Hello, everyone. Welcome to the First Half of Fiscal Year 2023 Earnings Conference Call for 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 marks introductions. Please go ahead..

Thank you, operator. Hello, everyone, and welcome to CLPS Incorporation first half of fiscal year 2023 earnings conference call. CLPS Incorporation announced its first half of fiscal 2023 financial results this morning. The earnings release is now available on the company's IR website at ir.clpsglobal.com and across the finance website.

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 such statements.

Certain of the statements made in this discussion are forward-looking statements within the meaning and protections of Section 27A of the Securities Act of 1933 as amended and Section 21E 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 of future performance and involve known and unknown risks uncertainties and other factors, which may be in the company's control and which may cause the actual results, performance capital, ownership or achievements of the company to be materially different from the future results performance or achievements expressed or implied by such forward-looking statements.

All such statements attributable to other expressly qualified in their entirety by 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 2023 is expectations of the company's future performance, its preliminary outlook and guidance offered in this presentation 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, www.sec.com.

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

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

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

Henry Li, Chief Operating Officer of CLPS, who will start of the call with a review of recent company developments and operating results; followed by Ms. Rita 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. Wilson Wong, Executive Vice President of CLPS will also join the Q&A session. Mr. Raymond Lean, the company's Chief Executive Officer and Director, is currently attending an important business engagement in Japan and could not to join us today.

With that said, I would now like to turn the call over to Henry. Henry, please go ahead..

Thank you, Rhon. Thank you, operator. Thank you all for joining the call today. I would like to take -- start with an overview of our first half of fiscal year 2023 performance. 2022 was a challenging year with full of uncertainty.

During this period, we maintained continuous revenue growth despite various [indiscernible] such as macro economy effects and the impact of exchange rate fluctuations. We remain strong across our key markets. Thanks to the trust and the satisfaction of our clients place in us. In particular, we achieved a breakthrough growth in overseas markets.

In addition to retaining our long-term clients, we won new clients during this period as well. We are confident that we are well-positioned to continue executing on our strategy to deliver solid financial performance for the rest of the fiscal year and beyond.

First of all, we cut our focus and deliver results on the four key operational areas in banking, wealth management, e-commerce and automotive. We sustained our competitive position in banking and wealth management area during this period. This area [indiscernible] revenue source for us going forward.

More importantly, we continue to put our vast wealth management experience to work and achieved positive results. It's an area that remains lucrative [ph] in the financial industry and the several international banks have began to navigate. Our revenue from the wealth management area increased by approximately 24% to $19 million during this period.

We expect the effects of currency fluctuations, our revenue from the wealth management area increased by 35% year-over-year in RMB terms. Our rich business experience and the technical accumulation in financial mobile payments allowed us to provide efficient IT services support to our e-commerce clients.

The expected effect of currency fluctuations, our revenue from the e-commerce area increased by approximately 3% year-over-year in RMB term. Automotive has always been one of our key target markets. Climate action initiatives, particularly the reflection of greenhouse gases that contribute to the global climate change.

We will drive the demand for IT services related to internal integrated electric drive system in the growing global automotive market. Our expertise in automotive area makes CLPS a reliable partner of our clients. The revenue from automotive area increased by approximately 30% to $7 million during this period.

We expect the effect of currency fluctuation, our revenue from the automotive area increased by 41% year-over-year in RMB term. More importantly, we continue to implement our global expansion strategy. We put our focus in the U.S. and the Japan market this half year, which resulted in significant progress. In the U.S.

market, our business achieved substantial growth with revenue increased by 72% and its continues its positive momentum under the leadership of our [indiscernible] CEO of CLPS California, Mr. Srustijeet Mishra.

Meanwhile, in the Japan market, our partnership with NTT Data MCI, a Japan-based strategy and management consulting firm enabled us to rapidly extend our market reach in the region. In the first half of fiscal year 2023, our revenue in Japan increased by 156%.

But adhering to the global expansion strategy, which is based on our [indiscernible] strategy, we believe that these two markets will be a key source of growth for CLPS going forward. To support our international business, our overseas staff grew by 9% in the first half of fiscal 2023.

Second, CLPS made a series of achievements in [indiscernible] development. The [indiscernible] society is gaining momentum, which drove us to divest and launch scenario based digital currency application solution to assist financial institution accelerate the adoption and the far-reaching use of digital currency.

In partnership with our client, we are thrilled to announce that this IT solution was successfully implemented and has proven to be beneficial economically and socially.

