blue Hat Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After managements’ prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded.I'll now turn the call over to your host, Mr. Sam Martin from The Foote Group for opening remarks and introductions. Sam, please go ahead.

Sam Martin: Thank you, operator. Hello everyone and thank you for joining us on today's call. Blue Hat announced its fourth quarter and fiscal year 2019 unaudited financial results on March 23, 2020 before U.S. market open and earnings release is available on the Company's website.Today, you will hear from Blue Hat CEO, Mr. Xiaodong Chen, who will start off the call with the review of the Company's basic operating results and report recent developments for the Company. You will be followed by Mr. Caifan He, Blue Hat’s Chief Financial Officer who will give a detailed account of the Company's undiluted financial results. Management will then take the time in terms of some specific questions and to the Company by investors prior to the call and there will be the opportunity to ask further questions after this.Before we proceed, I would like to remind you of our Safe Harbor Statement. Our conference call may include forward looking statements made under the Safe Harbor provisions of the private securities litigation reform act of 1995. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.In evaluating such statements, you should carefully review the various risks, uncertainties and matters set forth in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties could cause the Company's actual results to differ materially from those indicated in the forward-looking statements, as we now experience that such forward looking statements will prove to be correct.Information about the risk and uncertainties and other matters associated with investing in Blue Hat is included in the Company's filings with the Securities and Exchange Commission, which we encouraged each of you review carefully before making any investment decision.The Company does not assume any obligations to update any forward-looking statements as a result of new information, future events, changing market conditions or otherwise except as required by law.Now, I'm pleased to present Mr. Xiaodong Chen, CEO of Blue Hat.

Xiaodong Chen: Thank you. Hello everyone and thank you for joining us on today’s call. We are pleased to report that in the fourth quarter of 2019 Blue Hat’s revenue and profitability continued to grow at an encouraging rate, marking a strong finish to the two year in which we became a U.S. public company -- U.S listed public company, and made significant progress in sales, business development and research and development.Our interactive toys and games continued to receive strong market approval from customers’ base in China and overseas. In Q4, we launched several new products including a version of our Bouncing Bubble product produced in partnership with Talking Tom and Friends as well as our AR Dinosaur an educational toy that comes in five different types of dinosaur each with their own personality.We launched at the 18th China International Toy Fair in Shanghai in October the AR Dinosaur product comes with five physical AR cars, which when placed onto toy with activated AR features. As we launched this product at this last Blue Hat group attracted a large number of visitors demonstrating its broad base of appeal.During fourth quarter and the second half of the year, one of our key areas of focus has been diversification of business, as we launched new smart education offerings and preschools alongside our traditionally strong business lines of toys and games.We now offer tailored smart education products that use AR technology to bring early education to life in both state-operated and privately run preschools in China, including both our established AR child safety courses and our newly-launched immersive education initiatives, our smart education products already in use at more than 30 preschools in the Chinese provinces at Fujian and Guangdong.During the fourth quarter, we announced the launch of our smart immersive education classes, a product range that currently includes three separate products that can be sold and used separately or together.Smart immersive coverage of education classes, smart screen immersive education classes and smart immersive physical education classes, all three products developed by Blue Hat’s in-house team of educational experts and the feasible for different teaching scenarios, having received wide praise from parents, teachers and students.Another significant recent development in the smart education space during the quarter was the upgrade of our system for evaluating children's ability in an educational context. The system is a central component of our smart immersive educational products and was expected to be officially put into use after the beginning of the 2020 preschool spring semester in China.As a result of the update, our evaluation system can now track and record children's running behavior, learning processes, and developmental data in each activity to form a traceable growth track.We believe this database to process as an invaluable resource when designing curriculum structure, highlighting students who may require extra attention and allowing for efficient allocation of the appropriate teaching content. We believe it will improve our ability to obtain partnership agreements with additional preschools in China.International expansion remains a key goal for Blue Hat and we are seeing encouraging progress and how this has developed over the last few months. Our AR Racer product already has a user base of over 4 million with significant numbers of players in China as well as overseas communities such as Russia, Korea, UK and Saudi Arabia.We are recently excited to announce the issuance of the U.S. patient for AR Racer core technology that connects the physical toy with the virtual content of a mobile game. The awarding of the patent represents a huge step forward in our marketing efforts overseas; and as a result, we're in discussions with major streets in the U.S.The international repute of our products is also being realized. The one recent example being attention given to the AR Glow Interactive Glowstick product by crowds of international buyers at the 126th China Import and Export Fair in Guangdong in November.Looking ahead, we are excited about the future as the Blue Hat team continued to operate on the cutting edge of display game, education and AR industries. We believe our industry leading technology strong intellectual property, research and development capabilities, and understanding a child’s focused content all help us to stand out from our competitors and to be well placed for continuing future growth.Our products can help parents and share that their children entertained as well as educated, and we intend to continue to accomplish even more in the years ahead as a result of your continuing support.This concludes my prepared marks. I will now turn the call over to Mr. Caifan He, CFO of Blue Hat to review financial results for the fourth quarter and fiscal year 2019. Mr. He. Please go ahead.

