Hello, everyone. Welcome to the First Half of Fiscal Year 2021 Earnings Conference Call for the CLPS Incorporation. Please note that today’s conference is being recorded. At this time, I would like to turn the call over to Mr. Rhon Galicha from CLPS Investor Relations for opening remarks and introductions. Please go ahead..

Thank you, operator. Hello, everyone, and thank you for joining us on today’s call. CLPS Incorporation announced its first half of fiscal year 2021 financial results earlier this morning. An earnings release is now available on the company’s IR website at www.ir.clpsglobal.com.

Before we continue, please note that our discussions today may include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. As such, our results may be materially different from the views expressed today.

Further information regarding these risks, uncertainties, assumptions and other factors that could affect our financial results is included in our Form 20-F filed with the U.S. Securities and Exchange Commission and other documents filed with the U.S. SEC. In that respect, I would like to read the following disclaimer applicable to such statements.

Certain of the statements made in our discussion today are forward-looking statements within the meaning and protections of Section 27A of the Securities Act of 1933 as amended and Section 20E of the Securities Exchange Act of 1934 as amended.

Forward-looking statements include statements with respect to the company’s beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, which may be beyond the company’s control and which may cause the actual results, performance, capital ownership or achievements of the company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All such statements attributable to us are expressly qualified in their entirety with this cautionary notice, including, without limitation, those risks and uncertainties related to the company’s financial and operational performance in the first half of fiscal 2021.

Its expectations of the company’s future performance, its preliminary outlook and guidance offered in this discussion as well as the risks and uncertainties described in the company’s most recently filed SEC reports and filings.

Such reports are available upon request from the company or from the Securities and Exchange Commission, including through the SEC’s Internet website at www.sec.gov.

We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date hereof or after the respective days on which any such statements otherwise are made.

All information provided today is of the date of this call, and CLPS does not undertake any obligation to update any forward-looking statements, except as required under the applicable law.

With respect to any non-GAAP measures discussed during today’s call, the company reconciliation information related to those measures can be found in the earnings release issued earlier today. Now allow me to introduce the management team present at the call. Mr.

Raymond Lin, Chief Executive Officer and Director of CLPS, will start off the call with a review of recent company developments and operating results; followed by Ms. Rui Yang, Chief Financial Officer of CLPS, who will discuss financial results in more detail. Please note that all lines have been placed on mute to prevent background noise.

Following management’s prepared remarks, we’ll open up the call for a Q&A session. Mr. Li Li, the company’s Chief Operating Officer; and Mr. Wilson Wong, Executive Vice President of CLPS, will also join the Q&A session. With that said, I would now like to turn the call over to Raymond. Raymond, please go ahead..

Yes. Okay. Thank you, Rhon. Thank you, operator. Thank you all for joining the call today. I’m very happy to be here with you and everyone. The past year has been very challenging on many levels, and COVID-19 pandemic has changed many things to everyone. As I said before, COVID-19 will change our life everywhere. Okay.

Anyway, I hope you and your family are safe and happy. And in here, I want to say thank you to my team, Henry, Rita, Wilson, Jenson and my IR team and the staff, and thank you to support our business, have the strong increasement and growth. Thank you. You are doing the well job. Thank you. Okay.

Now I’m pleased to announce that our core business strategy has been specifically implemented as reflected on the financial results for the first half of fiscal year 2021. We showed that early this morning. Our revenue increased by 37% due to the continued demand for our IT services.

As we enhanced our operating efficiency, the operating income significantly increased by 214%. The net income also increased by 115%, which results to the US$0.3 basic and diluted earnings per share as compared with US$0.17 basic and diluted earnings per share on the same period of the last year.

During this period, we have been aggressive in the global expansion strategy implementation, which contributed in achieving our growth. It was attested by the significant 54% increase in revenue generated outside Mainland China. In our core business, we generated more partnership during the past periods.