This solution will also allow international financial institution to build an ecosystem around digital currency that includes services such as system development, since operations and maintenance digital marketing and the merchant expansion.

We are looking forward to working with our global partner to explore scenario-based digital currency application scenarios and offer also a secure commitment and seamless financial services experience. In the first half of 2023, CLPS continued to improve CAKU 2.0, the upgraded new generation of credit card system product of CLPS.

Meanwhile, the new generation of low system product has completed the expectation process tailored to the specific requirement of overseas markets. These sources will provide strong support in the demand for digital transformation on credit card position of CLPS overseas client.

And this will enable us to help our clients satisfy the customer, improved online lending experiences and integrated digital platforms that are customer-centric will attribute streamline workflow. We also started a new project on the new generation of loan system. We are currently developing a loan management system.

We will combine our mature product with innovative technology. We successfully implemented facial recognition and optical character recognition or OCR into the system for loan applications identity verification.

We are in the process of development, the integration of natural language processing or NLP and the robotic process automation or RPA, are already on the pipeline.

The goal of this development is to achieve a more comprehensive and streamlined loan process flow, including mortgage application, fast custom credit checking, convenience and secured loan [indiscernible] among others, ensuring the privilege [ph] and the security of information transmission. We are effectively shortening the processing time.

As a result, customer can play for loans coming easily anytime, anywhere, reducing banking and business operating costs and gaining a wider range of new business opportunities.

Meanwhile, our [indiscernible] approach, which is moving credit card and the loan system out [ph] of the core banking system, improved business efficiency and the lowest operational costs in banking. Several of our clients in the banking area have already recognized it as a valuable resources for them. Lastly, let's talk about the talent development.

For almost two decades, CLPS has been available partner in developing and providing world-class highly skilled IT talent for its clients. To maintain cost competitiveness, we continuously provide our clients with qualified and high qualified IT professionals, along with other added value services such as technical training under career development.

[indiscernible] on this contribution. During this period, we sent partnership agreement to oversee educational institutions which are Australian National University, a renowned public research university located in Canberra, Australia.

Under the Educare Global Academy Private Ltd, a private educational institution in Singapore to further broaden the scope of our Talent Creation Program and overseas business footprint. We are also excited to announce that we will soon be collaborating with the University of Hong Kong for the co-banking technology training course.

The course is certified by the Employees Retraining Board or ERB, a statutory board in Hong Kong to foster sustainable development of trainees into IT and the banking industries. Digital transformation initiatives are at the forefront of our core market strategy in this era of challenges and opportunities.

Alongside, as CLPS continue to transform itself, we are also ready to have more clients to accelerate their business integration and operations.

Our strategy also aligns with our commitment to delivering innovative products suited to the needs of our clients to offer them a full range of integrated services for their credit card, credit loan other fintech business segments as well as building a CLPS exclusive financial ecosystem that will enable our clients within financial industry to take digital transformation forward and achieve agile business management.

Now I would like to turn the call over to our CFO, Rita Yang, to discuss the first half of fiscal year 2023 financial results. Rita, please go ahead..

Thank you, Henry. Firstly, I'm pleased to announce that we declared our very first special cash dividend last December 2022 and it has been paid out to our shareholders. We also intend to declare dividends in the future, depending on the company's financial performance and the results of operations.

Now I will provide an update on our financial performance for the first half of fiscal year 2023. Please note that our 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 2023, our revenue increased by $0.9 million or 1.1% to $76.8 million from $75.9 million.

This increase in revenue was mainly due to an increase in revenue from IT consulting services. In particular, revenue from IT consulting services increased by $0.8 million or 1.2% to $72.8 million from $72 million. This increase was due to the increased demand from existing and new clients and our improved service delivery capability.

Revenues from customized IT solutions services decreased by $0.1 million or 2.3% to $3.2 million from $3.3 million. This decrease was primarily due to the effect of currency fluctuations in RMB against the U.S. dollar. Revenue from other services increased by $0.1 million or 11.4% to $0.8 million from $0.7 million.

The increase was primarily due to the increased demand for other services including non-IT consulting services. Gross profit was $18.5 million compared to $22.3 million. As for operating expenses, savings and marketing expenses increased by $0.4 million or 17.5% to $2.7 million from $2.3 million.

As a percentage of total revenue, savings and marketing expenses increased to 3.5% from 3%.The increase was primarily due to the sales and marketing personnel-related expenses. Research and development expenses increased by $0.2 million or 4.4% to $4.4 million from $4.2 million.

