SHANGHAI, Aug. 18, 2020 /PRNewswire/ — CooTek (Cayman) Inc. (NYSE: CTK) (“CooTek” or the “Company”), a fast-growing global mobile internet company, today reported unaudited financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights

  • Net revenue was US$126.4 million, an increase of 236% from US$37.6 millionduring the same period last year.
  • Gross profit was US$120.7 million, an increase of 259% from US$33.6 millionduring the same period last year.
  • Gross profit margin was 95.5%, an increase of 6.1% year-over-year.
  • Net income was US$3.1 million, compared with net loss US$14.1 million during the same period last year.
  • Adjusted net income[1] (Non-GAAP) was US$4.5 million, compared with adjusted net loss1 (Non-GAAP) of US$12.9 million during the same period last year.
  • The Company’s portfolio products[2] contributed approximately 99% of total revenues, with a focus on three main categories: online literature, scenario-based content apps, and casual games.

June 2020 Operational Highlights

  • Average daily active users (“DAUs”) of the Company’s portfolio products[2] were 23.9 million, a decrease of 13% from 27.6 million in June 2019. Average DAUs of the Company’s online literature were 8.1 million, increased significantly from 0.3 million in June 2019. The key product of the Company’s online literature app is Fengdu Novel (original name: Crazy Reading Novel). The average daily reading time[3] of Fengdu Novel users exceeded 110 minutes in June 2020. Average DAUs of the Company’s scenario-based content apps were 13.3 million, a decrease of 51% from 27.3 million in June 2019. Average DAUs of the Company’s casual games were 2.5 million, a decrease of 4% from 2.6 million inMarch 2020.
  • Monthly active users (“MAUs”) of the Company’s portfolio products were 83.5 million, an increase of 28% from 65.1 million in June 2019. MAUs of the Company’s online literature were 28.4 million, increased significantly from 1.6 million in June 2019. MAUs of the Company’s scenario-based content apps were 34.9 million, a decrease of 45% from 63.5 million in June 2019. MAUs of the Company’s casual games were 20.2 million, a decrease of 18% from 24.5 million in March 2020.
  • Average DAUs of TouchPal Smart Input were 133.3 million, a decrease of 7% from 143.7 million in June 2019.
  • MAUs of TouchPal Smart Input were 174.3 million, a decrease of 8% from 190.4 million in June 2019
  • Average DAUs of the Company’s global products[4] were 157.2 million, a decrease of 8% from 171.3 million in June 2019.
  • MAUs of the Company’s global products were 257.8 million, an increase of 1% from 255.5 million in June 2019.
[1] “Adjusted net income (loss)” (Non-GAAP) is a non-GAAP measure, which is defined as net income (loss) excluding share-based compensation. For further information, please see “Non-GAAP Financial Measures” and “Reconciliations of GAAP and non-GAAP results” at the bottom of this release.
[2] “portfolio products” is to the mobile applications that we develop and provide to our users and business partners, which exclude TouchPal Smart Input and TouchPal Phonebook.
[3] “average daily reading time” for any day is calculated by dividing (i) the sum of time spent on reading books on our Fengdu Novel for such day, by (ii) the number of Fengdu Novel users who spent time on reading books for such day. The average daily reading time for any month is calculated by dividing (i) the sum of average daily reading time for each day in such month, by (ii) the number of days in such month.
[4] “global products” is to the mobile applications that we develop and provide to our users and business partners, which excludes TouchPal Phonebook. TouchPal Phonebook targets the Chinese domestic market and is different from TouchPal Smart Input and portfolio products that are designed for the global market (including China).

“I am pleased to report a strong second quarter with revenue of US$126 millioncompared to US$37.6 million a year ago, and a return to profitability with non-GAAP income of US$4.5 million,” commented Mr. Karl Zhang, CooTek’s Co-Founder and Chairman. “We reached a major milestone in the execution of our strategic transition to content-rich apps and content ecosystem. Ninety-nine percent of our revenue was generated from our content-rich portfolio apps and our core content app, Fengdu Novel, ranked 3rd in terms of MAUs in free online literature market according to Quest Mobile, a professional business intelligence services provider inChina’s mobile internet market. These results demonstrate the soundness of our content strategic transition and our execution capabilities.”

