Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NetDragon Websoft Inc (FRA:3ND, Financial) reported an increase in gross profit margin from 62% to 66.6%.
- The company has implemented significant cost-saving measures, resulting in a 20% decrease in sales and marketing expenses year over year.
- NetDragon Websoft Inc (FRA:3ND) saw a positive growth in EBITDA by 12.9%, and non-GAAP EBITDA increased by 33%.
- The company is optimistic about the future of its gaming business, particularly with the release of the new game 'Wukong'.
- NetDragon Websoft Inc (FRA:3ND) is focusing on transitioning from a hardware-centric model to a software and services-based model, which is expected to drive future growth.
Negative Points
- NetDragon Websoft Inc (FRA:3ND) experienced a decrease in revenue for Mynd.ai, its education segment, due to inflation and economic downturns in key markets like the US and Europe.
- The company faced short-term challenges in its overseas gaming segment, leading to a material decrease in revenue.
- There was a one-time deferred tax provision of approximately USD 40 million, impacting the net profit attributable to the owners of the company.
- The overall gaming spending growth was modest, with the industry experiencing only a 2% growth in the first half of the year.
- NetDragon Websoft Inc (FRA:3ND) reported a 23.5% decrease in revenue for Mynd.ai, attributed to normalization of demand post-COVID and inflation affecting school budgets.
Q & A Highlights
Q: Can you elaborate on how NetDragon balances the need to attract and retain top talent, such as developers and testers, while ensuring timely and consistent quality of games and upgrades? How do you meet KPIs while keeping salaries competitive and not overpaying for talent?
A: Lim Kin Leung, Executive Vice Chairman of the Board: It's a dynamic process without a one-size-fits-all solution. We seek different skill sets for various parts of our business, aiming for a mix of creative and implementation-focused employees. We ensure market-competitive salaries and meaningful job roles. AI plays a significant role in handling repetitive tasks, allowing our team to focus on creativity and entrepreneurship.
Q: What are the main challenges and opportunities NetDragon faced in the first half of 2024?
A: Kwok Hei Yam, CFO: We faced challenges on the revenue side but managed to mitigate them through cost savings and investment income. Despite a decrease in revenue for Mynd.ai, we saw an increase in gross profit margin from 62% to 66.6%. We also implemented cost-saving measures, resulting in a 20% decrease in sales and marketing expenses and an 11% reduction in admin expenses (excluding the Singapore Learning Center operation).
Q: How is NetDragon addressing the economic challenges in its largest market, the US, and in Europe?
A: Lim Kin Leung, Executive Vice Chairman of the Board: We are seeing headwinds due to inflation in the US and economic downturns in Europe. However, we are growing in markets like Germany. We are focusing on improving our metrics, such as cost and margin, and leveraging AI to enhance productivity in education. We are also transitioning from a hardware-centric model to a hardware and services model, with SaaS and CaaS (Classroom as a Service) being key terms going forward.
Q: What are the financial highlights for NetDragon's gaming and application services segment?
A: Kwok Hei Yam, CFO: The gaming segment saw a stable performance with a slight 0.8% negative growth. We faced short-term issues in overseas gaming, leading to a material decrease. The overall gaming industry saw about 2% growth in the first half. We did not launch any new games in this period. Despite these challenges, we maintained a stable gross margin for gaming.
Q: What are the future plans for Mynd.ai, especially in terms of new products and services?
A: Lim Kin Leung, Executive Vice Chairman of the Board: We are optimizing everything to prepare for the future. We have a new product coming out towards the end of the year, which is very exciting and suited for current and future needs, especially in terms of services and AI integration. We are also planning a Capital Markets Day for Mynd.ai to discuss these developments in detail.
Q: How is NetDragon managing its balance sheet and cash flow?
A: Kwok Hei Yam, CFO: We include liquid investments as part of our cash balance, which increased by 11% compared to the end of last year. We have invested in very liquid assets, including Ethereum, and are currently in a profitable position. This approach helps us maintain a strong cash and liquid investments balance.
Q: What is the outlook for NetDragon's gaming and education businesses for the rest of the year and into 2025?
A: Lim Kin Leung, Executive Vice Chairman of the Board: We are cautiously optimistic about both businesses. We recognize the economic challenges in the US, Europe, and other parts of the world. We are focusing on organic growth by creating our own products and considering inorganic growth through partnerships or acquisitions. We aim to do the right things for both short-term and long-term business success.
Q: How is NetDragon addressing cost efficiencies and operational improvements?
A: Kwok Hei Yam, CFO: We have implemented various cost-saving measures, including a headcount review and rationalization. We also moved part of our contract manufacturing to Mexico to reduce tariffs and costs. These efforts have led to a 4.3 percentage point increase in gross margin for Mynd.ai and a 26% decrease in sales and marketing expenses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