As a percentage of total revenue, research and development expenses increased to 5.7% from 5.5%. The increase was primarily due to the increased research and development personnel-related expenses which enabled the company's continued research and development efforts in new projects, such as CAKU 2.0 and new generation of loan system.

General and administrative expenses increased by $1.5 million or 16.6% to $10.7 million from $9.2 million. As a percentage of total revenues, general and administrative expenses increased to 13.9% from 12.1%.

The increase was primarily due to hiring of management-level employees to further drive our growth in the overseas market, the year-over-year increase in employee salary, and the increase in depreciation and amortization resulting from the acquisition of fixed assets in Hong Kong and Singapore.

Operating income was $1.3 million compared to $7.6million. Total other income, net of other expense was $0.2 million compared to $0.2 million total other expenses, net of other income in the prior year period. Provision for income taxes decreased by $0.7 million to $0.2 million from 0.9 million mainly due to the decrease in income before taxes.

Net income was $1.4 million compared to $6.5 million. Net income attributable to CLPS Incorporation's shareholders was $1.3 million compared to $6.3million. Net cash provided by operating activities increased by 29.9% to $17.2 million from $13.2 million.

As of December 31, 2022, we had cash and cash equivalents of $37.6 million compared to $18.4 million as of June 30, 2022. As of December 31, 2022, we had a total number of employees of 3,714, up 1.3% year-over-year. Undeterred by the short-term challenges as we mentioned in our earnings release, we remain confident about our long-term business growth.

Looking forward, for fiscal year 2023, total sales growth was adjusted in the range of approximately 5% to 10% and net income growth in the range of approximately 7% to 12%, compared to fiscal year 2022 financial results. This concludes our prepared remarks. Operator, we are now ready for questions..

[Operator Instructions] Thank you. Our first question is from the line of Lucy Wang with PH Investors [ph]. Please proceed with your questions..

Congratulations on the results. Can you tell us about your expectation for the audit issues that are there un resolved and the potential for delisting. And my second question is, could you pay give more color on why your net income decreased during this period..

Thank you for your question, let me take your questions. We are closely working with our U.S. council and independent auditors to ensure compliance with the U.S. regulatory [indiscernible] like SEC and the PCLB. We are keeping China loss in line with CSIC and PCLB signed agreement to access all these works.

Giving you an overview of the progress, on August 26, 2022, the CSIC [indiscernible] of the People's Republic of China and the PCLB signed an agreement for all the [indiscernible] cooperation to bring the inspection and the [indiscernible] of accounting firms and bilateral cooperation framework.

And in December 15, 2022, the PCLB said in its announcement that it has successfully -- access to invest [indiscernible] in Mainland China and Hong Kong for the first time in history. With this development, we are optimistic that our listing will still intact, allowing us to provide shareholder value. We are waiting for definitive results.

We are focused on our growth strategy to achieve our business growth.

And to answer your second question, as we mentioned in our earnings release, with low pace movement of global economic growth partly caused by COVID-19 had impacted our trends in core markets such as banking and e-commerce our plans in these areas [indiscernible] their budgets in the short-term, which excludes our gross margin.

Also, as a result of rapid industry development and economic structure change, IT professional could pay more in demand and pushed up compensation costs. Furthermore, COVID-19 situation led to an increase in cost. We expected to experience short-term challenges. But in the long run, China's policy regarding to COVID-19 has dramatically changed.

So we are opportunistic to recover and generate increase in net income going forward. That's my answer. Thank you..

The next question is from the line of Thomas Fernandez, Private Investor. Please proceed with your question..

Yes. Congratulations on the results and very happy to see the guidance going forward. I had a question on any updates on the [indiscernible] IPO..

Yes. Let me take your question. First of all, thank you for your question.

So far, the listing material of GRT, which is a major [indiscernible] subsidiary of CLPS, an update on based on the requirements of the regulatory authority, and we believe that this competitive advantage as an IT service provider, particularly in the automotive area will bring value to shareholders.

As we discussed earlier, our revenue from automotive area increased about 30% and we expect that demand for IT services will continue to rise as the trend for smart electric basis continues. We will keep the public informed for any development or [indiscernible] IPO. Thank you..

Thank you..

Thank you. At this time, I will turn the floor back to management for any closing remarks. Thank you. There are no additional questions at this time. I will turn the floor back to management for closing remarks..

Okay. Thank you again for joining us on today's call, and we appreciate the ongoing support. We look forward to updating you on our progress in the late and the months ahead. Have a good day. Thank you..

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation..