Earnings Transcript for BHAT - Q4 Fiscal Year 2020

Operator: Greetings, and welcome to the Blue Hat Interactive 2020 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentations. As a reminder this conference call is being recorded. It is now my pleasure to introduce Adam Prior, a representative of the Company. Thank you, Adam. You may begin.

Adam Prior: Thank you, operator, and hello everyone. Thank you so much for joining us. The press release announcing Blue Hat results for the year ended December 31, 2020 is available at the IR section of the Company's website at ir.bluehatgroup.com. Following the conclusion of this call, a replay of this broadcast and transcript will be made at Blue Hat's websites for the next 90 days.

Xiaodong Chen: Thank you, Mr. Chen. Welcome everyone. Over the course of 2020, we took several important steps to strengthen the value proposition of Blue Hat's business, which is on a foundation of four pillars, interactive toys and games, interactive education, mobile games, and the newly developed information services and communication services business, which includes our Internet Data Center or IDC business.

Caifan He: Thank you. Here's a quick summary of our financial results for the year. As I noted earlier, total revenues increased 26.7% to 30.2 million for fiscal year 2020 from 23.8 million in the prior fiscal year, which was primarily due to increase sales and our interactive educational business and contributions from the new information services and communication services businesses or IDC.

Xiaodong Chen: Thank you. For the past year, we remain profitable despite the challenges presented by the global pandemic and feel that Blue Hat has better positioned to take advantage of the growth opportunities before us in 2020. While the establishment and expansion of our new business did impact our bottom line in 2020, we expect that they will support the sales and marketing efforts or the other pillars of Blue Hat's business, augmented reality or AR, education and mobile game offerings. We remain in the early stages of executing on this growth strategy but have begun to see tangible results from these efforts. We anticipate a gradual improvement in our operating margin over time, as we continue to sign new agreements for our AR and mobile game offerings and increase sales of our retail products and interactive education initiatives. To conclude, Blue Hat optimistic about the opportunities ahead. We remain in a solid financial position with 15.8 million in cash and cash equivalents on the balance sheet at the end of 2020. Subject to year-end, we did complete a registered direct offering the two institutional shareholders that resulted in total gross proceeds of 7.6 million, which we intend to put towards growing our business. I'd like to take a moment to thank our employees and investors as well as our associates, families and friends for their ongoing support. Everyone please stay safe and healthy. With that operator, we're going to open it up for questions. For those of you on the line we would ask that you begin your question in English if possible and then be patient as we translate and we'll moderate throughout the process. Operator, please go ahead.

Operator: Thank you. We will now be conducting a question-and-answer session. Our first question comes from line of Mr. William Chan. Please proceed with your question.

Unidentified Analyst: Hello everyone. I have one question. So how much the contribution of the operations between the Company and the Kingsoft Cloud will be expected to bring this Kingsoft company income? And what is the growth margin? And then, are there any plans to cooperate with other companies in the future?

Adam Prior: Thank you, William. I just want to make sure I understand your question clearly. The contribution of the Kingsoft Cloud, a relationship to the business in total and then the margin profile on that business, is that correct?

Unidentified Analyst: Yes.

Adam Prior: Okay, terrific. Lucy, if you could please translate for Mr. Chen and then we'll respond in line, go ahead.

Lucy Ma:

Xiaodong Chen: Okay. So, the contribution between the Company and Kingsoft Cloud as well after several months' operation, we think the brand new contribution of this sector in 2021 is good. Actually, our IDC business has very good development such as we have collaboration with Tencent, KD and Kingsoft, and this also pay attention to our future announcements and press release.

Operator: Thank you. Our next question comes from the line of Mr. Paul Chen. Please proceed with your questions.

UnidentifiedAnalyst: I would like to ask, the Company has signed many cooperation agreements of the interactive education in 2020. How these agreements are being implemented? What is the biggest difficult and the problem encounter in the proceed capitalization?

Adam Prior: Okay. Paul, just want to make sure, I get your question, and I'm going to repeat it if that's okay. The Company over the last year has signed as part of the ARIC program, a number of cooperation agreements in the interactive education space. And your question is what kind of challenges that the Company may encounter as it goes further with these cooperation agreements? Does that sound about accurate? Or is that clear?

UnidentifiedAnalyst: Yes. That's it. Yes.

Adam Prior: Lucy, do you mind translating for the management team and we'll get back with the response.