(in millions)Portfolio ProductsTouchPal Smart Input
Online literatureScenario-based content appsCasual GamesAll Portfolio Products
DAUsMAUsDAUsMAUsDAUsMAUsDAUsMAUsDAUsMAUs
 Jun’ 187.322.27.322.2125.4171.7
    Sep’ 1811.033.711.033.7132.9180.0
 Dec’ 1816.946.116.946.1140.8190.5
 Mar’ 190.30.922.858.923.159.8145.9192.3
 Jun’ 190.31.627.363.527.665.1143.7190.4
 Sep’ 192.011.021.653.80.32.723.967.5140.8185.1
 Dec’ 194.819.318.644.91.310.424.774.6137.6182.8
 Mar’ 207.329.115.335.62.624.525.289.2136.5178.8
 Jun’ 208.128.413.334.92.520.223.983.5133.3174.3

Second Quarter 2020 Financial Results

Net Revenues

(in US$ thousands, except percentage)2Q 20201Q 20202Q 2019QoQ % ChangeYoY % Change
Mobile Advertising Revenue125,774106,42336,65118%243%
Other Revenue6225909425%(34)%
Total Net Revenues126,396107,01337,59318%236%

Net revenues were US$126.4 million, an increase of 236% from US$37.6 millionduring the second quarter of 2019 and an increase of 18% from US$107.0 million in the last quarter. The increase was primarily due to an increase in mobile advertising revenue.

Mobile advertising revenue was US$125.8 million, an increase of 243% from US$36.7 million during the second quarter of 2019 and an increase of 18% from US$106.4 million last quarter.

Portfolio products accounted for approximately 99% of total net revenues. Our portfolio products focus on three categories: online literature, scenario-based content apps and casual games. Online literature and scenario-based content apps accounted for approximately 54%, and casual games accounted for approximately 45% of total net revenue.

Cost and Operating Expenses

2Q 20201Q 20202Q 2019QoQ % ChangeYoY %change
(in US$ thousands, except percentage)US$% of revenueUS$% of revenueUS$% of revenue
Cost of revenues5,6915%4,5824%3,98211%24%43%
Sales and marketing105,99984%102,43696%32,69387%3%224%
Research and development8,1036%6,8476%7,64920%18%6%
General and administrative4,1363%3,3013%7,77321%25%(47)%
Other operating income, net(446)(0)%(390)(0)%(103)(0)%14%333%
Total Cost and Expenses123,48398%116,776109%51,994139%6%137%
Share-based compensation expenses by function
Cost of revenues710.1%530.0%230.1%34%209%
Sales and marketing610.0%480.0%610.2%27%0%
Research and development8620.7%4810.4%9462.5%79%(9)%
General and administrative4300.3%3590.3%1580.4%20%172%
Total share-based compensation expenses1,4241.1%9410.9%1,1883.2%51%20%

Cost of revenues was US$5.7 million, an increase of 43% from US$4.0 million during the same period last year, and an increase of 24% from US$4.6 million last quarter. The sequential and year-over-year increase was mainly due to an increase in content costs paid to freelancers and third-party content distributors.

Gross profit was US$120.7 million, an increase of 259% from US$33.6 million during the same period last year, and an increase of 18% from US$102.4 million last quarter.Gross profit margin was 95.5%, compared with 89.4% in the same period last year and 95.7% last quarter.

Sales and marketing expenses were US$106.0 million, an increase of 224% fromUS$32.7 million during the same period last year, and an increase of 3% fromUS$102.4 million last quarter. As a percentage of total revenue, sales and marketing expenses accounted for 84%, compared with 87% during the same period last year, and 96% last quarter. The sequential and year-over-year increases in sales and marketing expenses was primarily due to increased investment in user acquisition.

Research and development expenses were US$8.1 million, an increase of 6% fromUS$7.6 million during the same period last year and an increase of 18% from US$6.8 million last quarter. The sequential increase was primarily due to an increase in costs associated with technology R&D staff and share-based compensation expenses. As a percentage of total net revenue, research and development expenses accounted for 6%, compared with 20% during the same period last year and 6% last quarter.

General and administrative expenses were US$4.1 million, a decrease of 47% fromUS$7.8 million during the same period last year and an increase of 25% from US$3.3 million last quarter. The year-over-year decrease was mainly due to the decline of accrued provision for bad debts. The sequential increase was mainly due to general and administrative payroll and professional services and administrative expenses. As a percentage of total net revenue, general and administrative expenses accounted for 3%, compared with 21% during the same period last year and 3% last quarter.

Other operating income, net was US$0.4 million, compared with other operating income, net US$0.1 million during the same period last year and other operating income, net US$0.4 million last quarter.

Net income was US$3.1 million, compared with net loss of US$14.1 million during the same period last year and a net loss of US$9.7 million last quarter.

Adjusted net income was US$4.5 million, compared with adjusted net loss ofUS$12.9 million in the same period last year and adjusted net loss of US$8.8 millionlast quarter.

