Rose Zu - ICR Raymond Lin - CEO Tian van Acken - CFO.

Gregg Hammerman - Larky.

Hello, everyone. And welcome to the Fourth Quarter and Fiscal Year 2018 Earnings Conference Call for CLPS Incorporation. Today's conference is being recorded. At this time, I would like to turn the call over to Ms. Rose Zu from ICR for opening remarks and introductions. Please go ahead. .

The company's ability to complete and successfully integrate various acquisitions into its business and operations, to decrease costs, to improve margins and increase profits, and to leverage the target's client base to expand the company's market and geographical reach, the company's potential inability to successfully manage completed, proposed or future transactions; the company's ability to capitalize on and include InfoGain's performance into its own financial performance and results; the company's ability to manage expenditures relating to research, development, and implementation of the company's products and services and risks that such products may not be developed successfully or approved for commercial use; infringement of the company's technology or the assertion that the company's technology infringes the rights of other parties; potential for significant adverse changes in PRC government regulations; changes in tax laws and regulations; fluctuations in exchange rates; concentration of a substantial portion of the company's revenues among a few customers; volatility in the market price of the company's common stock; the company's future issuance of non-equity compensation under its equity incentive plans; changes in key personnel; changes in currency exchange rates; growth through acquisitions, including the ability to commercialize technology acquired through and other factors referred to in the company's annual report on Form 20-F for the year ended June 30, 2018 and other materials filed with the Securities and Exchange Commission.

The company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. It is now my pleasure to introduce CLPS Incorporation’s CEO, Mr. Raymond Lin. Please go ahead..

Okay. Thank you, Rose. Hello, everyone. And welcome to the CLPS fourth quarter and fiscal year 2018 earning call. We're pleased to conclude our fiscal year 2018 with solid results.

Revenue from our IT consulting services helped drive our fourth quarter and fiscal year revenue growth by over 50% as compared to the respective period in the prior year, following our growth plan to increase revenues from existing clients and to bring new clients.

We enjoyed a sizeable increase in our fiscal year 2018 revenue due to our close relationship with existing clients and addition of over 20 global corporate clients located domestically and overseas to our client list.

This pace of the growth was in line with our expectation of strong market demand for highly skilled professionals, business IT solution and cost effective operations on a global scale. In recent year, the economic change in China has encouraged a quicker level of activity across the financial service sector.

Liquid and high stake transition requires a higher level of technical support to conduct day-to-day operation.

Given rising staff costs and the difficulties of hiring and training professional [activities], an increasing number of banking, finance and insurance companies, either based in China or operational in China, are turning to professional services provider like CLPS for customized IT solution and consulting services.

According to an ITC report, the market size of China’s banking IT solution industry in 2017 grew by 22.5% to an estimated value of over 5 billion compared with 2015. To capitalize on this trend, we’ve concentrated on horizontal expansion.

Our activity to provide a scalable IT solution and our employees’ rich technical knowledge help us secure additional target with existing clients and bring new clients.

We strengthened our core potential in IT staffing by successfully completing the acquisition and integration of Judge China, a growing IT and engineering talent solutions provider in China. We also continued to deliver thousands of training hours to our employees through our industry-leading Talent Creation Program and Talent Development Program.

Following our IPO recently, we are working on the next chapter of our growth, we expand and enhance our horizontal expansion by focusing on cloud offering expansion. We have already started implementing strategy with acquisition of the Singapore-based IT service and consultant firm InfoGain in August of this year.

We believe that the InfoGain Company is also focused on the banking and financial industry can help accelerate our overseas expansion across Southeast Asia and further expand our reach to other high potential regions. Also during the 2018, we established a US office and are actively looking for a General Manager to lead this development.

In addition to horizontal expansion, our next chapter of growth will include vertical deepening of our products and service offerings. We believe that the ability to provide advanced technology will always be reputed for successful IT solution and consulting services provider.

And with our deep relationship with our clients, we believe that we are well-positioned to understand their needs. To supplement our existing solutions, we will develop applications of emerging technologies like the big data, process automation, block chain and cloud.

In the year ahead, we will remain focused on the integrity of our service and products, committed to our employees' growth and open exciting growth opportunities with our expected -- through our strategic alliance and acquisitions. So we will grow horizontally and vertically.