First, we got a partnership agreement with a China lease company. The company is specialized in the loan management system in the banking area in the China market. The partnership aims to explore global market opportunities as well. Second, we also opened an IT service agreement with the largest car associations in China.

Latest, our presence in the automotive industry have deepened with partnership with one of the biggest automobile manufacturer in Shanghai and China. We utilized the big data technology in the project to be used in driver lessons, new energy cost and navigation system. In terms of the investments, we diversified our business growth.

We venture in the robotics technology in efforts in penetrating in the chip industry. We also invest in Guangdong Zhichuang company to explore our business opportunity in telecom industry and social media framework area. And we acquired the remaining 20% ownership stake in the Ridik Singapore, and set up Singapore as our Southeast Asia headquarters.

As a wholly-owned subsidiary, Ridik Singapore will enable us to fully integrate our business in Southeast Asia, which will further advance our global expansion. About the training, we have been and we will always focus on developing and maintaining the talent supply chain.

In order to meet the demand for our global clients, we expand our technical and business training overseas, including in Singapore and Hong Kong. Upon completion of the training, qualified IT talent have been dependent on our projects in the banking IT department and some in the insurance company IT department.

And some of them has already joined our clients. For the IT training, I’m very proud to tell you, for the past 15 years, CLPS has trained over thousands of talents. Now they are distributed all over the world. They work in the different financial institutions and different jobs and make few contribution. I’m really, really happy about that.

Here, I want to tell them, "Hey, guys, I love you all too much. I’m very proud of you." Looking forward, we will continue to provide high-quality IT service to the clients. We are committed to emboldening digital transformations among our clients. This is to improve their productivity and efficiency.

In addition, we will continue to invest in new business, new products and new technologies. We will continue to provide high-end training in technology and business and based on our clients’ requirement.

Business and our streamlined growth strategy will put us on a firm footing in order to reach our business goals for the remainder of fiscal year 2021 and beyond. Now I would like to turn the call over to our CFO, Rita Yang. She will tell you about more our financial results on the first half of fiscal year 2021. Rita, please go ahead..

Thank you, Raymond. Thank you all for joining today’s earnings call. I will now provide an update on our financial performance from the reporting period. Please note that all numbers provided are in U.S. dollar terms and that all comparisons are made on a year-over-year basis.

In the first half of fiscal 2021, our revenue is up 37% to $58.3 million from $42.6 million. This increase in revenue was mainly due to an increase in revenue from IT consulting services, in particular, revenue from IT consulting services up to 37.2% to $57.1 million from $41.6 million.

The increase was due to increased demand from existing and new clients. Revenue from customized IT solution services up 51.1%, to $1.1 million from $0.7 million. The increase was primarily due to increased demand from existing clients in the banking and wealth management areas. Revenue from other services down 25.3% to $0.2 million from $0.3 million.

The decrease was primarily due to decreased demand for other services, including headhunting service. That’s the revenues by our [indiscernible] services. And about the revenue by geography, revenue generated from outside Mainland China up 53.9% to $6.6 million from $4.3 million.

The increase in revenue generated from outside Mainland China reflects the company’s successful and continuous global expansion strategy. Gross profit up 20.2% to $18.5 million from $15.4 million. As for operating expense, selling and marketing expense up 27.7% to $1.8 million from $1.4 million.

The increase was due to the increase of salary expense as new staff were hired, enabling the implementation of the company’s global expansion strategy. As a percentage of total revenue, selling and marketing expense decreased to 3.1% from 3.3%.

The decrease was primarily due to the increase in operational efficiency as a result of economics of scale brought about by the company’s global expansion strategy. Research and development expense up 22.7% to $6.2 million from $5.0 million.

The increase was primarily due to research and development personnel-related expense, which enables the company’s continued R&D efforts with big data, cloud computing, robotic process automation, that’s RPA, and artificial intelligence, AI. As a percentage of total revenues, research and development expense decreased to 10.6% from 11.8%.