In US$ thousands, except percentage2Q 20201Q 20202Q 2019QoQ % ChangeYoY % change
Net income (loss)3,119(9,738)(14,126)(132)%(122)%
Add: Share-based Compensation related to shareoptions and restricted share units1,4249411,18851%20%
Adjusted Net Income (Loss) (Non-GAAP)4,543(8,797)(12,938)(152)%(135)%

Basic and diluted net income per ADS were US$0.05 and US$0.05, and basic and diluted adjusted net income (Non-GAAP) per ADS were US$0.07 and US$0.07.

Balance Sheet and Cash Flows

As of June 30, 2020, cash, cash equivalents and restricted cash were US$64.9 million, compared with US$70.0 million as of March 31, 2020.

Net cash inflow from operating activities during the second quarter of 2020 wasUS$5.4 million, compared with net cash outflow from operating activities of US$8.9 million for the same period in 2019 and net cash inflow from operating activities ofUS$15.0 million during the last quarter. Cash inflow from operating activities during the second quarter of 2020 was mainly due to the income from operations.

Share Repurchase Plan

On November 20, 2019, the Company announced a share repurchase program (the “2019 Program”) whereby the Company is authorized to repurchase its class A ordinary shares in the form of American depository shares (“ADSs”) with an aggregate value of up to US$6 million during the 6-month period starting fromNovember 20, 2019. The 2019 Program was terminated on May 18, 2020. The Company had used an aggregate of US$5.9 million to repurchase 1.0 million ADSs under the 2019 Program and recorded as treasury stock as of June 30, 2020.

On May 18, 2020, the Company announced a new share repurchase program (the “2020 Program”) on the same day. In the new share repurchase program, the Company is authorized to repurchase its class A ordinary shares in the form of ADSs with an aggregate value of up to US$20 million during the 12-month period starting from May 18, 2020. The Company expects to fund the repurchases under this program with its existing cash balance. As of June 30, 2020, the Company had used an aggregate of US$1.0 million to repurchase 0.2 million ADSs under the 2020 Program and recorded as treasury stock.

Effects of COVID-19

The outbreak of COVID-19 could cause the Company’s advertising and marketing customers to reduce their advertising budgets because these customers experienced various degrees of temporary shutdowns in the second quarter of 2020. In addition, the extent of the disruption and the related impact on the Company’s financial results and business outlook depends on the future developments of the global pandemic.

As of June 30, 2020, CooTek had US$64.9 million in cash, cash equivalents, and restricted cash. Cash and cash equivalents primarily consist of cash on hand, demand deposits and short-term floating rate financial instruments which can be freely withdrawn or used and have original maturities of three months or less when purchased. Restricted cash consists of bank deposits used to guarantee payment processing services provided by banks. The Company believes this level of liquidity is sufficient to navigate an extended period of uncertainty.

Appointment of Chief Financial Officer

The Company also announced the appointment of Mr. Robert Cui as its Chief Financial Officer, effective August 24, 2020.

Prior to joining CooTek, Mr. Cui worked in the Hong Kong office of Investment Banking Asia Pacific of BNP Paribas from 2014 to 2020 with his last position held as a director. Before that, Mr. Cui worked in the Hong Kong office of the Investment Banking Division of Bank of China International, in the Hong Kong office of the Investment Banking Division of Daiwa Capital Markets and in the Paris office of HSBC Global Investment Banking from 2007 to 2014. Mr. Cui received his bachelor’s degree of arts in French studies from Shanghai International Studies University in 2004 and master’s degree of science in management (Diplôme Grande École) from HEC Paris in 2007. Mr. Cui speaks fluent English, French and Mandarin.

Mr. Karl Zhang, CooTek’s Co-Founder and Chairman, commented, “We are very pleased to welcome Robert to our senior management team. He brings with him extensive finance and capital markets experience. I look forward to working closely with him and have no doubt that he will be a substantial contributor to the future of our business.”

Business Outlook

For the third quarter of 2020, CooTek expects total revenue to be around US$112 million, representing a year-over-year increase of around 258%. For the fiscal year of 2020, CooTek expects total revenue to be around US$500 million, representing a year-over-year increase of around 181%.This outlook is based on information available as of the date of this press release and reflects the Company’s current and preliminary expectations, which are subject to change in light of various uncertainties, including those related to the ongoing COVID-19 pandemic.

Conference Call and Webcast

CooTek’s management team will host a conference call at 8:00 AM U.S. Eastern Time on Tuesday, August 18, 2020 (8:00 PM Beijing Time on the same day), following the results announcement.

The dial-in details for the live conference call are:

United States: 1-888-346-8982
Hong Kong: 800-905-945
Mainland China: 4001-201-203
International: 1-412-902-4272