Lucy Ma:

Xiaodong Chen: So, it's the two factors, the Company operation in the interactive application was seriously affected by the COVID-19 in 2020. Even though, we do have open local markets in Sichuan Province. In 2021, we are planning to have more programs or co-operations in five provinces. So, in 2020, we still develop the English courses. And from now on, we are going to investment more in the education sector to have more resources in a financial investments and operations.

Operator:

Adam Prior: Thank you, operator. I think this might be an appropriate time where overnight we received a number of questions from investors after the Company issued its financial results. And I'll read those in the form that they came in and post them to the management team and then let them respond. So, the first question is that the IDC is came from an investor, which is at the IDC business contributed a little over 4 million in revenue, but the margin impact was negative as a percentage of gross cost of sales. Going forward, what is the target in gross margin for the IDC business? And at what level of sales would this be achieved? Lucy, if you could translate that that would be great.

Lucy Ma:

Xiaodong Chen: The IDC is the retailer of company businesses and even there is negative impacts of IDC to the gross margin as a whole, but the Company will further increase the overall level or margin of IDC and the IDC has the integration with other business sectors such as toys, the education and so on. So, the Company will improve profitability through a number of ways such as cooperation with Tencent, Kingsoft Cloud and . The Company will improve their revenue of sector according to the Company 2021 trend and the Company that there will be large growth of this sector.

Adam Prior: Great, thank you, Lucy. Operator, do we have any further questions or follow-up questions?

Operator: We do. Thank you. Now, rejoining the queue is Mr. Paul Chen. Please proceed with your question.

UnidentifiedAnalyst: Okay. What is the contribution of the interactive educational sector to revenue in 2020? What is the growth prospect for 2021? What is the management strategy of interactive education?

Adam Prior: Okay, great. Contributions from the interactive education business in 2020, the growth plans for 2021 and the interactive education business, fair assessment of your question, and then Lucy, if you'd be kind enough to translate and will respond to it.

Lucy Ma:

Xiaodong Chen: So, the contribution of interactive education is very large of the total revenues in 2020 . In 2021, at the moment, we are going to have cooperation with new state of provinces and we plan to have run out in kindergartens in 2021 interactive education program in 1,000 kindergartens and we are planning to have the program implementation also in the preschools.

Adam Prior: Thank you, Lucy. Paul is that sufficient.

Unidentified Analyst:

Adam Prior: Great. Any follow-up from you?

UnidentifiedAnalyst: That's all. Thank you.

Adam Prior: I did receive a question for the management team from overnight. It was a question relating to foreign currency translation. The Company had a loss in 2020 as the U.S. dollar depreciated against the renminbi during the year. We're following the end of the year to now that relationship is reversed, and the Chinese Yuan is now worth more than the U.S. dollar versus the beginning of the year. So the question for the management team is. Should we expect a currency gain as all Blue Hat revenue is reported in RMB from 2021? And I'll leave it there.

LucyMa:

Caifan He: It's true that in 2020, we have higher fluctuation between RMB and U.S. dollar. So from the beginning of the year, RMB is appreciated a little bit. But because we own our business that is in RMB and we recorded the average value of the exchange rate in the statement of balance sheet, and then we also use the exchange rate of the reporting date. So, we use the average value and reporting date value as a way to avoid a day or try to reduce the impact of the currency fluctuation.

Adam Prior: Operator, do we have any other questions in the queue?

Operator: There are no further questions at this time.

Adam Prior: Then I'll conclude with a question that I received from multiple parties overnight, which is in relation to specific growth strategy and guidance for 2021 and in the first half of the year. We as Blue Hat do not provide specific top or bottom line guidance and has not. However, I think it's fair to pose the question to the management team of growth strategy and revenue growth over the course of the next year. So Lucy, if you could translate that question we received it in multiple different -- from multiple different parties throughout the day?

Lucy Ma:

Xiaodong Chen: Yes, the Company has two businesses, the two main business sectors including IDC and education. So, in 2021, the Company anticipates there will be growth -- there will be a high growth in these two sectors compared to the same period of the prior year. And also in terms of the growth strategy besides the Company strengths and advantages in toys and other older sectors, the Company will also focus more on the IDC education sector just mentioned. We will share more information about the Company's growth strategy and the revenue contribution of the sectors through our quarterly report. Thank you.

Adam Prior: Great, I think that concludes our call. I think we don't have any further questions. We'd like to thank everyone for joining us. If anyone has any questions for Blue Hat or the management team, please feel free to reach out directly to the Company or its Investor Relations firm, and we're always available to speak to investors and look forward to seeing with all of you during our next financial results conference call. Thank you everyone.

Operator: Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, wishing you a great day.