The decrease was primarily due to the increase in operational efficiency as a result of economics of scale. General and administrative expense down 16.1% to $6.6 million from $7.9 million. As a percentage of total revenues, general and administrative expense decreased to 11.4% from 18.6%.

The decrease was primarily due to the increase in operational efficiency as a result of economics of scale and refined management and decrease in general and administrative personnel expense. As a result of the above, operating income up 213.5% to $3.9 million from $1.2 million. Operating margin was 6.7% compared to 2.9% in the prior year period.

Total other income, net of other expense decreased to $1.1 million from $1.3 million. Net income up 114.9% to $4.9 million from $2.3 million. After excluding the impact of non-cash share-based compensation expense, non-GAAP net income up 91.2% to $6.4 million from $3.4 million.

After excluding the impact of non-controlling interest, net income attributable to CLPS Incorporation’s shareholders in the first half of fiscal 2021 was $4.9 million or $0.3 per basic and diluted share compared to net income attributable to CLPS Incorporation’s shareholders of $2.4 million or $0.17 basic and diluted earnings per share.

After excluding the impact of non-cash share-based compensation expense, non-GAAP net income attributable to CLPS Incorporation’s shareholders in the first half of fiscal 2021 was $6.4 million or $0.39 per basic and diluted share.

This is compared to a non-GAAP net income attributable to CLPS Incorporation’s shareholders of $3.4 million or $0.24 basic and diluted earnings per share in the prior year period. As of December 31, 2020, we had cash and cash equivalents of $26 million compared to $12.7 million as of June 30, 2020.

As of December 31, 2020, we had total numbers of employees of 3,345, up 25% year-over-year. Looking forward, for fiscal year 2021, we expect total sales growth in the range of approximately 30% to 35% compared to fiscal year 2020 financial results.

The non-GAAP net income growth was adjusted in the range of approximately 60% to 65% from 32% to 37% as previously forecasted in the company’s second half and full year of fiscal 2020 financial report. This forecast is subject to change by the factors mentioned in our earnings release. This concludes our prepared remarks.

Operator, we are now ready for questions..

Thank you. [Operator Instructions] We’ll now take our first question from William Gregozeski of Greenridge Global. Please go ahead..

Hi, great results.

Can you talk about what’s driving your revenue growth and your ability to continue to win new clients?.

Henry, can you help me?.

I will take the question, first. Okay. Okay. No problem..

Henry?.

First off, thanks for your questions. Actually, our rapid growth and our ability to win new clients are actually driven by our competitive advantages. We maintain strategic engagement with well-known global clients in banking, in wealth management, in e-commerce and automotive industry.

As mentioned by Rita just now, our CFO, we also have more than 3,300 world-class human capital base with bilingual or multilingual capability, of which majority of them has underwent our professional IT training programs. So this is to ensure our success in service delivery to our clients.

And in addition, our highly experienced management team also maintains operational progress on the technological innovation. And horizontally, we attract new clients through our global presence and through M&As. And vertically, we continuously enhance our IT services, such as the consulting and customized solution.

And it’s also driven by our IT innovation through our innovation line by investing in cutting-edge technology like the IPA, big data, cloud and so on..

Okay. Great. And then over the last few years, you’ve continued to grow in China, but also expand in the rest of Asia and the U.S.

Do you have a target mix of where you want to be at for those different regions by the end of this fiscal year or even next fiscal year?.

Okay. Thanks a lot for your question. For the forecast of revenue distribution by geography, although we have been aggressive to be more visible in the overseas market financial and operation-wise, our business in the Mainland China still significantly contributes to our growth.

But on the other hand, our global expansion strategy has been effectively implemented. For the first half of fiscal 2021, the revenue generated outside Mainland China has significantly increased by 53.9% to $6.6 million or 11.4% of the total revenue compared to 10.1% in the prior year period.