We will expand our global footprint and market share, creating future growth for our shareholders. This concludes my prepared remarks. I will now turn the call to Ms. Tian, our [CEO] to review the fourth quarter and fiscal year 2018 financial year -- financial results. Mr. Tian, go ahead please. .

Thank you. Thank you, Raymond. And hello, everyone. I will briefly review our fourth quarter 2018 results first, followed by our full year results and our balance sheet. Please note that unless stated otherwise, all numbers are presented in the US dollar term.

Revenue in the fourth quarter of 2018 increased by $4.7 million, or 51.1% to $13.9 million from $9.2 million in the same quarter of 2017. This increase was primarily attributable to the increase of revenue in IT consulting services.

Revenue from IT consulting services increased by $4.7 million or 54.3% to $13.3 million or 96.1% of total revenue from $8.6 million or 94.1% of total revenue for the same quarter of 2017. This increase was primarily due to the increasing demand for IT consulting services from banks and other financial institutions.

For the three months ended June 30, 2018 and 2017, 46.9% and 52.6% of IT consulting service revenue were from international banks, respectively. Revenue from customized IT solution services decreased by $0.04 million or 6.9%, $2.06 million from $0.5 million in the fourth quarter of 2017.

The year-over-year decrease in IT solution services was primarily due to the fact that some of our projects were and remain in progress and have not been completed as of yet. And therefore, we have not recognized the revenue from such projects.

During the fourth quarter of 2018, revenue from other services increased by $0.03 million to $0.07 million over the fourth quarter of 2017. The year-over-year increase in other services was mainly due to the increasing demand from our customers in the fourth quarter of 2018.

Cost of revenue was $9 million compared with $5.2 million for the same quarter of 2017. Gross profit was $4.8 million, an increase of 22.7% from $3.9 million for the same period of last year. Gross margin decreased to 34.9% from 43% in the prior year period. The decrease was primarily due to the lower gross margin for new projects.

Selling and marketing expenses increased by $0.1 million, or 24.9% year-over-year to $0.6 million. The increase was primarily due to the expansion of the pre-sales and marketing teams in Shanghai, Dalian in China to support operations. Research and development expenses increased by $1 million, or 102.4% year-over-year to $2 million.

The increase was attributable to an increase in the number of research projects and research employee headcount. General and administrative expenses increased by $0.1 million, or 5.4% year-over-year to $1.7 million. The increase was primarily due to growth of staff in support sectors.

Operating income in the fourth quarter of 2018 was $0.5 million compared to $0.8 million in the prior year period. Operating margin was 3.4% for the quarter compared to 8.8% in the prior year period. Net income decreased by $0.2 million, or 16.5% year-over-year to $0.8 million.

Net income attributable to shareholders for the three months ended June 30, 2018 was $0.7 million or $0.06 per basic and diluted share compared with net income attributable to shareholder of $0.8 million or $0.07 per basic and diluted share in the prior year period. Now, let's turn to our fiscal year 2018 financial performance.

Revenues were $48.9 million, an increase of $17.6 million or 56% from $31.4 million in fiscal 2017. The growth of revenue in fiscal 2017 was mainly due to the increase in revenue from IT consulting services.

Revenue from IT consulting services increased by $18 million, or 61.8%, to $47.2 million and accounted for 96.4% of total revenue compared with $29.1 million, or 92.9% of total revenue in fiscal 2017. The increase was primarily due to the increasing demand for IT consulting services from banks and other financial institutions.

For fiscal 2018 and 2017, 46.8% and 54% of our IT consulting services revenue were from international banks, respectively. In fiscal 2018, we strengthened our expertise in the financial industry to leverage our existing industry knowledge and grow our customer base of global Chinese financial institutions.

Revenue from customized IT solution service decreased by $0.2 million or 11.5% to $1.6 million for fiscal 2018 from $1.8 million for fiscal 2017. The year-over-year decrease in IT solution service was primarily due to some of the ongoing projects for which have not [indiscernible] revenue. Revenue from other services was $0.08 million in fiscal 2018.