Caifan He: Thank you, very much Xiaodong. Hello everyone, thank you for joining us today. Now, I will go through the course of these financial highlights, the full year financial results and financial outlook.For the fourth quarter of 2019, our total revenues increased by 18.3% year-over-year to $11.8 million. Our gross profit increased by 15.2% year over year to $7.9 million. Our income from operations increased by 24.4% year-over-year to $6.2 million and our net income increased by 26.2% year-over-year to $6.2 million.For the full year of 2019, total revenues were $26.8 million for the fiscal year 2019, an increase of $5.3 million or 28.6% from $18.5 million for the same period ended December 31, 2018. The overall increase was primarily attributable to the increased sales of interactive toys in the games series category and mobile games.Revenues from sales of interactive toys in the games series category were $21.2 million for the fiscal year 2019, an increase of $4.3 million or 25.2% from $16.9 million for the same period ended December 31, 2018.Interactive toys in the game series category are a range of toys enhanced with AR technology, which we believe make them easier to play, more interactive and more instructive than traditional toys. The increase was primarily the result of the improvement of market recognition.Revenues from sales of interactive toys in the series category was $160,672 for the fiscal year 2019, an increase of $361,966 or 69.3%, from $522,638 for the same period ended December 31, 2018. This decrease was the results of our business strategy to shift away from interactive toys in the animation series category and towards interactive plays in the game series category.Revenues from mobile games were $2.5 million for the fiscal year 2019, an increase of $1.4 million or 126.8% from $1.1 million for the same period ended December 31, 2018. This increase was the result of the popularity of our first mobile game Quan Min Dou Yu, which was launched in the fourth quarter of 2018 and received positive feedback from the market.Gross profit was $16.3 million for the fiscal year 2019, an increase of $3.9 million or 31.2%, from $12.4 million for the same period ended December 31, 2018. Gross margin of the three different segments were as follows

Caifan He: And today's first question that we received was the extent to which the current virus outbreak could affect Blue Hat's business? Mr. Chen, would you like to address this?

Xiaodong Chen: The answer was we don't foresee the coronavirus outbreak having a substantial impact on our business for the full year, while the first quarter was expected to be impacted as per our guidance. We believe that sales will likely rebound. We hope that the strict measures taken by the Chinese government will help to return things back to normal in the second quarter. However, all this is based on information available to date and reflects our current and preliminary expectations and estimates which are subject to change.

Caifan He: And now the second question received was from some investors who want to know about Blue Hat’s pipeline of new products? And the previous question was. Will the Company launch new products during the first half of 2020? Or will the coronavirus outbreak delay the release of all new products?

Xiaodong Chen: Looking forward to potentially launching new products at the end of Q2 or beginning of Q3, around the time is China totally export. We have new products in the pipeline across all of our business lines AR toys, games, and educational products.

Caifan He: And the final question that we received was. What's the outlook for the educational business? How fast you expect it to grow in 2020?

Xiaodong Chen: China has around 300,000 preschools and around 180 million children. So, the potential market size for our products is huge. We offer our unique products that we believe are highly attractive to preschools across China and can be traded at the schools individual need. We partner with those state-operated and private preschools, and the courses and products are designed by our team of educational experts who have an intimate understanding of requirements in the market. We anticipate the number of preschools we offer our smart education products and will grow from the current level of over 30 schools to at least 100 schools by the end of the year.This concludes our prepared remarks. We will now open the call for questions. Operator Please go ahead.

Operator: Ladies and gentlemen, we now begin the question-and-answer session. [Operator instructions] As there is no further question now, I would like to turn the call back over to the Company for closing remarks.

Xiaodong Chen: Thank you once again for joining us today. If you have any further questions, please feel free to contact Blue Hat’s Investor Relations department through the email address ir@bluehatgroup.net.Thank you very much.

Operator: This concludes this conference call. You may now disconnect your line. Thank you.