Going forward, the company expects, absent material acquisition or non-recurring transaction, for the revenue that will be generated from outside Mainland China, including from U.S. at approximately 12% for the whole year of fiscal 2021 and at 13% for fiscal 2022. Please be informed that this is preliminary view and may subject to change. Thank you..

Okay. Great.

And then last question, do you have any specific brands you can disclose about the cash you raised or even generally how you’re planning to use it to further your growth?.

Okay..

Raymond, can you answer this question?.

Yes. Yes.

Can you repeat the question, sorry?.

Yes.

Do you have any specific plans for the cash you just raised or even just generally, how you can use it to further growth?.

Yes. Let me take the question, Mr. Raymond..

Yes. Okay..

Yes. In terms of the capital that we raised, we will hedge to our global expansion strategies that we will work along with our well-known global clients, our management, e-commerce, automotive investment clients. And also, we will invest, as Raymond mentioned, continuing in the training of IT talent.

And also that we will grow outside as Rita has mentioned, out of Mainland China. We will continue our global expansion in the international market, like I’m based in Singapore, so that with the recent acquisition of the remaining 20% actually stake in Ridik.

So that will allow us to penetrate the IT services market in the neighboring country, in the Southeast and Asia Pacific regions. So on top of that, we also plan to rollout for business in the U.S. As you know that we’ve just got two new contracts from our existing client, which they are all based – headquartered in the U.S.

So moving forward, we are also developing more businesses and exposure in the U.S. market. So that – the capital that – or cash that we raised that is the lever that we are concentrating and moving ahead and spending in the international market..

Okay. Great. Thank you..

In addition – yes, in addition, for this direct offering, we have successfully closed the $16 million worth of registered direct offering priced at $6 per share on March 3, 2021..

Thank you. We’ll now take our next question from Melissa Hu [ph], please go ahead..

Congratulations on your new contracts from client in the U.S. However, I would like to know if you can disclose the name of this client. That’s all my question..

Okay. Can I answer your questions? Thank you for your questions. Due to the confidence agreement between the CLPS and the client, we are only requested to disclose certain information, such as those that we mentioned in the press release. It’s also to protect our long-term business relationship with them, which will enable us for our continued growth.

And in return, we will bring more value to our shareholders. In addition, our U.S. counsel have thoroughly reviewed in – the contents of the contract and of the press release to ensure that we follow the terms and conditions strictly.

We have been aggressive with our global expansion strategy, and we are looking forward to gain more business opportunities. From the overseas market, as a takeaway, major priority is to inform our shareholders and market of all significant news about the company..

Thank you. We’ll now take our next question from [indiscernible] please go ahead..

Okay. Congratulations on your outstanding financial performance. However, your market has spread outside the Mainland China.

What’s the strategy behind the global expansion?.

Wilson, can you help me to answer the question, please.

Wilson?.

So as mentioned earlier, in terms of our global strategies outside Mainland China, as you know that we already have acquired Ridik 100% in Singapore as I’m also based in Singapore, and I can attest that there is a strong demand for our IT services in Singapore as well in this region.

So with the reason – 100% of the remaining 20% share that we acquired in Ridik, so that will help us to penetrate the IT services and focus our developing – investment development in the nearby countries in the Southeast Asia and Asia Pacific. And in addition, we also grow our business in the U.S.

as mentioned earlier that we have recently got two new customers contract from our existing clients, which they are also based in the U.S. So that will give us a new, moving forward, opportunity to develop and deepen our business and exposure in the U.S. market.

Last and but not least, we are pleased that our global expansion strategy is fundamentally sound, effective and is now going to begin to our financials as highlighted by our CFO. Thank you..

Thank you. We’ll now take our next question from [indiscernible] please go ahead..

Hello. Hello, management team. Thank you for taking my question.

My question is, how does your business affected by the COVID-19 pandemic?.

Okay..

Henry, can you help to answer?.