Cost of revenue was $31.3 million in 2018, an increase of $12.6 million or 67.5% from $18.7 million in 2017, which is generally in line with the growth of revenue. As a percentage of revenue, our cost of revenue was 63.9% and 59.5% for fiscal 2018 and 2017, respectively.

Gross profit increased by $5 million or 39.2% to $17.7 million from $12.7 million in fiscal 2017. Gross margin decreased to 36.1% from 40.5%. The decrease was mainly due to the lower gross margin for the new project. [indiscernible] and marketing expenses in 2018 increased by $1 million or 84.5% year-over-year to $2.2 million.

The increase was primarily attributable to the expansion of the pre-sales and marketing teams in Shanghai and Dalian in China. Research and development expenses in 2018 increased by $3.6 million, or 85.2% year-over-year to $7.8 million. The increase was attributable to an increase in the number of research projects and research employee headcount.

General and admin expenses in 2018 were $5.9 million, an increase of $0.2 million, or 4.0% year-over-year. The increase was primarily due to the growth of staff in support sectors. Operating income in 2018 was $1.7 million, an increased of $0.1 million or 7.5% from $1.6 million in 2017.

Operating margin was 3.5% for the year ended June 30, 2018, compared to 5.1% for the prior year period. Net income increased by $0.5 million or 22.2% to $2.7 million in fiscal 2018 from $2.2 million in fiscal 2017. The increase in net income was in line with increased gross profit.

Net income attributable to shareholders in fiscal 2018 was $2.4 million or $0.21 per basic and diluted share compared with net income attributable to shareholder of $2.2 million or $0.18 per basic and diluted share in fiscal 2017.

For the year ended June 30, 2018 and June 30, 2017, our weighted average number of ordinary shares used in computing basic earnings per ordinary share was 11,517,123 and 11,290,000, respectively.

For the year ended June 30, 2018, our weighted average number of ordinary shares used in computing diluted earnings per ordinary share was 11,636,367 shares. Let’s turn to our balance sheet. As of June 30, 2018, our cash and cash equivalent was $9.7 million, compared to $4.8 million as of June 30, 2017. Guidance and business outlook for 2019.

For fiscal year 2019, [indiscernible] acquisitions or [non-recurring] transactions our total sell throughs in the range of approximately 30% to 35%, and a net income growth in the range of approximately 30% to 35%, as compared with the 2018 financial results.

The foregoing guidance includes estimated 2019 financial results of the InfoGain acquisition, an equity in which we acquired an 80% equity stake in August 2018. In addition, this guidance necessarily assumes no significant adverse price change during fiscal year 2019.

This forecast reflects our current and preliminary views, which are subject to change and subject to risks and uncertainties, including, but not limited to, potential accounting adjustments attributable to InfoGain acquisition as well as risks and uncertainties identified in our public filings. This concludes our prepared remarks for today.

Operator, we are now ready to take some questions. .

Thank you. [Operator Instructions]. We will now take a question from Gregg Hammerman from Larky. Please go ahead. .

Hi, good morning. Thank you for taking this question.

I'm curious if you could talk a little bit more about plans for expansion into North America and other regions of the world?.

Sure. In 2018 -- August 2018, we were able to successfully acquire InfoGain in Singapore. Now this will enable us to be able to set a foot in Southeast Asia and continue to be able to expand in neighborhood countries, for example in Thailand, Malaysia, Indonesia and so on and so forth. Now, we are opening an office in America, in the U.S.

We plan to hire a General Manager by the end of this year. The reason for this expansion -- for U.S. expansion is that we do have a client thoroughly set in the West Coast. eBay, PayPal and Facebook are our current existing clients. So we are planning to service these existing clients at the same time and be able to expand in North America.

I hope this answers your question..

It does. Thank you very much. .

Sure. Thank you. .

[Operator Instructions]. There are currently no more questions queued. I will now turn the call back to Mr. Raymond Lin for closing remarks. .

Alright. This concludes our fourth quarter and fiscal year 2018 earnings call. Thank you for your participation. We look forward to updating you on the progress of our business in the next six months. Thank you and have a good day for those who are based in U.S. and have a good night for those who are based in Mainland China and Hong Kong. Thank you. .

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..