Yes. Sure. Sure. I would like to take the question. Thanks for your questions. Actually, although we have been aggressive to be more visible in the overseas market, financial and operational wise, our business in Mainland China continues – contributes to our growth.

So as for the COVID-19 pandemic, Mainland China has quickly recovered from COVID-19 pandemic, which, in fact, has not greatly affected CLPS and the industry. In fact, the technology market has been on demand since the pandemic and more businesses and products were moved to China.

So globally speaking, to ensure the safety of our employees, some of them are encouraged by our clients to work from home. Thank you..

Thank you. We’ll now take our next question from Louise Wang [ph], please go ahead..

Thank you, operator. First, congratulations on the strong financial performance. And my question is, could you give more color on the economics of scale? How does it improve your operating efficiency? Thank you..

Okay. Thank you for your question..

Rita....

Yes, I will answer this question, Raymond..

Yes. Go ahead..

Yes. As we expanded our business, our top line revenue also increased. We also needed to have more employees to support our growing business as reflected in our returns.

On the other hand, with our extensive experience in IT services, our growing staff has been able to meet more demand from our clients as tested in decreased expense as a percentage of total revenue ratio. As a result, we generated a better bottom line, which will provide more value to our shareholders. That’s all. Thank you..

Thank you. We’ll now take our next question from [indiscernible] please go ahead..

Hi, everybody. My question is, what’s the reason for the adjusted non-GAAP net income gross forecast? Thank you..

Okay. I will take this question. Thanks for your question. As a result of strong demand for IT services from our growing network of clients and enhanced operational efficiency, so we have adjusted our non-GAAP net income forecast for the fiscal year 2021 to 60% to 65% from 32% to 37%. Yes. That’s all. Thank you..

Thank you. We’ll now take our next question from Alice Zhang [ph], please go ahead..

Yes. I have a question to CFO.

How do you recognize your revenue?.

Thank you. Thanks a lot for your question.

As for time and expense basis contract, the company is reimbursement for actual hours incurred at pre – already negotiated hourly billing rate, but revenues from fixed price customer like the solution contracts require the company to perform services for system design, planning and integrating based on customers’ that techniques, which requires significant production and customization.

The required customization period is generally less than one year. Upon delivery of the services, customer acceptance is generally required. In the same context, the company is generally required to provide post customer support for a period from three months to one year after the customized application is delivered. Yes. That’s all for your question.

Thank you..

Thank you. We’ll now take our next question from Casey Lee [ph], please go ahead..

Thank you. My question is for the COO. What’s your age among your competitors? Thank you..

Hello, Henry, your question – for you..

Thanks. I’d like to take the question. Thanks for your question. Actually, CLPS has been in the – 15 years in the industry. We believe that our expertise in providing high-quality IT service is one of great advantage among our competitors. In addition, our focus and big clients are international companies in the financial and the technology sectors.

So those are the edge among our competitors. Thanks..

Thank you. We’ll now take our next question from [indiscernible] please go ahead..

Okay. I have a question for CFO.

How is your revenue outside the Mainland China trending during these periods?.

Okay. Thanks for your question. The revenue generated outside Mainland China has significantly increased by 53.9% to $6.6 million, thanks to our successful implication and continuous global expansion strategy. The increase in revenue generated outside the Mainland China comes from Hong Kong, Singapore, India, Japan and Malaysia. That’s all. Thank you..

Thank you. There are no further questions at this time. I would like to turn the conference back over to Mr. Galicha for any additional or closing remarks. Thank you..

Raymond, please go ahead for the closing remarks..

Yes. Okay. Thank you, Rhon. Thank you, operator. Thank you to investors. Thank you for your questions. And thank you, again, for joining us on today’s call. And we appreciate your ongoing support. We look forward to updating you on our progress in the weeks and monthly ahead. Have a good day, everybody. Thank you. Thank you very much..

Bye-bye..

Bye..

Thank you..

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